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Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis

  • Katayama, Seiichi
  • Lahiri, Sajal
  • Tomiura, Eiichi

This paper first of all develops a Cournot oligopolistic model with heterogeneous firms to examine each firm's choice between export-oriented foreign direct investments (FDI) and FDI to serve the host-country market. It is shown that there exist a critical level of efficiency such that all firms below that level choose the former and those above it the latter. The hypothesis is tested using firm-level data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.

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File URL: http://www.sciencedirect.com/science/article/pii/S0922142511000041
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Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 23 (2011)
Issue (Month): 3 ()
Pages: 170-177

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Handle: RePEc:eee:japwor:v:23:y:2011:i:3:p:170-177
DOI: 10.1016/j.japwor.2011.02.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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