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Japan's Foreign Direct Investment and Structural Changes in Japanese and East Asian Trade

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  • Koike, Ryoji

    (Institute for Monetary and Econ Studies, Bank of Japan)

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    Abstract

    In this paper, we analyze both the impact of Japan's foreign direct investment (FDI) into East Asia on trade and the structural changes in trade that have occurred in the region. To do this, we estimate gravity equations using trade data disaggregated to the industry and product levels. Our analysis shows that the impact of FDI on trade varies by industry. Specifically, in the electrical machinery sector, the positive impact of FDI on trade increased substantially from the 1990s, when the division of labor was advancing rapidly, especially for IT- related products. In the textile industry, which experienced a moderate increase in the division of labor primarily for intermediates, the impact of FDI on trade was positive, although not as great as seen in the electrical machinery industry. On the other hand, in the transportation machinery industry, where production processes were shifted from Japan to other East Asian countries and where Japan's exports were substituted with local production, FDI had virtually no impact on trade.

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    Bibliographic Info

    Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

    Volume (Year): 22 (2004)
    Issue (Month): 3 (October)
    Pages: 145-182

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    Handle: RePEc:ime:imemes:v:22:y:2004:i:3:p:145-182

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