Tax differentials and inflow of foreign direct investments : evidence from foreign operations of U.S. multinational companies

This paper concerns the measurement of the impact of tax differentials across countries on inflow of Foreign Direct Investment (FDI) by using comprehensive data on the foreign operations of U.S. multinational corporations that has been collected by the Bureau of Economic Analysis (BEA), the U.S. Department of Commerce. In particular, this research focuses on examining: (1) how responsive FDI locations are to tax differentials across countries, (2) how different the tax effect on FDI inflow is between developed and developing countries, and (3) whether investment location decisions have become more or less sensitive to tax differences between countries over time ranging from the late 1990s to the early 2000s. Estimation results suggest that high rates of corporate income taxation are associated with reduced foreign assets of U.S. multinational firms in all industries by decreasing the return to foreign asset investment. Further, foreign assets of U.S. multinationals in all industries have become more responsive to non-income tax differentials across countries than to income tax differences from 1999 to 2004. Empirical estimates also indicate that foreign investment by American firms is associated with higher tax sensitivity more in developed countries than in those that are developing.

How does country risk matter for foreign direct investment?

In this paper, we aim to identify the political and financial risk components that matter most for the activities of multinational corporations. Our paper is the first paper to comprehensively examine the impact of various components of not only political risk but also financial risk on inward FDI, from both long-run and short-run perspectives. Using a sample of 93 countries (including 60 developing countries) for the period 1985-2007, we find that among the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows. In particular, socioeconomic conditions, investment profile, and external conflict appear to be the most influential components of political risk in attracting foreign investment. Among the financial risk components, only exchange rate stability yields statistically significant positive coefficients when estimated only for developing countries. In contrast, current account as a percentage of exports of goods and services, foreign debt as a percentage of GDP, net international liquidity as the number of months of import cover, and current account as a percentage of GDP yield negative coefficients in some specifications. Thus, multinationals do not seem to consider seriously the financial risk of the host country.

Chapter 8 Location Choice of Japanese Multinationals: Country Characteristics or Region Characteristics?

