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Distance on FDI and Trade: The Roles of China and Mexico in the Pacific Basin

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  • Yushi Yoshida

    ()
    (Faculty of Economics, Kyushu Sangyo University)

  • Hiro Ito

    (Department of Economics, Portland State University)

Abstract

In this study, we investigate the dynamics of the trilateral trade relationship among the U.S., Japan and an emerging economy in the Pacific Basin. Our particular attention is paid to two emerging countries; China and Mexico. In what we call the “triangular trade approach,” we explore how Japanese trade with and foreign direct investment to an emerging economy affect its exports to the US market. We apply the trilateral trade approach to eight Southeast Asian countries, four American continent countries and four European countries. Our empirical results suggest that the exports of China and Mexico are directly competing with those of Japan in US markets while the exports of China and Mexico to the US also appears to be promoted partly by Japanese exports to these countries. However, after controlling for Japan’s FDI to these countries, the trade enhancing effect of Japanese exports disappears for China, leading us to conclude that Japanese exports to China are positively correlated with Chinese exports to the US through an increase in vertical trade between Japanese multinationals and their affiliates in China. Our results indicate important distinction about two distances: proximity to home country and proximity to market.

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File URL: http://www.ip.kyusan-u.ac.jp/keizai-kiyo/dp24.pdf
File Function: First version, 2005Mar
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Bibliographic Info

Paper provided by Kyushu Sangyo University, Faculty of Economics in its series Discussion Papers with number 24.

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Length: 41 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:kyu:dpaper:24

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Keywords: China; Distance; Foreign Direct Investment; FTA; Japan; Trade; Mexico; Triangular Trade Approach;

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  1. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  2. de Melo, Jaime & Grether, Jean-Marie & Olarreaga, Marcelo, 1999. "Who Determines Mexican Trade Policy?," CEPR Discussion Papers 2176, C.E.P.R. Discussion Papers.
  3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
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  14. repec:fth:michin:337 is not listed on IDEAS
  15. Ana Cuadros & Vicente Orts & Maite Alguacil, 2004. "Openness and Growth: Re-Examining Foreign Direct Investment, Trade and Output Linkages in Latin America," Journal of Development Studies, Taylor & Francis Journals, vol. 40(4), pages 167-192.
  16. Robert Z. Lawrence, 1991. "Efficient or Exclusionist: The Import Behavior of Japanese Corporate Groups," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 311-341.
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