INDUSTRIAL GROUPINGS AND FOREIGN DIRECT INVESTMENT

Abstract: We explore worldwide foreign direct investment location decisions by Japanese manufacturing firms from 1985 through 1991. Our conditional logit estimates provide evidence that firms ’ location decisions are affected by membership in either vertical or horizontal keiretsu. Consistent with previous studies that stress agglomeration effects on firms ’ location decisions, we find that the stock of investment in a region by a firm’s vertical keiretsu partners increases the probability of location. Further, we find that the recent flow of investment into a region by a firm’s horizontal keiretsu partners increases the probability of investment to the region, providing evidence of networking effects