Economic Impact of Japan's Food and Agricultural FDI on Worldwide Recipient Countries

The consumption of food and agricultural (F&A) products in Japan is flattening out. As a result, the sector has been shrinking reheating the talks in Japan about the need to establish policies aimed at revitalizing and enlarging the scope of the Japanese agri-business. One possible strategic response is overseas expansion which also bears the potential to improve food availability for Japanese consumers. However, concerns have been raised over whether outward FDI in F&A may in fact aggravate the country’s food security problem by having a “boomerang effect” on the farming sector caused by FDI-induced F&A exports to Japan, an issue closely related to Japan’s import protection policies. This paper discusses the impacts of Japan’s outward FDI in the F&A sectors and Japan’s F&A import protection policies. Two complementary methodologies are adopted. First, a panel data specification is used to assess the F&A productivity response to Japanese FDI in the recipient economies. Following, the GTAP model is employed to analyze the worldwide impacts of Japanese outward FDI in F&A and the effects of unilateral changes in Japan’s agricultural import protection policies. The major policy implications derived from this study are: increases in Japanese FDI can contribute to enhance F&A production in some of the regions considered, although the impact is small; Japan’s FDI is welfare-improving in both supplier and those recipient regions able to rip the benefits of the technological spillovers; concerns that outward FDI could have a boomerang effect in Japan seem to be justified although this conclusion is largely influenced by the year of the database used; an import tariff increase makes Japanese consumers worse-off, producers better-off and improves the country’s self-sufficiency rate; and import tariff reduction has positive impact for Japanese consumers, hurts producers and Japan experiences a deterioration of its self-sufficiency rate.