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International Production/Distribution Networks and Domestic Operations in terms of Employment and Corporate Organization: Microdata Analysis of Japanese Firms

  • ANDO Mitsuyo
  • KIMURA Fukunari

This paper empirically investigates patterns of globalizing corporate activities and their domestic operations and trade, using firm-level panel data on Japanese firms in 1998-2003. Journalistic literature in North America and Europe often claims that the globalization of corporate activities, particularly the expansion of operations in less-developed countries, is prone to reduce domestic corporate activities. This paper proves that such a claim of industrial hollowing-out is unwarranted, at least at the firm level, in the case of Japanese manufacturing firms investing in East Asia. The manufacturing sector in Japan has had a secular trend of reducing domestic employment in the past decades. The regression analysis, however, finds that manufacturing firms expanding operations in East Asia are more likely to increase domestic employment than other manufacturing firms, while non-manufacturing firms, mostly in the wholesale sector, do not present such a significant pattern; the growth of domestic employment of globalizing manufacturing firms is higher by as much as three to eight percent. As for domestic establishments and affiliates, manufacturing firms expanding operations in East Asia do not present any statistically significant differences from other manufacturing firms, while non-manufacturing firms tend to reduce it. Furthermore, firms expanding operations in East Asia tend to intensify export/import activities with East Asia more than other firms, suggesting the complementarity between trade and FDI. This is further supporting evidence for expanding fragmentation of production by Japanese firms and their involvement in further development of production/distribution networks in East Asia. Overall, Japanese manufacturing firms globalizing corporate activities seem to retain larger domestic operations than other firms. Such tendency is actually stronger in machinery industries in which international production/distribution networks are actively extended.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 07063.

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Length: 31 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:eti:dpaper:07063
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  1. Blomström, Magnus & Fors, Gunnar & Lipsey, Robert E., 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," SSE/EFI Working Paper Series in Economics and Finance 200, Stockholm School of Economics.
  2. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
  3. Kyoji Fukao & Keiko Ito, 2003. "Physical and Human Capital Deepening and New Trade Patterns in Japan," Hi-Stat Discussion Paper Series d03-03, Institute of Economic Research, Hitotsubashi University.
  4. Alexander Hijzen & Holger Görg & Robert C. Hine, 2005. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Economic Journal, Royal Economic Society, vol. 115(506), pages 860-878, October.
  5. Takatoshi Ito & Andrew K. Rose, 2005. "International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14," NBER Books, National Bureau of Economic Research, Inc, number ito_05-1, December.
  6. Ando, Mitsuyo, 2006. "Fragmentation and vertical intra-industry trade in East Asia," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 257-281, December.
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