LOCATION, GOVERNANCE, AND STRATEGIC DETERMINANTS OF JAPANESE MANUFACTURING INVESTMENT IN THE UNITED-STATES

A firm's decision to manufacture abroad depends on location, governanc e, and strategic factors. Governance factors are firm-specific. In spi te of this, most empirical studies of foreign direct investment (FDI) have been conducted at the industry level (making it impossible to loo k at firm-specific determinants), and only a handful have considered g overnance, location, and strategic factors simultaneously. This paper is the first large sample study of the determinants of foreign direct investment at the product and firm-level. It examines the impact of lo cation and governance factors, and of four types of strategic interact ions on a Japanese firm's propensity to manufacture in the U. S. The r esults support the view that foreign direct investment is explained by location, governance, and strategic variables. Economies of scale and trade barriers encourage Japanese FDI in the U.S. The larger a Japane se firm's R&D expenditures, the greater the probability it will manufa cture in the U. S., but this is not the case for advertising expenditu res. Some strategic factors are also important: Japanese firms with me dium domestic market shares have the highest propensity to invest in t he U.S. There is evidence of follow-the-leader behavior between firms of rival enterprise groups, but none of 'exchange-of-threat' between A merican and Japanese firms. Japanese investors are also attracted by c oncentrated and high-growth U. S. industries.