International Investment in the United States Insurance Industry

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Abstract The purpose of this paper is to analyse and measure which factors that are the determinants of FDI in insurance services in the US over the period from 1987 to 1998 using OLS regressions. The results indicate that the relative wage between the US and the source countries and the variable of manufacturing in the US are the major determinants of FDI in insurance services in the US. Furthermore, the empirical results indicate that the higher the wage rate in the US relative to the source countries, the lower the FDI in insurance services in the US. It also indicates that FDI in insurance services is positively affected by the contribution of manufacturing expansion. Hence, the higher growth rate in FDI in manufacturing sectors in…show more content…
Most of these studies are focus on FDI in manufacturing industries in the US. Ajami and BarNiv (1984) attempted to explain the variability of FDI across countries. They emphasized in following determinants of FDI in US: relative size of the US market, change in exports to the US, growth of GNP in the home and host countries, decline in value of the US dollar during the late 1970s, inflation rates in the home and host countries, attractiveness of the US capital markets and research and development and manufacturing as a percent of GNP. Schoenberger (1985) examined the growing phenomenon of foreign manufacturing investment in the US in order to develop an understanding of the factors that draw production to the US market despite relatively high cost of production in the international context. This study founds that technology-intensiveness is an important factor in the foreign firm¡¦s decision to locate production at the US market; moreover a supply constraint is also considered an important factor to penetrate into US market. It is said that new developed product requires continued scientific and engineering inputs into the production process. Production must remain close to supplies of this type of labour, especially in advanced industrial areas and, more specifically, in the area the product was first innovated. Tallman

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