In the present global era in which firms choose the location of their plants beyond national borders, location characteristics are important for attracting multinational enterprises (MNEs). The better access to countries with large market is clearly attractive for MNEs. For example, special treatments on tariffs such as the Generalized System of Preferences (GSP) are beneficial for MNEs whose home country does not have such treatments. Not only such country characteristics but also region characteristics (i.e. province-level or city-level ones) matter, particularly in the case that location characteristics differ widely between a nation's regions. The existence of industrial concentration, that is, agglomeration, is a typical regional characteristic. It is with consideration of these country-level and region-level characteristics that MNEs decide their location abroad. A large number of academic studies have investigated in what kinds of countries MNEs locate, i.e. location choice analysis. Employing the usual new economic geography model (i.e. constant elasticity of substitution (CES) utility function, Dixit-Stiglitz monopolistic competition, and ice-berg trade costs), the literature derives the profit function, of which coefficients are estimated using maximum likelihood procedures. Recent studies are as follows: Head, Rise, and Swenson (1999) for Japanese MNEs in the US; Belderbos and Carree (2002) for Japanese MNEs in China; Head and Mayer (2004) for Japanese MNEs in Europe; Disdier and Mayer (2004) for French MNEs in Europe; Castellani and Zanfei (2004) for large MNEs worldwide; Mayer, Mejean, and Nefussi (2007) for French MNEs worldwide; Crozet, Mayer, and Mucchielli (2004) for MNEs in France; and Basile, Castellani, and Zanfei (2008) for MNEs in Europe. At the present time, three main topics can be found in this literature. The first introduces various location elements as independent variables. The above-mentioned new economic geography model usually yields the profit function, which is a function of market size, productive factor prices, price of intermediate goods, and trade costs. As a proxy for the price of intermediate goods, the measure of agglomeration is often used, particularly the number of manufacturing firms. Some studies employ more disaggregated numbers of manufacturing firms, such as the number of manufacturing firms with the same nationality as the firms choosing the location (e.g., Head et al., 1999; Crozet et al., 2004) or the number of firms belonging to the same firm group (e.g., Belderbos and Carree, 2002). As part of trade costs, some investment climate measures have been examined: free trade zones in the US (Head et al., 1999), special economic zones and opening coastal cities in China (Belderbos and Carree, 2002), and Objective 1 structural funds and cohesion funds in Europe (Basile et al., 2008). Second, the validity of proxy variables for location elements is further examined. Head and Mayer (2004) examine the validity of market potential on location choice. They propose the use of two measures: the Harris market potential index (Harris, 1954) and the Krugman-type index used in Redding and Venables (2004). The Harris-type index is simply the sum of distance-weighted real GDP. They employ the Krugman-type market potential index, which is directly derived from the new economic geography model, as it takes into account the extent of competition (i.e. price index) and is constructed using estimators of importing country dummy variables in the well-known gravity equation, as in Redding and Venables (2004). They find that "theory does not pay", in the sense that the Harris market potential outperforms Krugman's market potential in both the magnitude of its coefficient and the fit of the model to be estimated. The third topic explores the substitution of location by examining inclusive values in the nested-logit model. For example, using firm-level data on French investments both in France and abroad over the 1992-2002 period, Mayer et al. (2007) investigate the determinants of location choice and assess empirically whether the domestic economy has been losing attractiveness over the recent period or not. The estimated coefficient for inclusive value is strongly significant and near unity, indicating that the national economy is not different from the rest of the world in terms of substitution patterns. Similarly, Disdier and Mayer (2004) investigate whether French MNEs consider Western and Eastern Europe as two distinct groups of potential host countries by examining the coefficient for the inclusive value in nested-logit estimation. They confirm the relevance of an East-West structure in the country location decision and furthermore show that this relevance decreases over time. The purpose of this paper is to investigate the location choice of Japanese MNEs in Thailand, Cambodia, Laos, Myanmar, and Vietnam, and is closely related to the third topic mentioned above. By examining region-level location choice with the nested-logit model, I investigate the relative importance of not only country characteristics but also region characteristics. Such investigation is invaluable particularly in the case of location choice in those five countries: industrialization remains immature in those countries which have not yet succeeded in attracting enough MNEs, and as a result, it is expected that there are not yet crucial regional variations for MNEs within such a nation, meaning the country characteristics are still relatively important to attract MNEs. To illustrate, in the case of Cambodia and Laos, one of the crucial elements for Japanese MNEs would be that LDC preferential tariff schemes are available for exports from Cambodia and Laos. On the other hand, in the case of Thailand and Vietnam, which have accepted a relatively large number of MNEs and thus raised the extent of regional inequality, regional characteristics such as the existence of agglomeration would become important elements in location choice. Our sample countries seem, therefore, to offer rich variations for analyzing the relative importance between country characteristics and region characteristics. Our empirical strategy has a further advantage. As in the third topic in the location choice literature, the use of the nested-logit model enables us to examine substitution patterns between country-based and region-based location decisions by MNEs in the concerned countries. For example, it is possible to investigate empirically whether Japanese multinational firms consider Thailand/Vietnam and the other three countries as two distinct groups of potential host countries, by examining the inclusive value parameters in nested-logit estimation. In particular, our sample countries all experienced dramatic changes in, for example, economic growth or trade costs reduction during the sample period. Thus, we will find the dramatic dynamics of such substitution patterns. Our rigorous analysis of the relative importance between country characteristics and region characteristics is invaluable from the viewpoint of policy implications. First, while the former characteristics should be improved mainly by central government in each country, there is sometimes room for the improvement of the latter characteristics by even local governments or smaller institutions such as private agencies. Consequently, it becomes important for these smaller institutions to know just how crucial the improvement of region characteristics is for attracting foreign companies. Second, as economies grow, country characteristics become similar among countries. For example, the LCD preferential tariff schemes are available only when a country is less developed. Therefore, it is important particularly for the least developed countries to know what kinds of regional characteristics become important following economic growth; in other words, after their country characteristics become similar to those of the more developed countries. I also incorporate one important characteristic of MNEs, namely, productivity. The well-known Helpman-Melitz-Yeaple model indicates that only firms with higher productivity can afford overseas entry (Helpman et al., 2004). Beyond this argument, there may be some differences in MNEs' productivity among our sample countries and regions. Such differences are important from the viewpoint of "spillover effects" from MNEs, which are one of the most important results for host countries in accepting their entry. The spillover effects are that the presence of inward foreign direct investment (FDI) aises domestic firms' productivity through various channels such as imitation. Such positive effects might be larger in areas with more productive MNEs. Therefore, it becomes important for host countries to know how much productive firms are likely to invest in them. The rest of this paper is organized as follows. Section 2 takes a brief look at the worldwide distribution of Japanese overseas affiliates. Section 3 provides an empirical model to examine their location choice, and lastly, we discuss future works to estimate our model.

