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

Authors

Mihir A. Desai, Harvard Business SchoolFollow
C. Fritz Foley, Harvard Business SchoolFollow
James R. Hines Jr., University of Michigan Law SchoolFollow

Document Type

Article

Publication Date

1-2009

Abstract

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.

Recommended Citation

Hines, James R., Jr. "Domestic Effects of the Foreign Activities of U.S. Multinationals." M.A.Desai and C.F.Foley, co-authors. Am. Econ. J. :Econ. Pol'y 1, no. 1 (2009): 181-203.