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R&D Investment and Overseas Production: An Empirical Analysis of Japan's Electric Machinery Industry Based on Corporate Data

Author

Listed:
  • Kyoji Fukao

    (Associate Professor, The Institute of Economic Research, Hitotsubashi University)

  • Toshiyasu Izawa

    (Graduate School of Economics, Hitotsubashi University)

  • Morio Kuninori

    (Research Institute of Capital Formation, Japan Development Bank)

  • Toru Nakakita

    (Associate Professor, Faculty of Economics, Toyo University, and The Japan Institute of International Affairs)

Abstract

This paper studies determinants of the decision to invest abroad. Among them, we follow the current mainstream theory of foreign direct investment so as to emphasize the stock of technological knowledge. We explicitly solve the optimal geographical composition (i.e. domestic vs. abroad) of the total production of companies. The analysis suggests that the relationship between technological knowledge and overseas production depends on relative prices of factors of production at home and abroad and on the elasticity of substitution between them. It is especially shown that under certain realistic assumptions, companies with a larger stock of technological knowledge have a lower proportion of production in developing countries, but have a higher proportion in developed countries exclusive of Japan. We test this hypothesis using corporate data of Japan's electric machinery industry. The empirical results are consistent with the theory. Besides the stock of technological knowledge, the paper investigates the explanatory power of other factors, such as company size, advertising intensity, and horizontal keiretsu.

Suggested Citation

  • Kyoji Fukao & Toshiyasu Izawa & Morio Kuninori & Toru Nakakita, 1994. "R&D Investment and Overseas Production: An Empirical Analysis of Japan's Electric Machinery Industry Based on Corporate Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 12(2), pages 1-60, December.
    • Handle: RePEc:ime:imemes:v:12:y:1994:i:2:p:1-60
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    Cited by:

    1. Belderbos, Rene & Sleuwaegen, Leo, 1998. "Tariff jumping DFI and export substitution: Japanese electronics firms in Europe," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 601-638, September.
    2. Eiichi Tomiura, 2005. "Technological Capability and FDI in Asia: Firm‐level Relationships among Japanese Manufacturers," Asian Economic Journal, East Asian Economic Association, vol. 19(3), pages 273-289, September.
    3. Ana Teresa Tavares & Aurora A.C. Teixeira, 2006. "Is Human Capital a Significant Determinant of Portugal’s FDI Attractiveness?," FEP Working Papers 211, Universidade do Porto, Faculdade de Economia do Porto.
    4. Belderbos, Rene & Capannelli, Giovanni & Fukao, Kyoji, 2001. "Backward Vertical Linkages of Foreign Manufacturing Affiliates: Evidence from Japanese Multinationals," World Development, Elsevier, vol. 29(1), pages 189-208, January.
    5. Blonigen, Bruce A. & Ellis, Christopher J. & Fausten, Dietrich, 2005. "Industrial groupings and strategic FDI," Japan and the World Economy, Elsevier, vol. 17(2), pages 125-150, April.
    6. Bayari, Celal, 2004. "Japanese Business in Australia: A Management Survey of Industry Interaction with Locational Factors," MPRA Paper 103896, University Library of Munich, Germany, revised 19 Jan 2004.
    7. Belderbos, R.A., 2000. "Foreign investment and international plant configuration : whither the product cycle?," Research Memorandum 003, Maastricht University, Netherlands Institute of Business Organization and Strategy Research (NIBOR).
    8. René Belderbos, 1997. "Antidumping and tariff Jumping: Japanese firms’ DFI in the European union and the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(3), pages 419-457, September.

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