200 QUARTERLY JOURNAL OF ECONOMICS costs,then exports back to the United States may become a possibil- ity as well. Any hypotheses based on the assumption that the United States entrepreneur will react rationally when offered the possibility of a lower-cost location abroad is,of course,somewhat suspect.The decision-making sequence that is used in connection with interna- tional investments,according to various empirical studies,is not a model of the rational process.s But there is one theme that emerges again and again in such studies.Any threat to the established posi- tion of an enterprise is a powerful galvanizing force to action;in fact,if I interpret the empirical work correctly,threat in general is a more reliable stimulus to action than opportunity is likely to be. In the international investment field,threats appear in various forms once a large-scale export business in manufactured products has developed.Local entrepreneurs located in the countries which are the targets of these exports grow restive at the opportunities they are missing.Local governments concerned with generating employ- ment or promoting growth or balancing their trade accounts begin thinking of ways and means to replace the imports.An international investment by the exporter,therefore,becomes a prudent means of forestalling the loss of a market.In this case,the yield on the investment is seen largely as the avoidance of a loss of income to the system. The notion that a threat to the status quo is a powerful gal- vanizing force for international investment also seems to explain what happens after the initial investment.Once such an investment is made by a United States producer,other major producers in the United States sometimes see it as a threat to the status quo.They see themselves as losing position relative to the investing company, with vague intimations of further losses to come.Their "share of the market'”is imperiled,viewing“share of the market'”in global terms.At the same time,their ability to estimate the production- cost structure of their competitors,operating far away in an un- familiar foreign area,is impaired;this is a particularly unsettling state because it conjures up the possibility of a return flow of prod- ucts to the United States and a new source of price competition, based on cost differences of unknown magnitude.The uncertainty can be reduced by emulating the pathfinding investor and by invest- ing in the same area;this may not be an optimizing investment 8.Aharoni,op.cit.,provides an excellent summary and exhaustive bibli- ography of the evidence on this point.200 QUARTERLY JOURNAL OF ECONOMICS costs, then exports back to the United States may become a possibil￾ity as well. Any hypotheses based on the assumption that the United States entrepreneur will react rationally when offered the possibility of a lower-cost location abroad is, of course, somewhat suspect. The decision-making sequence that is used in connection with interna￾tional investments, according to various empirical studies, is not a model of the rational proces~.~ But there is one theme that emerges again and again in such studies. Any threat to the established posi￾tion of an enterprise is a powerful galvanizing force to action; in fact, if I interpret the empirical work correctly, threat in general is a more reliable stimulus to action than opportunity is likely to be. In the international investment field, threats appear in various forms once a large-scale export business in manufactured products has developed. Local entrepreneurs located in the countries which are the targets of these exports grow restive at the opportunities they are missing. Local governments concerned with generating employ￾ment or promoting growth or balancing their trade accounts begin thinking of ways and means to replace the imports. An international investment by the exporter, therefore, becomes a prudent means of forestalling the loss of a market. In this case, the yield on the investment is seen largely as the avoidance of a loss of income to the system. The notion that a threat to the status quo is a powerful gal￾vanizing force for international investment also seems to explain what happens after the initial investment. Once such an investment is made by a United States producer, other major producers in the United States sometimes see it as a threat to the status quo. They see themselves as losing position relative to the investing company, with vague intimations of further losses to come. Their "share of the market" is imperiled, viewing "share of the market" in global terms. At the same time, their ability to estimate the production￾cost structure of their competitors, operating far away in an un￾familiar foreign area, is impaired; this is a particularly unsettling state because it conjures up the possibility of a return flow of prod￾ucts to the United States and a new source of price competition, based on cost differences of unknown magnitude. The uncertainty can be reduced by emulating the pathfinding investor and by invest￾ing in the same area; this may not be an optimizing investment 8. Aharoni, op. cit.,provides an excellent summary and exhaustive bibli￾ography of the evidence on this point