DETERMINANTS OF JAPANESE DIRECT-INVESTMENT IN UNITED-STATES MANUFACTURING-INDUSTRIES

A hybrid model of direct investment is developed from an asset portfolio model and an industrial organization model of investment. Encompassing tests using disaggregated data validate the hybrid model, while its two component models are rejected by at least some of the data. The exchange rate is found to be an important explanatory variable for direct investment in some but not all of US industries. Equity purchase is more likely in R&D intensive industries, in privately held companies, and in highly concentrated industries. Plant and equipment investment is more likely in industries with increasing returns to scale, and in industries experiencing large net export deficits with Japan.