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Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan

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  • Raphaël Chiappini

    () (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the relationship between outward foreign direct investment (FDI) and both exports and imports from Japan. Using the Poisson pseudomaximum likelihood (PPML) estimator developed by Santos Silva and Tenreyro (2006) to deal with the problem of zero trade flows when estimating a gravity equation, we show that the complementary relationship between FDI and exports is overestimated when using the Ordinary Least Square (OLS) estimator. The PPML method also allows sectoral estimation of the relationship. We find that whether outward FDI creates or replaces trade depends on the industry under scrutiny. Our results indicate that the complementary relationship between FDI and trade is dominant in the Japanese manufacturing sector, especially in electric machinery, transportation equipement and precision machinery. We find also that Japanese overseas investments substitute for exports in chemicals products and for both exports and imports in general machinery.

Suggested Citation

  • Raphaël Chiappini, 2013. "Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan," Post-Print hal-00857199, HAL.
  • Handle: RePEc:hal:journl:hal-00857199
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00857199
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    Cited by:

    1. Didier, Tatiana & Llovet, Ruth & Schmukler, Sergio L., 2017. "International financial integration of East Asia and Pacific," Journal of the Japanese and International Economies, Elsevier, vol. 44(C), pages 52-66.
    2. Huriye Alkin, 2018. "Gelen Dogrudan Yabanci Sermaye Yatırimlari ile Geri Bag Arasindaki Iliski," EconWorld Working Papers 18002, WERI-World Economic Research Institute, revised Mar 2018.

    More about this item

    Keywords

    imports; outward foreign direct investment(FDI); Poisson pseudo-maximum likelihood (PPML); Exports;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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