TY - JOUR AU - Desai,Mihir A. AU - Foley,C. Fritz AU - Hines,James R.,Jr. TI - International Joint Ventures and the Boundaries of the Firm JF - National Bureau of Economic Research Working Paper Series VL - No. 9115 PY - 2002 Y2 - August 2002 UR - http://www.nber.org/papers/w9115 L1 - http://www.nber.org/papers/w9115.pdf N1 - Author contact info: Mihir A. Desai Graduate School of Business Administration Harvard University Soldiers Field Boston, MA 02163 Tel: 617/495-6693 Fax: 617/496-6592 E-Mail: mdesai@hbs.edu C. Fritz Foley Graduate School of Business Administration Harvard University Soldiers Field Boston, MA 02163 Tel: 617/495-6375 Fax: 617/496-8443 E-Mail: ffoley@hbs.edu James R. Hines Department of Economics University of Michigan 343 Lorch Hall 611 Tappan Street Ann Arbor, MI 48109-1220 Tel: 734/764-2320 Fax: 734/764-2769 E-Mail: jrhines@umich.edu AB - This paper analyzes the determinants of partial ownership of the foreign affiliates of U.S. multinational firms and, in particular, why partial ownership has declined markedly over the last 20 years. The evidence indicates that whole ownership is most common when firms coordinate integrated production activities across different locations, transfer technology, and benefit from worldwide tax planning. Since operations and ownership levels are jointly determined, it is necessary to use the liberalization of ownership restrictions by host countries and the imposition of joint venture tax penalties in the U.S. Tax Reform Act of 1986 as instruments for ownership levels in order to identify these effects. Firms responded to these regulatory and tax changes by expanding the volume of their intrafirm trade as well as the extent of whole ownership; four percent greater subsequent sole ownership of affiliates is associated with three percent higher intrafirm trade volumes. The implied complementarity of whole ownership and intrafirm trade suggests that reduced costs of coordinating global operations, together with regulatory and tax changes, gave rise to the sharply declining propensity of American firms to organize their foreign operations as joint ventures over the last two decades. The forces of globalization appear to have increased the desire of multinationals to structure many transactions inside firms rather than through exchanges involving other parties. ER -