Abstract
Using US Bureau of Economic Analysis data from 1988 to 2006, we investigate the relationship between foreign acquisitions and new foreign establishments (greenfields) and the comparative advantage of the investing country. Unlike previous studies, we analyze the value of assets acquired by foreign investors and assets in newly established foreign firms in manufacturing industries. We find foreign acquisitions are in industries in which the investing country has a comparative advantage but are not in industries of US comparative advantage or disadvantage. Foreign-owned newly established firms are in industries of investing country comparative advantage and US comparative disadvantage.
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Notes
Most outlays by foreign direct investors were to acquire existing businesses. On an average, acquisitions accounted for 91 percent of foreign investments in manufacturing from 1988 to 2006.
In 1998 the BEA adopted the North American Industrial Classification System (NAICS). We converted all NAICS industries to 3-Digit SIC industries using a concordance provided by the BEA.
Blonigen [1997] Finds that a 10 percentage point increase in antidumping duties increases the probability of FDI by only 0.8 percentage points from an average probability of 12.2 percent.
These are confidential data collected by the Bureau of the Census for the BEA in response to a federal law that requires the collection of information on foreign firms.
The title of the survey is Internal Report on a Foreign Person’s Direct or Indirect Acquisitions, Establishment or Purchase of the Operating Assets, of a US Business Enterprise, Including Real Estate. It is both mandatory and confidential information.
See Appendix A for a list of the 45 industries in our sample.
Froot and Stein [1991] argue, in explaining the capital inflows of the 1970s and 1980s, that as buyers from all countries would have access to the same international capital markets, a price decline brought about by currency depreciation would be the same for buyers regardless of their location, and would not favor foreign buyers. They suggested instead that the effect of currency value changes was a wealth effect, making holders of the depreciating currency poorer and holders of the appreciating currency richer, and that it was through this wealth effect that a depreciation of the currency favored foreign bidders for business assets.
The publicly available data has many omissions designed to keep firm identity private and for this reason it is difficult to show annual data by industry and country for all the years included in the study.
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Acknowledgements
This study has been performed under grant number SES-9911390 from the National Science Foundation. The statistical analysis of firm-level data reported in this study has been conducted at the US Bureau of Economic Analysis, under arrangements that maintained legal confidentiality requirements. The views expressed are those of the authors and do not necessarily reflect those of the Bureau of Economic Analysis or the National Science Foundation. We give special thanks to Jing Sun for excellent research assistant work and to the BEA for allowing us to use their facilities. We gratefully acknowledge Edward Gamber and two anonymous referees for helpful suggestions and comments. A previous version of this paper, based on a more limited data set, is in NBER Working Paper No. 9122.
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Feliciano, Z., Lipsey, R. Foreign Entry into US Manufacturing by Takeovers and the Creation of New Firms. Eastern Econ J 43, 1–16 (2017). https://doi.org/10.1057/eej.2015.4
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DOI: https://doi.org/10.1057/eej.2015.4