Technology sourcing versus technology exploitation:An analysis of US foreign direct investment flows

The traditional paradigm of foreign direct investment (FDI) suggests that FDI is undertaken principally to exploit some firm-specific advantage in a foreign country which provides a locational advantage to the investor. However, recent theoretical work suggests a model of FDI in which the motivation is not to exploit existing technological advantages in a foreign country, but to access such technology and transfer it from the host economy to the investing multinational corporation via spillover effects. This paper tests the technology sourcing versus technology exploiting hypotheses for a panel of sectoral FDI flows between the United States and major OECD nations over a 15 year period. The research makes use of Patel and Vega's (Research Policy, 28, 145-55, 1999) taxonomy of sectors which are likely a priori to exhibit technology sourcing and exploiting behaviour respectively. While there is evidence that FDI flows into the United States are attracted to R and D intensive sectors, very little support is found for the technology sourcing hypothesis either for inward or outward FDI flows. The results suggest that, in aggregate, firm-specific 'ownership' effects remain powerful determinants of FDI flows.

Foreign direct investment and employment in Central Europe

This article investigates the effects of foreign direct investment on employment generation in Central Europe. Foreign affiliates operate as a buffer to reductions in overall employment and show significant cross-country differences. A model analyzing the contribution of foreign direct investment to restructuring is developed. This model helps interpret the empirical evidence on the link between foreign direct investment and employment in Central Europe. Increasing differentiation in employment between manufacturing industries dominated by foreign affiliates suggests the importance of diversified sources of foreign direct investment for employment generation and preservation. A disaggregate analysis indeed reveals a much more complex and differentiated role of foreign direct investment in employment preservation, employment generation and structural change than the aggregate picture would suggest. This diversity has important policy implications for attracting and upgrading foreign direct investment.

Why are aggregate equity payouts pro-cyclical?

We use two general equilibrium models to explain why changes in the external economic environment result in pro-cyclical aggregate dividend payout behavior. Both models that we consider endogenize low elasticity of investment. The first model incorporates capital adjustment costs, while the second one assumes that risk-averse managers maximize their own objective function rather than shareholder wealth. We show that, while both models generate pro-cyclical aggregate dividends, a feature consistent with the observed business-cycle pattern of payouts from well-diversified portfolios, the second model provides a more likely explanation for this effect. Our findings emphasize the importance of incorporating agency conflicts when considering the relationship between the external economic environment and the financial behavior of businesses.