FTA and Export Platform Foreign Direct Investment: Evidence from Japanese firm level data
This paper examines the choice of foreign direct investment (FDI) among four types—traditional horizontal FDI, traditional vertical FDI, export-platform horizontal FDI, and export-platform vertical FDI—focusing in particular on the recent phenomena of the export-platform type FDI. The theoretical discussion shows a prediction of the effect of free trade agreements (FTAs) on the FDI type chosen. The empirical discussion provides descriptive statistics which point to the growing importance of export-platform type FDI. It then shows supportive evidence for the model's prediction, using Japan's firm-level FDI data. More specifically, it is shown that regional trade agreements (RTAs), such as the Association of Southeast Asian Nations (ASEAN) or the North America Free Trade Agreement (NAFTA), drives horizontal export-platform-type FDI, whereas bilateral FTAs (Japan's economic partnership agreement in the context of the data used in this paper) in some cases induce vertical export-platform type FDI. The findings suggest some policy implications for FDI recipient countries. First, the obvious positive effect of an RTA on horizontal export-platform type FDI is an encouraging finding for countries forming them in that it leads to a reduction in production costs and a concomitant rise in production/consumption. Even more importantly, the finding is a testament to a rarely mentioned benefit of smaller countries joining RTAs. Second, the positive effect of a bilateral FTA between Japan and Malaysia on the vertical export-platform type FDI is also reassuring in the same reason of cost reduction and production/consumption increase.
|Date of creation:||Dec 2013|
|Date of revision:|
|Contact details of provider:|| Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901|
Web page: http://www.rieti.go.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mitsuyo Ando & Fukunari Kimura, 2005.
"The Formation of International Production and Distribution Networks in East Asia,"
in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 177-216
National Bureau of Economic Research, Inc.
- Mitsuyo Ando & Fukinari Kimura, 2003. "The Formation of International Production and Distribution Networks in East Asia," NBER Working Papers 10167, National Bureau of Economic Research, Inc.
- Richard Baldwin & Toshihiro Okubo, 2014.
"Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates,"
The World Economy,
Wiley Blackwell, vol. 37(8), pages 1051-1080, 08.
- Richard Baldwin & Toshihiro Okubo, 2012. "Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates," NBER Working Papers 18083, National Bureau of Economic Research, Inc.
- Baldwin, Richard & Okubo, Toshihiro, 2012. "Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates," CEPR Discussion Papers 8963, C.E.P.R. Discussion Papers.
- Richard BALDWIN & OKUBO Toshihiro, 2012. "Networked FDI: Sales and sourcing patterns of Japanese foreign affiliates," Discussion papers 12027, Research Institute of Economy, Trade and Industry (RIETI).
- Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, vol. 60(2), pages 293-314, August.
When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:13100. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko)
If references are entirely missing, you can add them using this form.