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The Location of Japanese MNCs Affiliates: Agglomeration Spillovers and Firm Heterogeneity

  • Inui, Tomohiko
  • Matsuura, Toshiyuki
  • Pocet, Sandra

This study examines the determinants of location choices of foreign affiliates by manufacturing Japanese firms, using a new data set that matches parents and their affiliates created over the years 1995-2003. The analysis is based on new economic geography theory and thus focuses on the effect of market and supplier access, as well as production and trade costs. Our interest is twofold. First, we investigate the importance of agglomeration and spillover effects on the firms' decision through the use of proxies relating to the presence of Japanese affiliates in the host countries as well as to that of Japanese multinational firms at home. Overall, our results confirm the economic importance of information sharing and network effects both at home and in the host country beside traditional determinants pertaining to production and transaction costs and access and supply access. Second, we explore whether the effects of key determinants of locational choice vary substantially depending on the characteristics of the investing firm and the plant. We find less productive and smaller parents to be more likely to create an affiliate in China rather than in Western Europe or an OECD country. Moreover less productive firms appear to be more sensitive to distance-related costs and low institutional quality while being more responsive to the presence of Japanese firms and JETRO presence in the host country.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15911/1/DP506.pdf
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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a506.

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Length: 35 p.
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:hit:hituec:a506
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  1. Belderbos, Rene & Carree, Martin, 2002. "The Location of Japanese Investments in China: Agglomeration Effects, Keiretsu, and Firm Heterogeneity," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 194-211, June.
  2. Brian Aitken & Gordon H. Hanson & Ann E. Harrison, 1994. "Spillovers, Foreign Investment, and Export Behavior," NBER Working Papers 4967, National Bureau of Economic Research, Inc.
  3. Keith Head & John Ries & Deborah Swenson, 1994. "Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investment in the United States," NBER Working Papers 4767, National Bureau of Economic Research, Inc.
  4. Alexander HIJZEN & INUI Tomohiko & TODO Yasuyuki, 2007. "Does Offshoring Pay? Firm-Level Evidence from Japan," Discussion papers 07005, Research Institute of Economy, Trade and Industry (RIETI).
  5. Alexander HIJZEN & INUI Tomohiko & TODO Yasuyuki, 2007. "The Effects of Multinational Production on Domestic Performance: Evidence from Japanese Firms," Discussion papers 07006, Research Institute of Economy, Trade and Industry (RIETI).
  6. Bruce A. Blonigen & Christopher J. Ellis & Dietrich Fausten, 2003. "Industrial groupings and foreign direct investment," University of Oregon Economics Department Working Papers 2003-19, University of Oregon Economics Department, revised 01 Mar 2003.
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  8. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  9. Thierry Mayer & Isabelle Méjean & Benjamin Nefussi, 2007. "The Location of Domestic and Foreign Production Affiliates by French Multinational Firms," Working Papers 2007-07, CEPII research center.
  10. Kozo Kiyota & Toshiyuki Matsuura & Shujiro Urata & Yuhong Wei, 2005. "Reconsidering the Backward Vertical Linkage of Foreign Affiliates: Evidence from Japanese Multinationals," Discussion papers 05019, Research Institute of Economy, Trade and Industry (RIETI).
  11. Crozet, M. & Mayer, T. & Micchielli, J.L., 2000. "How Do Firms Agglomerate? A Study of FDI in France?," Papiers d'Economie Mathématique et Applications 2000.50, Université Panthéon-Sorbonne (Paris 1).
  12. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
  13. Keith Head & John Ries, 2003. "Heterogeneity and the FDI versus Export Decision of Japanese Manufacturers," NBER Working Papers 10052, National Bureau of Economic Research, Inc.
  14. Head, Keith & Mayer, Thierry, 2005. "Regional Wage and Employment Responses to Market Potential in the EU," CEPR Discussion Papers 4908, C.E.P.R. Discussion Papers.
  15. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
  16. Cieslik, Andrzej & Ryan, Michael, 2004. "Explaining Japanese direct investment flows into an enlarged Europe: A comparison of gravity and economic potential approaches," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 12-37, March.
  17. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
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  19. Fukunari Kimura & Kozo Kiyota, 2006. "Exports, FDI, and Productivity: Dynamic Evidence from Japanese Firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(4), pages 695-719, December.
  20. Breandan O Huallachain & Neil Reid, 1997. "Acquisition versus Greenfield Investment: The Location and Growth of Japanese Manufacturers in the United States," Regional Studies, Taylor & Francis Journals, vol. 31(4), pages 403-416.
  21. Redding, Stephen & Venables, Anthony J., 2003. "South-East Asian export performance: external market access and internal supply capacity," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 404-431, December.
  22. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  23. repec:cup:cbooks:9780521873680 is not listed on IDEAS
  24. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March.
  25. Pamina Koenig, 2005. "Agglomeration and the Export Decision of French Firms," Working Papers 2005-02, Centre de Recherche en Economie et Statistique.
  26. Guillaume Gaulier & Soledad Zignago, 2010. "BACI: International Trade Database at the Product-Level. The 1994-2007 Version," Working Papers 2010-23, CEPII research center.
  27. Greenaway, David & Sousa, Nuno & Wakelin, Katharine, 2004. "Do domestic firms learn to export from multinationals?," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1027-1043, November.
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