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Innovation in the Host Country and the Structure of Foreign Direct Investment: Evidence from Japanese multinationals

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  • JINJI Naoto
  • Xingyuan ZHANG

Abstract

In this study, we investigate how the innovative performance of local firms in host countries affects the structure of foreign direct investment (FDI) by multinational enterprises (MNEs) using Japanese firm-level data and patent application data for host countries of Japanese FDI at the United States Patent and Trademark Office for the period from 1995 to 2006. The structure of FDI is measured by the shares of local transactions and transactions with the source country and a third country by foreign affiliates of Japanese MNEs. Our estimation results imply that innovation by local firms in the same and related industries in host countries in Asia and Europe strengthens forward and backward linkages. We also find that innovation in the host country encourages transactions with the source country when the former is technologically advanced. Finally, our findings suggest that, in Asia, the innovative performance of local firms contributes to the development of regional production networks.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13060.

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Length: 27 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:eti:dpaper:13060

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  1. JINJI Naoto & ZHANG Xingyuan & HARUNA Shoji, 2011. "Does the Structure of Multinational Enterprises' Activity Affect Technology Spillovers?," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 11027, Research Institute of Economy, Trade and Industry (RIETI).
  2. Wolfgang Keller & Stephen R. Yeaple, 2003. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," Working Papers 2003-06, Brown University, Department of Economics.
  3. Laura Alfaro & Andrew Charlton, 2007. "Intra-industry foreign direct investment," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19690, London School of Economics and Political Science, LSE Library.
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  5. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  6. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  7. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, Elsevier, vol. 140(1), pages 260-281, September.
  8. Richard Baldwin & Toshihiro Okubo, 2012. "Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates," NBER Working Papers 18083, National Bureau of Economic Research, Inc.
  9. Karolina Ekholm & Rikard Forslid & James Markusen, 2003. "Export-Platform Foreign Direct Investment," NBER Working Papers 9517, National Bureau of Economic Research, Inc.
  10. Branstetter, Lee, 2006. "Is foreign direct investment a channel of knowledge spillovers? Evidence from Japan's FDI in the United States," Journal of International Economics, Elsevier, vol. 68(2), pages 325-344, March.
  11. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  12. Kimura, Fukunari & Ando, Mitsuyo, 2003. "Fragmentation and agglomeration matter: Japanese multinationals in Latin America and East Asia," The North American Journal of Economics and Finance, Elsevier, vol. 14(3), pages 287-317, December.
  13. Kyoji Fukao & Yuhong Wei, 2008. "How do the Location Determinants of Vertical FDI and Horizontal FDI Differ?," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d07-233, Institute of Economic Research, Hitotsubashi University.
  14. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
  15. Kimura, Fukunari & Ando, Mitsuyo, 2005. "Two-dimensional fragmentation in East Asia: Conceptual framework and empirics," International Review of Economics & Finance, Elsevier, Elsevier, vol. 14(3), pages 317-348.
  16. Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, vol. 60(2), pages 293-314, August.
  17. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(3), pages 451-71, June.
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