AN ECONOMETRIC-ANALYSIS OF US FOREIGN DIRECT-INVESTMENT

This paper constructs a theoretical model of foreign direct investment and examines the extent to which the model can explain the level of o utward direct investment by U.S. companies over the last two decades. We find that market size and factor costs, both labour and capital, ar e important factors in the investment decision. Instrumental variable estimation is used to demonstrate that the expectation of short-run fl uctuations in the dollar also influences the timing of investment.