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R&D Investment and Overseas Production: An Empirical Analysis of Japan's Electric machinery Industry Based on Corporate Data

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  • Kyoji Fukao
  • Toshiyasu Izawa
  • Morio Kuninori
  • Toru Nakakita

Abstract

This paper studies determinants of the decision to invest abroad. Among them, we follow the current mainstream theory of foreign direct investment so as to emphasize the stock of technological knowledge. We explicitly solve the optimal geographical composition(i.e. domestic vs. abroad) of the total production of companies. The analysis suggests that the relationship between technological knowlege and overseas production depends on relative prices of factors of production at home and abroad and on the elasticity of substitution between them. It is especially shown that under certain realistic assumptions, companies with a larger stock of technological knowlege have a lower proportion of production in developing countries, but have a higher proportion developed countries exclusive of Japan. We test this hypothesis using corporate data of Japan's electric machinery industry. The empirical results are consistent with the theory. Besides the stock of technological knowledge, the paper investigates the explanatory power of other factors, such as company size, advertising intensity, and horizontal keiretsu.

Suggested Citation

  • Kyoji Fukao & Toshiyasu Izawa & Morio Kuninori & Toru Nakakita, 1994. "R&D Investment and Overseas Production: An Empirical Analysis of Japan's Electric machinery Industry Based on Corporate Data," Discussion Paper Series a300, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hituec:a300
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    Cited by:

    1. Belderbos, Rene & Sleuwaegen, Leo, 1998. "Tariff jumping DFI and export substitution: Japanese electronics firms in Europe," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 601-638, September.
    2. Ana Teresa Tavares & Aurora A.C. Teixeira, 2006. "Is Human Capital a Significant Determinant of Portugal’s FDI Attractiveness?," FEP Working Papers 211, Universidade do Porto, Faculdade de Economia do Porto.
    3. Belderbos, R.A., 2000. "Foreign investment and international plant configuration : whither the product cycle?," Research Memorandum 003, Maastricht University, Netherlands Institute of Business Organization and Strategy Research (NIBOR).
    4. René Belderbos, 1997. "Antidumping and tariff Jumping: Japanese firms’ DFI in the European union and the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(3), pages 419-457, September.
    5. Belderbos, Rene & Capannelli, Giovanni & Fukao, Kyoji, 2001. "Backward Vertical Linkages of Foreign Manufacturing Affiliates: Evidence from Japanese Multinationals," World Development, Elsevier, vol. 29(1), pages 189-208, January.
    6. Blonigen, Bruce A. & Ellis, Christopher J. & Fausten, Dietrich, 2005. "Industrial groupings and strategic FDI," Japan and the World Economy, Elsevier, vol. 17(2), pages 125-150, April.

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