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Reconsideration of the Effects of Political Factors on FDI: Evidence from Japanese Outward FDI

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  • Ivan Deseatnicov

    ()
    (Graduate School of Economics, Waseda University, Japan)

  • Hiroya Akiba

    ()
    (Graduate School of Economics, Waseda University, Japan)

Abstract

This paper empirically examines the role of political factors in the Japanese outward Foreign Direct Investment (FDI) activities with a panel data of 30 developed or developing countries for the period of 1995-2009. The estimation model is constructed on the basis of the OLI (ownership, location and internalization advantages) and knowledge-capital models. Political factors, which represent multiple dimensions of each host country including important institutional assessments, are included as additional explanatory variables with market potential, wages, skilled workforce endowments, investment cost, and openness. It is found that Political factor perception by Japanese MNCs is sensitive to different levels of initial political stability in the host countries. Thus, the model with political factors and traditional explanatory variables reasonably explains recent Japanese outward FDI flows and reveals new patterns in its behavior.

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Bibliographic Info

Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

Volume (Year): 3 (2013)
Issue (Month): (February)
Pages: 35-48

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Handle: RePEc:bap:journl:130104

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Keywords: Foreign direct investment; Multinational corporations; Political factor;

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  1. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, Elsevier, vol. 23(2), pages 397-415, June.
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  10. Kiyoyasu Tanaka, 2009. "Re-estimating the Knowledge-Capital Model: Evidence from Japanese and US Multinational Enterprises," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd09-087, Institute of Economic Research, Hitotsubashi University.
  11. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
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