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The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock

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Disciplines
  • Economics
  • Political Science

Abstract

The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The Effects of Taxation on Multinational Corporations Volume Author/Editor: Martin Feldstein, James R. Hines Jr., R. Glenn Hubbard Volume Publisher: University of Chicago Press Volume ISBN: 0-226-24095-9 Volume URL: http://www.nber.org/books/feld95-2 Conference Date: January 13-15, 1994 Publication Date: January 1995 Chapter Title: The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock Chapter Author: Martin S. Feldstein Chapter URL: http://www.nber.org/chapters/c7739 Chapter pages in book: (p. 43 - 66) 2 The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock Martin Feldstein Foreign direct investment (FDI) plays an important role in the international transfer of both capital and technology and has a significant impact on the pattern of international trade. The most recent detailed government survey of U.S. direct investment abroad found that in 1989 the foreign affiliates of U.S. multinational corporations had assets of more than $1.2 trillion, approximately 25 percent of U.S. gross domestic product in that year. Companies make direct investments abroad by acquiring existing business assets of foreign companies, by starting new businesses with “green field” in- vestments in plant and equipment, and by increasing their investments in for- eign businesses that they already own. These foreign investments can be either wholly owned by the parent company or owned jointly with foreign partners.’ The heterogeneity of FDI reflects the diversity of motives for making such investments.2 At one extreme, some FDI (like the purchase of commercial real estate) is not fundamentally different from portfolio investment and the moti- vation is the standard desire to diversify portfolio assets. A more traditional motivati

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