state characteristics and the location of foreign direct investment within the united states a conditional logit model of the location decision of foreign firms investing in manufacturing facilities in the united states is developed and estimated the authors results for 1981 83 indicate that states with higher per capita incomes and higher densities of manufacturing activity attracted relatively more foreign direct investment in addition higher wages deterred foreign direct investment while higher unemployment rates attracted it surprisingly higher unionization rates were associated with increased foreign direct investment overall higher taxes deterred foreign direct investment however more extensive transportation infrastructures and larger promotional expenditures were associated with increased foreign direct investment copyright 1991 by mit press

innovation outcomes in a distributed organization intrafirm mobility and access to resources prior research has established a relation between intrafirm mobility and innovation outcomes at distributed organizations the literature has also uniformly agreed on the mechanism underlying this relationship the sharing of tacit knowledge and recombination of ideas that occurs because of intrafirm mobility but a second mechanism may also be at work intrafirm mobility might help distant employees secure access to resources for their innovative projects using unique data on travel employment and patenting for 1 315 inventors at the indian research and development r d center of a fortune 50 multinational i find that intrafirm mobility in the form of short duration business trips from a distant r d location to headquarters is positively related to higher subsequent patenting at the individual level i also find mobility immediately prior to meetings at which r d funds are most likely to be disbursed to be related to higher subsequent patenting this study sheds new light on how intrafirm mobility a

endogeneity in brand choice models applications of random utility models to scanner data have been widely presented in marketing for the last 20 years one particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility price promotion etc and the stochastic component or error term in fact marketing mix variables such as price not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers this work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates

patterns of internationalisation of corporate technology location vs home country advantages given the trends towards increasing globalisation of markets and of production the globalisation of technology remains a subject of considerable interest to analysts and policy makers in the 1990s this paper provides some new empirical observations for debate and discussion on the patterns of technological activities of large firms outside their home countries it is based on a systematic analysis of the us patenting activities of 220 of the most internationalised firms in terms of their technology in the 1990s although firms are active outside their home countries in the high technology fields such as computers pharmaceuticals telecommunications image and sound and materials quite a sizeable proportion of their foreign activities are concerned with process and machinery technologies moreover a comparison of the technological advantage of the company at home and the advantage of the location shows that in a large majority of cases firms tend to locate their technology abroad in their core areas where they are strong at home these results suggest that adapting products and processes and materials to suit foreign markets and providing technical support to off shore manufacturing plants remain major factors underlying the internationalisation of technology they are also consistent with the notion that firms are increasingly engaging in small scale activities to monitor and scan new technological developments in centres of excellence in foreign countries within their areas of existing strength however there is little evidence to suggest that even these most internationalised firms routinely go abroad to compensate for their weakness at home

firm specific assets and the link between exchange rates and foreign direct investment foreign direct investment fdi theory and empirical studies have generated mixed support for a link between exchange rates and fdi this paper argues that exchange rate movements may affect acquisition fdi because acquisitions involve firm specific assets which can generate returns in currencies other than that used for purchase using data on japanese acquisitions in the united states across three digit sic industries from 1975 to 1992 maximum likelihood estimates from discrete dependent variable models support the hypothesis that real dollar depreciations make japanese acquisitions more likely in u s industries particularly those which more likely have firm specific assets copyright 1997 by american economic association

accounting for endogeneity when assessing strategy performance does entry mode choice affect fdi survival firms choose strategies based on their attributes and industry conditions therefore strategy choice is endogenous and self selected empirical models that do not account for this and regress performance measures on strategy choice variables are potentially misspecified and their conclusions incorrect i highlight how self selection on hard to measure or unobservable characteristics can bias strategy performance estimates and recommend an econometric technique that has been developed to account for this effect although this concern applies to a wide range of strategy questions to demonstrate its effect i empirically examine if entry mode choice acquisition versus greenfield influences foreign direct investment survival in specifications that do not account for self selection i find that greenfield entries have survival advantages compared to acquisitions this confirms previous findings however the significance of this effect disappears once i account for self selection of entry mode in the empirical estimates the results confirm that estimates from models that do not account for self selection of strategy choice can lead to incorrect or misleading conclusions

regionalization of r d activities dis economies of interdependence and inventive performance abstract this paper examines the impact of the extent of the regionalization of mnes r d activities on their inventive performance by joining the regionalization theory with the recombinant view of invention we challenge the implicit assumption that all foreign knowledge seeking activities will necessarily offer new knowledge to the firm we introduce the dis economies of interdependence defined as the dis advantages that the firm derives due to the interdependence among countries within a region as a new theoretical mechanism explaining the benefits and costs of regionalization our analysis of global pharmaceutical firms shows that an inverted u shaped relationship exists between the number of regions in which a firm has r d activities and its inventive performance our results also indicate that a firm s recombinant capability moderates the inverted u shaped relationship in such a way that when a firm s recombinant capability is high it reaches its turning point in a larger number of regions and the inverted u shaped relationship is flatter these results underscore that recombinant capability significantly influences the firm s ability to derive benefits and reduce costs from the regionalization of its r d activities our findings suggest that it is through the consideration of the dis economies of interdependence that offers the essential reasoning needed to unwind the inferred assumption that all foreign knowledge seeking activities will offer access to new knowledge

