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The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-sized Enterprises (in Japanese)

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  • Shujiro Urata
  • Hiroki Kawai

Abstract

The empirical results of the determinants of FDI location by Japanese firms show that both supply-side and demand-side factors in the host countries are important determinants. Supply- side factors include abundance of low-wage labor, availability of good infrastructure and good governance, while an important demand-side factor is the presence of sizable local market. Industrial agglomeration, which has both supply-side and demand-side elements, has an important influence on the decision making by Japanese firms. A comparison of the results obtained for SMEs with those for large firms reveals that SMEs are more sensitive to local conditions in making their decision on FDI, especially when they make investments in developing countries. Specifically, SMEs regard the availability of low-wage labor, well-developed infrastructure, and industrial agglomeration much more importantly than large firms. Greater sensitivity of SMEs to local economic conditions in their decision making concerning FDI location can be explained by their limited availability of financial and human resources and high dependence on overseas production in their business. Recognizing the need to develop SMEs in developing countries to promote economic growth, policy makers in developing countries should attract foreign SMEs to undertake FDI in their countries by providing a very attractive business environment.

Suggested Citation

  • Shujiro Urata & Hiroki Kawai, 2000. "The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-sized Enterprises (in Japanese)," Economic Analysis, Economic and Social Research Institute (ESRI), vol. 158, pages 3-21, January.
  • Handle: RePEc:esj:esriea:158a
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    File URL: http://www.esri.go.jp/jp/archive/bun/bun158/bun158a.pdf
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    Cited by:

    1. Juan Felipe López Aymes, 2014. "Encadenamientos productivos en el sureste de Asia: integración a las redes globales con empresas locales," REVISTA DIGITAL MUNDO ASIA PACIFICO, UNIVERSIDAD EAFIT, vol. 4(5), pages 24-51, December.
    2. repec:wsi:serxxx:v:62:y:2017:i:02:n:s0217590815501155 is not listed on IDEAS
    3. Eichler, Stefan & Littke, Helge C. N., 2017. "Central bank transparency and the volatility of exchange rates," IWH Discussion Papers 22/2017, Halle Institute for Economic Research (IWH).
    4. Bulent Esiyok & Mehmet Ugur, 2017. "A Spatial Regression Approach To Fdi In Vietnam: Province-Level Evidence," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(02), pages 459-481, June.
    5. Salike, Nimesh, 2016. "Role of human capital on regional distribution of FDI in China: New evidences," China Economic Review, Elsevier, vol. 37(C), pages 66-84.
    6. Claudiu Tiberiu Albulescu & Matei Tămăşilă, 2016. "Exploring the role of FDI in enhancing the entrepreneurial activity in Europe: a panel data analysis," International Entrepreneurship and Management Journal, Springer, vol. 12(3), pages 629-657, September.
    7. Cleeve, Emmanuel A. & Debrah, Yaw & Yiheyis, Zelealem, 2015. "Human Capital and FDI Inflow: An Assessment of the African Case," World Development, Elsevier, vol. 74(C), pages 1-14.
    8. Noor Zahirah Mohd Sidek & Mohammed Yusoff & Qaiser Munir, 2009. "Exchange rate misalignment and capital inflows: An endogenous threshold analysis for Malaysia," Economics Bulletin, AccessEcon, vol. 29(4), pages 2700-2711.

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