Foreign Investment News: Patterns, Causes and Effects Open Access
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News is a primary source of information for businesses and workers to learn about foreign direct investment (FDI). The composition and the substance of FDI news could directly influence the information received by the readers and how they respond to the information. In chapter 1, I quantify FDI information by building a global database of FDI news based on over 35,000 newspapers, trade presses, magazines, newswires, television and audio transcripts, and web and social media across 200 countries in 2000-2008. I present an anatomy of FDI news and establish stylized facts on how FDI is represented in the news relative to the patterns of actual FDI. My analysis shows that: first, FDI news are concentrated in North-South FDI while actual FDI is concentrated primarily in North-North; second, the level of FDI news increases in market size and geographic proximity, at a faster rate than actual FDI; third, export-platform and vertical FDI accounts for the majority of the news while horizontal FDI dominates actual FDI; fourth, media attention to FDI is related to countries' business cycles and increases when a country's GDP growth slows down, unemployment rises and currency depreciates; fifth, FDI news are more concentrated in capital and skilled-labor intensive industries than actual FDI; sixth, FDI news are concentrated in large MNCs and subsidiaries with a less disperse size distribution. Finally, I show that the volume and the selection of FDI news could have significant influences on the public's attitudes toward FDI and stock market responses.How do domestic firms respond to the threat of foreign competition? This paper quantifies the threat of foreign competition by exploring the investment news of multinational firms that appear in over 35,000 newspapers, trade presses, magazines, newswires, and other forms of media in 200 countries. Using either local or unique firm-specific measures of FDI threat, the analysis shows that domestic firms respond significantly to the threats by upgrading productivity, increasing innovation, and altering product composition. However, the responses exhibit substantial heterogeneity across firms. Within each industry, the right tail of the domestic productivity distribution responds by increasing innovation while the left tail escapes competition threats by dropping threatened products, leading to a U-shape relationship between initial TFP and TFP response to FDI threat. Moreover, the degree of response increases significantly with the amount of information embedded in the news on, for example, the credibility and the motive of the threat. The main findings are robust to placebo tests and IV analyses that explore detailed and unique characteristics---such as the timing, the primary consumers, and the substance---of each news. How do multinational corporations (MNCs) influence each other's foreign entry decisions? In chapter 3, I examine the interactions in MNCs' entry decisions by investigating how MNCs respond to competition threats from their multinational competitors. The analysis shows that entry threats anticipated through foreign investment news encourage MNCs to take preemptive actions by entering the same city after the news, while the actual entry of competitors and the anticipated expansion of incumbents discourage more entry. Incumbent MNCs, on the other hand, respond to entry threats by upgrading productivity. The effect of competition threats depends on each MNCs' own existing activity and production network within the region. The effect of entry threats increases with the size of threats, measured by the investment value, expected employment and expected output, the influence of the news, the credibility of the news, and the local market oriention of the threats. Across industries, MNCs' entry decisions are found to respond to only the actual entry---not anticipated entry---in vertically linked industries. Further, by exploring the time path, I find that MNCs' preemptive entry is only taken before FDI news expire. The main results are robust to IV analyses that explore unique information from news source and news content.