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The Determinants of and Prospects for Foreign Direct Investment in Japan

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  • Ralph Paprzycki

Abstract

Although Japan experienced a significant jump in inward foreign direct investment (FDI) around the turn of the millennium, the level of inward FDI penetration remains much lower than in many other countries. Looking at the factors that determine Japan's attractiveness as an investment destination for foreign multinationals, this paper examines the prospects for future FDI inflows. Topics addressed include the macroeconomic outlook for Japan (an important factor for market-seeking FDI), political, social and cultural factors reflecting Japan's willingness to embrace globalization, and policies the government could pursue to attract more FDI. It is argued that although Japan has clearly "opened up," lingering unease over a more laissez-faire market economy and inward foreign inward remains widespread and certain patterns from the past are beginning to reappear. A key issue in this context are merger and acquisition (M&A) rules and their implications are discussed in detail. The paper concludes by suggesting that unless Japan embarks on further substantial deregulation, increases in FDI inflows are likely to remain moderate and inward FDI penetration will continue to significantly trail behind that in other major advanced economies.

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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d07-211.

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Date of creation: May 2007
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Handle: RePEc:hst:hstdps:d07-211

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  1. Ralph Paprzycki & Kyoji Fukao, 2004. "Overcoming economic stagnation in Japan: The importance of total factor productivity and the potential contribution of foreign direct investment," Hi-Stat Discussion Paper Series d04-39, Institute of Economic Research, Hitotsubashi University.
  2. Paprzycki,Ralph & Fukao,Kyoji, 2008. "Foreign Direct Investment in Japan," Cambridge Books, Cambridge University Press, number 9780521873680, April.
  3. Ralph Paprzycki, 2006. "The Impact of Foreign Direct Investment in Japan: Case Studies of the Automobile, Finance, and Health Care Industries," Hi-Stat Discussion Paper Series d05-141, Institute of Economic Research, Hitotsubashi University.
  4. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," CEPR Discussion Papers 3775, C.E.P.R. Discussion Papers.
  5. Adam S. Posen, 2004. "What Went Right in Japan," Policy Briefs PB04-06, Peterson Institute for International Economics.
  6. FUKAO Kyoji & MIYAGAWA Tsutomu, 2007. "Productivity in Japan, the US, and the Major EU Economies: Is Japan Falling Behind?," Discussion papers 07046, Research Institute of Economy, Trade and Industry (RIETI).
  7. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01.
  8. Ralph Paprzycki, 2004. "What Caused the Recent Surge of FDI into Japan?," Hi-Stat Discussion Paper Series d04-31, Institute of Economic Research, Hitotsubashi University.
  9. Ralph Paprzycki & Kyoji Fukao, 2005. "The Extent and History of Foreign Direct Investment in Japan," Hi-Stat Discussion Paper Series d05-84, Institute of Economic Research, Hitotsubashi University.
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