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The Performance of Foreign Firms and the Macroeconomic Impact of FDI

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Author Info
Kyoji Fukao

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Abstract

In this paper, I examine the macroeconomic impact of inward FDI in Japan. From a general equilibrium point of view of the macroeconomy, probably the most important host country benefit of inward FDI is improvements in productivity caused by the inflow of managerial resources. In the first part of this paper, which is largely based on the results of Fukao, Ito and Kwon (2005), I review the evidence suggesting that inward FDI raises the average total factor productivity of firms in Japan. In the second part, using a general equilibrium model of an open macroeconomy, I simulate the macroeconomic impact of an increase in the inward FDI stock. The results suggest that if Prime Minister Abe's goal on inward FDI, which is to increase the inward FDI stock to 5 percent of GDP by the end of 2010 is achieved, this will help to raise Japan's GDP by 0.226 percent and real wage rates by 0.156 percent. Dividend payments abroad by foreign-owned firms and the fall in Japan's foreign investment income caused by the inflow of capital (or the decline in capital outflows), will make the increase in Japan's GNP (which includes net foreign investment income) smaller than the increase in GDP. The increase in GNP will be 0.125 percent of GDP.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d07-210.

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Date of creation: May 2007
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Handle: RePEc:hst:hstdps:d07-210

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  1. Martin Neil Baily & Robert M. Solow, 2001. "International Productivity Comparisons Built from the Firm Level," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 151-172, Summer. [Downloadable!] (restricted)
  2. Fukao, Kyoji & Ito, Keiko & Kwon, Hyeog Ug, 2005. "Do out-in M&As bring higher TFP to Japan? An empirical analysis based on micro-data on Japanese manufacturing firms," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 272-301, June. [Downloadable!] (restricted)
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  3. Fukunari Kimura & Kozo Kiyota, 2007. "Foreign-owned versus Domestically-owned Firms: Economic Performance in Japan," Review of Development Economics, Blackwell Publishing, vol. 11(1), pages 31-48, 02. [Downloadable!] (restricted)
  4. Robert E. Baldwin & Robert E. Lipsey & J. David Richards, 1998. "Geography and Ownership as Bases for Economic Accounting," NBER Books, National Bureau of Economic Research, Inc, number bald98-1.
  5. Carol Corrado & Charles Hulten & Daniel Sichel, 2006. "Intangible capital and economic growth," Finance and Economics Discussion Series 2006-24, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gennaioli, Nicola & Rossi, Stefano, 2008. "Judicial Discretion in Corporate Bankruptcy," CEI Working Paper Series 2008-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Gennaioli, Nicola & Rossi, Stefano, 2008. "Optimal Resolutions of Financial Distress by Contract," CEI Working Paper Series 2008-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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