Domestic Effects of the Foreign Activities of U.S. Multinationals

35 Pages Posted: 26 Oct 2005 Last revised: 27 May 2008

See all articles by Mihir A. Desai

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

C. Fritz Foley

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

James R. Hines Jr.

University of Michigan; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2008

Abstract

Do firms investing abroad simultaneously reduce their domestic activity? This paper analyzes the relationship between the domestic and foreign operations of American 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% greater foreign investment is associated with 2.6% greater domestic investment, and 10% greater foreign employee compensation is associated with 3.7% 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.

Keywords: FDI, multinational firms, investment, outsourcing

JEL Classification: F23, F21, H25

Suggested Citation

Desai, Mihir A. and Foley, C. Fritz and Hines, James Rodger, Domestic Effects of the Foreign Activities of U.S. Multinationals (May 1, 2008). Ross School of Business Paper No. 1020. Available at SSRN: https://ssrn.com/abstract=825264 or http://dx.doi.org/10.2139/ssrn.825264

Mihir A. Desai (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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C. Fritz Foley

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)

National Bureau of Economic Research (NBER)

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James Rodger Hines

University of Michigan ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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