American Economic Journal: Economic Policy
no. 1, February 2009
Do firms investing abroad simultaneously reduce their domestic
activity? This paper analyzes the relationship between the domestic
and foreign operations of US manufacturing firms between 1982 and
2004 by instrumenting for changes in foreign operations with GDP
growth rates of the foreign countries in which they invest. Estimates
produced using this instrument indicate that 10 percent greater
foreign investment is associated with 2.6 percent greater domestic
investment, and 10 percent greater foreign employee compensation
is associated with 3.7 percent greater domestic employee compensation.
These results do not support the popular notion that expansions
abroad reduce a firm's domestic activity, instead suggesting
the opposite. (JEL F23, H25, L25)
Desai, Mihir A., C. Fritz Foley, and James R. Hines.
"Domestic Effects of the Foreign Activities of US Multinationals."
American Economic Journal: Economic Policy,
Multinational Firms; International Business
Business Taxes and Subsidies including sales and value-added (VAT)
Firm Performance: Size, Diversification, and Scope