Japan's FDI drivers in a time of financial uncertainty. New evidence based on Bayesian Model

In this paper we analyze the determinants of Japanese outward FDI stock for the period 1996-2017. This period is especially relevant as it covers a process of increasing economic globalization and two financial crises. To this aim, we consider a large set of candidate variables based on the theory as well as on previous empirical analysis. Our sample includes a total of 27 host countries. We select the covariates using a data- driven methodology, the Bayesian Model Averaging (BMA) analysis. Moreover, we also analyze whether these determinants change depending on the degree of development (emerging vs developed) or the geographical areas (EU vs East Asia) of the countries considered. We find that Japan's FDI can be explained by a wide variety of variables, that include not only the typical gravitational ones but also institutional and macroe- conomic variables, including those that measure financial development. Moreover, we can observe important differences among the samples analyzed. Whereas in developed, and more precisely, EU countries, horizontal FDI strategies are predominant, for East Asian and emerging countries, there is evidence in favour of vertical FDI.