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

knowledge seeking and location choice of foreign direct investment in the united states to what extent do firms go abroad to access technology available in other locations this paper examines whether and when state technical capabilities attract foreign investment in manufacturing from 1987 1993 we find that on average state r d intensity does not attract foreign direct investment most investing firms are in lower tech industries and locate in low r d intensity states suggesting little interest in state technical capabilities in contrast we find that firms in research intensive industries are more likely to locate in states with high r d intensity foreign firms in the pharmaceutical industry value state r d intensity the most at a level twice that of firms in the semiconductor industry and four times that of electronics firms interestingly not only firms from technically lagging nations but also some firms from technically leading nations are attracted to r d intensive states this suggests that beyond catching up firms use knowledge seeking investments also to source technical diversity

the globalization of r d results of a survey of foreign affiliated r d laboratories in the usa abstract this paper examines the globalization of innovation and the phenomenon of foreign direct investment fdi in research and development to do so it draws from a survey of foreign affiliated r d laboratories in the united states while the literature on foreign direct investment has emphasized the role of markets in driving off shore investments the main conclusion of this research is that the globalization of innovation is driven in large measure by technology factors of particular importance is the objective of firms to secure access to scientific and technical human capital

greenfield vs acquisition the strategy of japanese investors in the united states multinational firms can enter a foreign market by taking over existing local firms acquisitions or by setting up new ventures greenfield investments surprisingly there has been limited empirical work on this topic this paper examines the determinants of this choice by looking at japanese entries into the united states by focusing on firms of one country entering a single market we are able to separate the impact of a firm s strategy from that of the characteristics of the target industry or country this paper tests simultaneously a number of competing hypotheses the results suggest that acquisitions are used by japanese investors with weak competitive advantages while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the u s acquisitions are also chosen to enter industries with either very high or very low growth rates when entry is at a scale that is large relative to the parent and when entry is into a different industry the japanese investor s previous experience of the u s market its financial situation and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode neither do u s stock market conditions

foreign direct investment and the sourcing of technological advantage evidence from the biotechnology industry this paper investigates the proposition that foreign direct investment in a high technology industry is motivated in part by the sourcing of country specific technological advantages embedded in foreign firms the empirical findings show that foreign equity investment is drawn to american biotechnology firms with high levels of patent activity we suggest that in the biotechnology industry foreign direct investment in the form of equity participation can be an efficient vehicle for tapping into country specific firm embodied technological advantages

risk propensity in the foreign direct investment location decision of emerging multinationals a distinguishing feature of emerging economy multinationals is their apparent tolerance for host country institutional risk employing behavioral decision theory and quasi experimental data we find that managers domestic experience satisfaction increases their relative risk propensity regarding controllable risk legally protectable loss but decreases their tendency to accept noncontrollable risk e g political instability in contrast firms potential slack reduces relative risk propensity regarding controllable risk yet amplifies the tendency to take noncontrollable risk we suggest that these counterbalancing effects might help explain prior ambiguous findings on the relationship between experience slack and fdi decisions the study provides a new understanding of why firms exhibit heterogeneous responses to host country risks and the varying effects of institutions

hedging diffusion processes by local risk minimization with applications to index tracking abstract this paper extends the local risk minimization criterion for hedging contingent claims as introduced in follmer and sondermann hedging of non redundant contingent claims in hildenbrand w mas colell a eds contributions to mathematical economics elsevier science north holland amsterdam pp 205 223 follmer and schweizer hedging of contigent claims under incomplete information in davis m elliot r eds applied stochastic analysis stochastic monographs vol 5 gordon and breach london new york pp 389 414 and schweizer option hedging for semimartingales stochastic processes and their applications 37 339 363 to the hedging of entire stochastic processes and determines the necessary and sufficient conditions under which this is possible the results are then applied to the problem of stock index tracking to obtain simple criteria for selecting the optimal set of assets with which to form tracker portfolios and to derive a value at risk type measure for the set of assets used

the dynamics of corporate profits abstract industrial economics research has devoted little attention to long run considerations of market structure and performance relationships this paper provides several insights into the dynamics of corporate performance a dynamic duopoly model is provided in which new firm entry causes a convergence of profits toward a new equilibrium this process has been examined empirically and both the speed of profit adjustment and the level to which this process converged in the long run has been studied for germany it has been found that entry and mobility of firms led to a relatively quick profit convergence which is an indicator for the functioning of competition however the convergence process was not complete since it did not result in an equalization of profit rates across firms

