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Journal of Economic Geography 3:261-274 (2003)
Copyright © 2003 Oxford University Press

Article

Monitoring costs and the mode of international investment

Chu-Chia S. Lin* and Ivan Png**

*Department of Economics, National Chengchi University, Taipei 116, Taiwan. email <nccut001{at}nccu.edu.tw>
**School of Computing, National University of Singapore, 3 Science Drive 2, Singapore 117543 email <ipng{at}comp.nus.edu.sg>

Abstract

Our central proposition is that monitoring costs increase with physical distance, and hence, direct investments located further from the foreign investor's home base should be more likely formed as joint ventures. Tests on a data set of Taiwanese direct investments in Mainland China provide robust support to the hypothesis. A project that was located 1000 kilometers further away was 13–17% more likely to be formed as a joint venture.

Keywords: contract, vertical integration, opportunism, international investment, China

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