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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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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. Wolfgang Keller & Stephen R. Yeaple, 2005. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," Kiel Working Papers 1249, Kiel Institute for the World Economy.
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  14. Ekholm, Karolina & Forslid, Rikard & Markusen, James R., 2003. "Export-Platform Foreign Direct Investment," CEPR Discussion Papers 3823, C.E.P.R. Discussion Papers.
  15. JINJI Naoto & ZHANG Xingyuan & HARUNA Shoji, 2011. "Does the Structure of Multinational Enterprises' Activity Affect Technology Spillovers?," Discussion papers 11027, Research Institute of Economy, Trade and Industry (RIETI).
  16. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  17. 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.
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