further evidence on japanese direct investment in u s manufacturing this paper examines the cross industry determinants of the importance of japanese direct investment activities in u s manufacturing through an extension of the analysis in a recent article by bruce kogut and sea jin chang 1991 the results indicate significant positive roles for japanese technology and marketing assets while u s technology assets are insignificant a significant negative effect for u s marketing assets suggests that entry barriers related to marketing are more important than any use of foreign direct investment by japanese firms to access these assets in addition u s government policies toward defense oriented industries appear to act as a deterrent to japanese direct investment copyright 1996 by mit press

the location choices of foreign investors a district level analysis in india this paper analyzes the determinants of the location choices made by foreign investors at the district level in india to gauge the relative importance of economic geography factors local business conditions and the presence of previous foreign investors we employ a discretechoice model and poisson regressions to control for the potential violation of the assumption of independence of irrelevant alternatives our sample includes about 19 500 foreign investment projects approved in 447 districts from 1991 2005 we find that foreign investors strongly prefer locations where other foreign investors are they are also attracted to industrially diverse locations and those with better infrastructure we conclude that the concentration of fdi in a few locations could fuel regional divergence in post reform india

credit contagion and aggregate losses abstract credit contagion refers to the propagation of economic distress from one firm to another this article proposes a reduced form model for these contagion phenomena assuming they are due to the local interaction of firms in a business partner network we study aggregate credit losses on large portfolios of financial positions contracted with firms subject to credit contagion in particular we provide an explicit gaussian approximation of the distribution of portfolio losses this enables us to quantify the relation between the volatility of losses and the determinants of credit contagion we find that contagion processes have typically a second order effect on portfolio losses they induce additional fluctuations of losses around their averages whose size depends on the number of business partners of the firms

the drivers of foreign direct investment into research and development an empirical investigation this paper examines the determinants of foreign direct investment fdi in research and development laboratories by 32 multinational enterprises in the pharmaceutical and electronics industries the paper applies a dichotomous set of motives for fdi results from an econometric analysis of 136 laboratory investments show that relative market size and relative strength of a country s science base determine whether fdi in research and development is carried out in order to exploit existing firm specific advantages or in order to build up new firm specific advantages this holds true in similar form for japanese european and u s firms and across the two industries

counterparty risk and the pricing of defaultable securities motivated by recent financial crises in east asia and the united states where the downfall of a small number of firms had an economy wide impact this paper generalizes existing reduced form models to include default intensities dependent on the default of a counterparty in this model firms have correlated defaults due not only to an exposure to common risk factors but also to firm specific risks that are termed counterparty risks numerical examples illustrate the effect of counterparty risk on the pricing of defaultable bonds and credit derivatives such as default swaps it has been well documented in moody s reports on historical default rates of corporate bond issuers that the number of defaults the number of credit rating downgrades and credit spreads are all strongly correlated with the business cycle this has motivated reduced form models such as duffie and singleton 1999 and lando 1994 1998 which assume that the intensity of default is a stochastic process that derives its randomness from a set of state variables such as the short term interest rate this approach has the convenient features that conditioning on the state variables defaults become independent events and default correlation arises due to the common inf luence of these state variables on the other hand a default intensity that depends linearly on a set of smoothly varying macroeconomic variables is unlikely to account for the clustering of defaults around an economic recession this is evident from a casual inspection of the exhibits in the latest moody s report see keenan 2000 within the usual affine framework one can model the state variables as jump diffusions see duffie pan and single

analytical methods for hedging systematic credit risk with linear factor portfolios abstract multi factor credit portfolio models are used widely today for managing economic capital and pricing collateralized debt obligations cdos and asset backed securities commonly practitioners allocate capital to the portfolio components sub portfolios counterparties or transactions the hedging of credit risk is generally also focused on the deltas of underlying names we present analytical results for hedging portfolio credit risk with linear combinations of systematic factors based on the minimization of systematic variance of portfolio losses we solve these problems within a multi factor merton type credit portfolio model and apply them to hedge systematic credit default losses of loan portfolios and cdos

dynamic hedging of synthetic cdo tranches with spread risk and default contagion the paper is concerned with the hedging of credit derivatives in particular synthetic cdo tranches in a dynamic portfolio credit risk model with spread risk and default contagion the model is constructed and studied via markov chain techniques we discuss the immunization of a cdo tranche against spread and event risk in the markov chain model and compare the results with market standard hedge ratios obtained in a gauss copula model in the main part of the paper we derive model based dynamic hedging strategies and study their properties in numerical experiments

uneven domestic knowledge bases and the success of foreign firms in the usa this paper investigates the effect of within country and across country inequalities on firms fdi performance and finds drivers of success in an advanced host economy the usa differ for firms from developed compared to developing countries returns to fdi for firms from developed countries are significantly correlated with home countries level of economic development in contrast successful developing country firms are from countries with lower within country inequality and reflect the industrial structure associated with developing countries they are concentrated in scale intensive industries and benefit especially from capital investment the findings suggest that fdi reflects rather than disrupts unevenness in knowledge bases globally