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Investigation of the "China effect" on crowding out of Japanese FDI: An industry-level analysis (1990-2004)

  • SALIKE, Nimesh

This paper applies a dynamic panel model to investigate whether China is crowding out Japanese foreign direct investment (FDI) from other economies of Asia. We examined this with industry-level data on Japanese FDI flows into Asian economies. In order to deal with possible problems of serial correlation and endogeneity, we estimated coefficients using a difference and system generalized method of moments to examine the "China effect" on industries. We found a significantly high degree of crowding out effect by China on its Asian counterparts. Among twelve industries, a crowding out effect was found in nine industries, including electrical & electronics--the biggest industry for Japanese FDI. However, a complementary effect was found in two industries, one of them being transport, which is the second biggest industry for Japanese FDI. We conclude that while China's rise is a prominent threat for the region, it could be transformed into an opportunity in vertically fragmented industries.

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Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 21 (2010)
Issue (Month): 4 (December)
Pages: 582-597

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Handle: RePEc:eee:chieco:v:21:y:2010:i:4:p:582-597
Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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