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U.S. Bilateral Trade Deficits with China and Japan: The Role of Japanese Direct Investment

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  • Lim, Sokchea
  • Khun, Channary

Abstract

This paper argues that Japanese Foreign Direct Investment (FDI) in China plays a critical role in home and host country’s bilateral trade imbalances with the U.S. Using six cross-sectional panel data from 1981 to 2007, we find strong evidence in support of the role of Japanese FDI in mounting U.S.-China trade imbalance and in reducing deficit of U.S. trade with Japan. The devaluation of Chinese Yuan does not affect its bilateral trade balance with the U.S. and there are mixed evidence in terms of the relationship between the Japanese Yen exchange rate and the U.S.-Japan trade deficit.

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File URL: http://mpra.ub.uni-muenchen.de/30740/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30740.

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Date of creation: May 2010
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Publication status: Published in The Empirical Economics Letters 6.10(2011): pp. 527-534
Handle: RePEc:pra:mprapa:30740

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Related research

Keywords: Foreign Direct Investment; Bilateral Trade Imbalance; Devaluation of Exchange Rate;

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References

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  1. Mohsen Bahmani-Oskooee & Zohre Ardalani, 2006. "Exchange Rate Sensitivity of U.S. Trade Flows: Evidence from Industry Data," Southern Economic Journal, Southern Economic Association, vol. 72(3), pages 542-559, January.
  2. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
  3. Menzie D. Chinn, 2004. "Incomes, Exchange Rates and the US Trade Deficit, Once Again," International Finance, Wiley Blackwell, vol. 7(3), pages 451-469, December.
  4. Xing, Yuqing, 2007. "Foreign direct investment and China's bilateral intra-industry trade with Japan and the US," BOFIT Discussion Papers 1/2007, Bank of Finland, Institute for Economies in Transition.
  5. Thomas Klitgaard & Karen Schiele, 1997. "The growing U.S. trade imbalance with China," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(May).
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Cited by:
  1. Hao Wei & Xi Wang & Chunming Zhao, 2012. "An analysis of the influences of scholars and their academic works in Chinese entrepreneurship field: Based on the CSSCI (2009-2010)," E3 Journal of Business Management and Economics., E3 Journals, vol. 3(5), pages 162-172.

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