Domestic, vertical, and horizontal multinationals : a general equilibrium approach using the "knowledge capital model"

One of the key factors behind the growth in global trade in recent decades is an increase in intermediate input as a result of the development of vertical production networks (Feensta, 1998). It is widely recognized that the formation of production networks is due to the expansion of multinational enterprises' (MNEs) activities. MNEs have been differentiated into two types according to their production structure: horizontal and vertical foreign direct investment (FDI). In this paper, we extend the model presented by Zhang and Markusen (1999) to include horizontal and vertical FDI in a model with traded intermediates, using numerical general equilibrium analysis. The simulation results show that horizontal MNEs are more likely to exist when countries are similar in size and in relative factor endowments. Vertical MNEs are more likely to exist when countries differ in relative factor endowments, and trade costs are positive. From the results of the simulation, lower trade costs of final goods and differences in factor intensity are conditions for attracting vertical MNEs.

Theory and empirics of Markusen type multinationals

Research on multinational firms’ activity has been conducted widely since late 1980s. The literature is differentiated into three types: horizontal FDI, vertical FDI, and three-country FDI, represented by export platform FDI. There are other methods of differentiation of the literature by approach, for example, the pure theory approach represented by Krugman and Melitz and the numerical simulation approach represented by Markusen. This paper surveys Markusen type literature by firm type. There is little literature focused on intermediate goods trade, although intermediate goods trade is considered to be strongly related to the production patterns of MNEs. In this paper, we introduce a model to explicitly treat intermediate goods trade and present simulation analysis for empirical estimation.

Adapting micro-economy of energy corporations to macroeconomy policies aiming at a sustainable economy

