Estimating the Production Efficiency of US Foreign Direct Investment
Version of Record online: 14 MAY 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 33, Issue 4, pages 273–281, June 2012
How to Cite
Ramcharran, H. (2012), Estimating the Production Efficiency of US Foreign Direct Investment. Manage. Decis. Econ., 33: 273–281. doi: 10.1002/mde.2547
- Issue online: 14 MAY 2012
- Version of Record online: 14 MAY 2012
This paper empirically estimates the efficiency of outward US foreign direct investment (FDI) within the framework of economies of scale, which is hypothesized as a main goal of ‘efficiency-seeking’ multinationals. By using data for the period 1982–2007 and a nonhomogeneous production, the estimates of efficiency indicate an improvement in efficiency from decreasing to increasing returns to scale. The increasing productivity of both capital and labor is a contributory factor. Evidence of increasing elasticity of factor substitution attests to management use of a flexible production technology that enables efficient resource allocation. The results lend support to the ‘efficiency-seeking’ hypothesis of FDI. Copyright © 2012 John Wiley & Sons, Ltd.