Kudoka and the Japanese Worker

Japanese multinational enterprises (MNEs) have rapidly increased their overseas production since the late 1980s. Well-known manufacturers such as Sony and Toyota now employ tens of thousands of local workers in their overseas manufacturing plants, and Matsushita has as many foreign employees as domestic employees. Outflows of direct investment from Japan was not unique to a few large firms: Japanese direct investment reached $67 billion in 1989 and accounted for roughly one-quarter of the world’s foreign direct investment in the 1980s. There has been a longstanding concern that overseas investment harms domestic workers. When a firm chooses to produce goods abroad there may be a dislocation of domestic workers, leading to short-term unemployment and long-term downward pressure on wages. The phenomenon of moving manufacturing overseas has been dubbed ‘hollowing out’ in North America, a term translated into Japanese as kudoka. There are theoretical reasons, however, to question the simple logic that overseas production has adverse domestic market consequences. Indeed FDI may increase the demand for certain types of worker or even all workers.