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Platform Investments and Volatility Exchange Rates: Direct Investment in the U.S. by Japanese Electronic Companies

Published on May 1, 1996in The Review of Economics and Statistics
· DOI :10.2307/2109924
Bruce Kogut45
Estimated H-index: 45
,
Sea Jin Chang28
Estimated H-index: 28
Sources
Abstract
This study examines the effects of previous entry on the subsequent decisions of Japanese electronics companies to invest in the United States. By gathering data at the firm level, the empirical analysis provides a fine-grain sorting out of firm and industry effects on foreign direct investment decisions. The findings show that investment behavior is highly heterogeneous across firms and reflects their individual technological capabilities and their history of previous investments in the United States. Real exchange rate levels are also important. The results suggest that initial investments serve as platforms for subsequent entry, with the timing of entry triggered by movements in real exchange rates. Copyright 1996 by MIT Press.
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References23
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In "Exchange Rates and Direct Investment: An Imperfect Capital Markets Approach," Kenneth Froot and Jeremy Stein [1991] develop a new finance-based theory to answer an old question--the relationship, if any, between the flow of foreign direct investment and the exchange rate. Their theory, based on the possibility that a foreign firm's borrowing opportunities for financing a U.S. acquisition may be a function of its net worth in dollars, implies a negative relationship between a dollar appreciat...
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