NBER Working Papers by John Ries

We investigate whether productivity differences explain why some manufacturers sell only to the domestic market while others serve foreign markets through exports and/or FDI. When overseas production offers no cost advantages, our model predicts that investors should be more productive than exporters. An extension allowing for low-cost foreign production can reverse this prediction. Data for 1070 large Japanese firms reveal that firms that invest abroad and export are more productive than firms that just export. Among overseas investors, more productive firms span a wider range of host-country income levels.

This paper develops a model in which upstream network insiders' conduct relationship specific investment that induces the downstream firm to transact within networks. The scale of destination-country production and part-specific measures of the importance of network relationships and engineering costs are used to explain the pattern of U.S. auto parts exports. Our results support the prediction that large scale promotes relationship-specific investment and reduces imports. Also, while Japan is a large parts importer, the composition of its imports is shifted away from parts where vertical keiretsu are prominent. Nations hosting U.S.-owned automakers import more U.S. parts.

We study Japanese investments between 1980 and 1992 to assess the effectiveness of state promotion efforts in light of strong agglomeration economies in Japanese investment. Two policy variables are consistently shown to influence the location of investment - foreign trade zones and labor subsidies. We use simulations to explore the impact these policies had on the geographic distribution of Japanese investment. The simulations reveal that in aggregate promotion programs largely offset each other; however, unilateral withdrawal of promotion causes individual states to lose substantial amounts of foreign investment.

Recent theories of economic geography suggest that firms in the same industry may be drawn to the same locations because proximity generates positive externalities or 'agglomeration effects.' Under this view, chance events and government inducements can have a lasting influence on the geographical pattern of manufacturing. However, most evidence on the causes and magnitude of industry localization has been based on stories, rather than statistics. This paper examines the location choices of 751 Japanese manufacturing plants built in the U.S. since 1980. Conditional logit estimates support the hypothesis that industry-level agglomeration benefits play an important role in location decisions.