Esta Tesis surgió ante la intensidad y verosimilitud de varias señales o “warnings” asociadas a políticas dirigidas a reducir el peso del petróleo en el sector energético, tanto por razones económicas, como geopolíticas, como ambientales. Como tal Tesis se consolidó al ir incorporando elementos novedosos pero esenciales en el mundo petrolífero, particularmente las “tecnologías habilitantes”, tanto de incidencia directa, como el “fracking” como indirecta, del cual es un gran ejemplo el Vehículo Eléctrico (puro). La Tesis se definió y estructuró para elaborar una serie de indagaciones y disquisiciones, que comportaran un conjunto de conclusiones que fueran útiles para las corporaciones energéticas. También para la comprensión de la propia evolución del sector y de sus prestaciones técnicas y económicas, de cara a dar el servicio que los usuarios finales piden. Dentro de las tareas analíticas y reflexivas de la Tesis, se acuñaron ciertos términos conceptuales para explicar más certeramente la realidad del sector, y tal es el caso del “Investment burden”, que pondera la inversión específica (€/W) requerida por una instalación, con la duración del período de construcción y los riesgos tanto tangibles como regulatorios. Junto a ello la Tesis propone una herramienta de estudio y prognosis, denominada “Market integrated energy efficiency”, especialmente aplicable a dicotomías. Tal es el caso del coche térmico, versus coche eléctrico. El objetivo es optimizar una determinada actividad energética, o la productividad total del sector. Esta Tesis propone varias innovaciones, que se pueden agrupar en dos niveles: el primero dentro del campo de la Energía, y el segundo dentro del campo de las corporaciones, y de manera especial de las corporaciones del sector hidrocarburos. A nivel corporativo, la adaptación a la nueva realidad será función directa de la capacidad de cada corporación para desarrollar y/o comprar las tecnologías que permitan mantener o aumentar cuota de mercado. Las conclusiones de la Tesis apuntan a tres opciones principalmente para un replanteamiento corporativo: - Diversificación energética - Desplazamiento geográfico - Beneficiándose de posibles nuevos nichos tecnológicos, como son: • En upstream: Recuperación estimulada de petróleo mediante uso de energías renovables • En downstream: Aditivos orientados a reducir emisiones • En gestión del cambio: Almacenamiento energético con fines operativos Algunas políticas energéticas siguen la tendencia de crecimiento cero de algunos países de la OCDE. No obstante, la realidad mundial es muy diferente a la de esos países. Por ejemplo, según diversas estimaciones (basadas en bancos de datos solventes, referenciados en la Tesis) el número de vehículos aumentará desde aproximadamente mil millones en la actualidad hasta el doble en 2035; mientras que la producción de petróleo sólo aumentará de 95 a 145 millones de barriles al día. Un aumento del 50% frente a un aumento del 100%. Esto generará un curioso desajuste, que se empezará a sentir en unos pocos años. Las empresas y corporaciones del sector hidrocarburos pueden perder el monopolio que atesoran actualmente en el sector transporte frente a todas las demás fuentes energéticas. Esa pérdida puede quedar compensada por una mejor gestión de todas sus capacidades y una participación más integrada en el mundo de la energía, buscando sinergias donde hasta ahora no había sino distanciamiento. Los productos petrolíferos pueden alimentar cualquier tipo de maquina térmica, como las turbinas Brayton, o alimentar reformadores para la producción masiva de H2 para su posterior uso en pilas combustible. El almacenamiento de productos derivados del petróleo no es ningún reto ni plantea problema alguno; y sin embargo este almacenamiento es la llave para resolver muchos problemas. Es posible que el comercio de petróleo se haga menos volátil debido a los efectos asociados al almacenamiento; pero lo que es seguro es que la eficiencia energética de los usos de ese petróleo será más elevada. La Tesis partía de ciertas amenazas sobre el futuro del petróleo, pero tras el análisis realizado se puede vislumbrar un futuro prometedor en la fusión de políticas medioambientales coercitivas y las nuevas tecnologías emergentes del actual portafolio de oportunidades técnicas. ABSTRACT This Thesis rises from the force and the credibility of a number of warning signs linked to policies aimed at reducing the role of petroleum in the energy industry due to economical, geopolitical and environmental drives. As such Thesis, it grew up based on aggregating new but essentials elements into the petroleum sector. This is the case of “enabling technologies” that have a direct impact on the petroleum industry (such as fracking), or an indirect but deep impact (such as the full electrical vehicle). The Thesis was defined and structured in such a way that could convey useful conclusions for energy corporations through a series of inquiries and treatises. In addition to this, the Thesis also aims at understating la evolution of the energy industry and its capabilities both technical and economical, towards delivering the services required by end users. Within the analytical task performed in the Thesis, new terms were coined. They depict concepts that aid at explaining the facts of the energy industry. This is the case for “Investment burden”, it weights the specific capital investment (€/W) required to build a facility with the time that takes to build it, as well as other tangible risks as those posed by regulation. In addition to this, the Thesis puts forward an application designed for reviewing and predicting: the so called “Market integrated energy efficiency”, especially well-suited for dichotomies, very appealing for the case of the thermal car versus the electric car. The aim is to optimize energy related activity; or even the overall productivity of the system. The innovations proposed in this Thesis can be classified in two tiers. Tier one, within the energy sector; and tier two, related to Energy Corporation in general, but with oil and gas corporations at heart. From a corporate level, the adaptation to new energy era will be linked with the corporation capability to develop or acquire those technologies that will yield to retaining or enhancing market share. The Thesis highlights three options for corporate evolution: - diversification within Energy - geographic displacement - profiting new technologies relevant to important niches of work for the future, as: o Upstream: enhanced oil recovery using renewable energy sources (for upstream companies in the petroleum business) o Downstream: additives for reducing combustion emissions o Management of Change: operational energy storage Some energy policies tend to follow the zero-growth of some OECD countries, but the real thing could be very different. For instance, and according to estimates the number of vehicles in use will grow from 1 billion to more than double this figure 2035; but oil production will only grow from 95 million barrel/day to 145 (a 50% rise of versus an intensification of over a 100%). Hydrocarbon Corporation can lose the monopoly they currently hold over the supply of energy to transportation. This lose can be mitigated through an enhanced used of their capabilities and a higher degree of integration in the world of energy, exploring for synergies in those places were gaps were present. Petroleum products can be used to feed any type of thermal machine, as Brayton turbines, or steam reformers to produce H2 to be exploited in fuel cells. Storing petroleum products does not present any problem, but very many problems can be solved with them. Petroleum trading will likely be less volatile because of the smoothing effects of distributed storage, and indeed the efficiency in petroleum consumption will be much higher. The Thesis kicked off with a menace on the future of petroleum. However, at the end of the analysis, a bright future can be foreseen in the merging between highly demanding environmental policies and the relevant technologies of the currently emerging technical portfolio.

Special Tax on Real Estate belonging to Non-resident Corporations in Spain

Análisis del impuesto español sobre bienes inmuebles de no residentes.

Mexican manufactured exports and U.S. transnational corporations /

"March 1990."

Multinational corporations in Brazil and Mexico : structural sources of economic and noneconomic power : report to the Subcommittee on Multinational Corporations of the Committee on Foreign Relations, United States Senate /

Mode of access: Internet.