Foreign direct investment of German companies in the period 1873-1927 Joerg Baten, University of Tuebingen Gerhard Kling, Utrecht School of Economics Kirsten Labuske, University of Tuebingen
Download 9.77 Kb.
|
| Foreign direct investment of German companies in the period 1873-1927
Joerg Baten, University of Tuebingen Gerhard Kling, Utrecht School of Economics Kirsten Labuske, University of Tuebingen As we work with micro-level data, namely 600 German companies, we can focus on their individual investment decisions between 1873 and 1927. In particular, companies can decide to invest in their home country (Germany) or to conduct foreign direct investment (different forms of FDI). We estimate the investment opportunities set and assess whether companies under or over-invest abroad. Hence, our empirical study can determine whether a so-called home country bias (preference to invest in home country, in spite of better opportunities abroad) exists and how this home county bias changed over time. This aspect is particularly interesting, as our data cover the first phase of globalization, which exhibited a high degree of economic and financial integration. We also cover a part of the subsequent deglobalization period. It is astonishing in how many countries those pre-WWI firms invested, including many LDCs in the Caribbean and Pacific regions. Overall the dataset includes 948 FDI in 37 sectors in 55 countries and a control group of more than 550 firms without FDI. In contrast to many other studies on FDI (for example see Bloningen and Davies (2002) or Carr et al. (2001)) that analyze FDI on a high level of aggregation, are we able to focus on determinants of historical German FDI not only at country or sectoral level, but also at company level. Our study has four main aims: (1) following Berkel (2004), we try to clarify the home country bias, which might depend on cultural aspects and legal frameworks; (2) as our investigation period coincides with the first phase of globalization, we discuss the differences between the first and second globalization period. FDI nowadays is usually driven by outsourcing activities (‘slicing up the value chain’), which is a specific feature of the second phase of globalization (see Feenstra, 2004). What are the motives for conducting FDI in the pre-1914 period? What are relevant push and pull factors? (3) Besides analyzing the extent of the home country bias and discussing the differences concerning FDI in the current and previous periods of integration, we concentrate on behavioural aspects that might influence the individual investment decision. In particular, companies might be affected by the decision of competitors (or suppliers). To illustrate this point, one could consider the automobile industry nowadays that shifted production facilities to Eastern Europe. This FDI triggered additional foreign investments of suppliers in the respective regions. Besides strong economic factors for following others in conducting FDI, rational information based herding might be relevant. This means that companies imitate the move of others because they think that this decision reflects information regarding the profitability of foreign investments. Could we find such information cascades in our data? (4) Finally, we try to quantify the success of FDI. It might be possible that the success of FDI changed over time depending on the level of economic and financial integration. Our methodology is based on gravity models that are usually applied to explain trade. These models can be applied to analyze FDI streams. We use the following set of variables: (1) investment alternatives in home country (proxies are used as we do not have micro-level information; i.e. interest rates, return on investment, and stock returns); (2) macroeconomic shocks in home and host country (GDP and inflation shocks; construction of shock variables is based on Chen and Jordan, 1993); (3) wage differentials as motivation for outsourcing (which is a particularly important form of FDI in today’s world), and wage differentials relative to human capital differentials; (4) interest differentials: motivation for outsourcing if industry is capital intensive; (5) size of the foreign market; (6) transportation costs (otherwise exports could substitute FDI); (7) tariffs and political variables; (8) the decision of competitors (behavioural aspect); (9) the previous success of FDI to distinguish between good and bad imitation (information cascades). Our preliminary results indicate that economies of scale are the factor that drove investment on the company level prominently. When we focus on the determinants that explain in which German countries invested primarily, we find that a high foreign national income relative to German national income played an important role. In some specifications, the motivation to save on the wage bill was also a motivation to produce abroad with German technology. ReferencesBerkel, B., 2004, Institutional determinants of international equity portfolios – a country level analysis, working paper presented at the EFA 2004. Bloningen, B.A. and R.B. Davies (2002), Do bilateral tax treaties promote foreign direct investment? , Working Paper No. 8834, National Bureau of Economic Research, March 2002. Carr, D.L., Markusen, J.R. and K.E. Maskus (2001), Estimating the knowledge-capital model of the multinational enterprise, The American Economic Review 91, 693-703. Chen, S.J. and B.D. Jordan (1993), Some empirical tests in the arbitrage pricing theory: Macrovariables vs. derived factors, Journal of Banking and Finance 17, 65-89. Feenstra, R.C. (2004), Advanced International Trade: Theory and Evidence. Princeton, New Jersey: Princeton University Press. Directory: dotAsset dotAsset -> The British state and slavery dotAsset -> Torsten Feys European University Institute (Florence) Prepaid tickets to ride to the New World: the New York Continental Conference and transatlantic steerage fares 1885-1895 dotAsset -> 2016 Bradley University crest research Internship Program dotAsset -> Undergraduate and graduate field opportunities combined dotAsset -> Agency Roster-Graduate- foundation Field opportunites dotAsset -> To Change an Extension # on a ip telephone Set please note: An Extension # being assigned to an ip phone must already be programmed dotAsset -> Curriculum vitae jonathan scott lee dotAsset -> E-train AppFest Teacher’s Aid Apps Download 9.77 Kb. Share with your friends:
|