U.S.A. FOREIGN DIRECT INVESTMENT ABROAD: THE CHEAP LABOR MOTIVE EXAMINED
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In light of the recent surge in foreign direct investments (FD/) and renewed interests in the cheap labor motive, we empirically estimate the significance of relative wages as a determinant of FD/ by the U.S. automobile industry in Germany, Spain, Canada, Australia, Brazil, Mexico, and the UK. Using data from 1980-1993 and mul- tiple regression analysis the results are supportive ofthe cheap-labor theory ofFD/ in Mexico and Spain. Additional significant results include the market size theory in Germany, Spain, the U.K. and Australia and the cost of capital theory in Mexico and Canada. This approach is a significant improvement in the methodology employed in earlier studies byfocusing on an industry with affiliates in different countries having significant variation in wage structure and pattern of economic growth.
Abstract
In light of the recent surge in foreign direct investments (FD/) and renewed interests in the cheap labor motive, we empirically estimate the significance of relative wages as a determinant of FD/ by the U.S. automobile industry in Germany, Spain, Canada, Australia, Brazil, Mexico, and the UK. Using data from 1980-1993 and mul- tiple regression analysis the results are supportive ofthe cheap-labor theory ofFD/ in Mexico and Spain. Additional significant results include the market size theory in Germany, Spain, the U.K. and Australia and the cost of capital theory in Mexico and Canada. This approach is a significant improvement in the methodology employed in earlier studies byfocusing on an industry with affiliates in different countries having significant variation in wage structure and pattern of economic growth.