The Role of Trade Costs in FDI Strategy of Heterogeneous Firms: Evidence from Japanese Firm-level Data
AbstractThis paper attempts to clarify the reasons for the rapid growth of FDI in developing countries, particularly East Asian countries, compared with that of FDI in developed countries. To do this, we will examine the mechanics of HFDI and VFDI, in order to shed light on the role of trade costs. Our empirical analysis by estimating a multinomial logit model of Japanese firmsf FDI choices reveals that the reduction in trade costs between host and home countries attracts even less productive VFDI firms. In contrast, it does not attract HFDI firms. Since developing countries, particularly East Asian countries, have experienced a relatively rapid decrease in trade costs with Japan, our results indicate that the increase in VFDI through trade cost reduction has led to the recent relative surge of FDIs in developing countries.
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Bibliographic InfoPaper provided by Economic Research Institute for ASEAN and East Asia (ERIA) in its series Working Papers with number DP-2012-04.
Length: 42 pages.
Date of creation: 01 Jun 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-INT-2012-08-23 (International Trade)
- NEP-SEA-2012-08-23 (South East Asia)
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