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Japan's Foreign Direct Investment and Structural Changes in Japanese and East Asian Trade

Author

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  • Koike, Ryoji

    (Institute for Monetary and Econ Studies, Bank of Japan)

Abstract

In this paper, we analyze both the impact of Japan's foreign direct investment (FDI) into East Asia on trade and the structural changes in trade that have occurred in the region. To do this, we estimate gravity equations using trade data disaggregated to the industry and product levels. Our analysis shows that the impact of FDI on trade varies by industry. Specifically, in the electrical machinery sector, the positive impact of FDI on trade increased substantially from the 1990s, when the division of labor was advancing rapidly, especially for IT- related products. In the textile industry, which experienced a moderate increase in the division of labor primarily for intermediates, the impact of FDI on trade was positive, although not as great as seen in the electrical machinery industry. On the other hand, in the transportation machinery industry, where production processes were shifted from Japan to other East Asian countries and where Japan's exports were substituted with local production, FDI had virtually no impact on trade.

Suggested Citation

  • Koike, Ryoji, 2004. "Japan's Foreign Direct Investment and Structural Changes in Japanese and East Asian Trade," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(3), pages 145-182, October.
    • Handle: RePEc:ime:imemes:v:22:y:2004:i:3:p:145-182
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    2. Hitoshi Sasaki & Yuko Koga, 2005. "Trade Patterns in Japan's Machinery Sector," Bank of Japan Working Paper Series 05-E-15, Bank of Japan.

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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
    • L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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