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The Extent and History of Foreign Direct Investment in Japan

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  • Ralph Paprzycki
  • Kyoji Fukao

Abstract

The past few decades have seen a significant rise in foreign direct investment(FDI) worldwide. While Japanese companies have actively contributed to this trend, FDI in Japan continues to be much lower than in other countries. This paper explores the history of both outward and inward FDI in Japan, looking in particular at the reasons for the low levels of inward FDI. New calculations for this paper - based on data from the Establishment and Enterprise Census - show that foreign firms' role in the Japanese economy may be substantially larger than the most frequently cited published statistics suggest. In some industries (motor vehicles and electrical machinery in particular), inward FDI penetration, as measured by the share of employment accounted for by foreign affiliates, in Japan in fact is on par with the United States. However, a large number of "sanctuaries" with almost no foreign involvement remain, so that FDI penetration overall is still very low. While to some extent, this can be explained by Japan's relatively isolated geographic location, historical factors play an important role. Throughout the centuries and until quite recently, Japan's rulers have viewed foreign involvement in the economy as a threat and consequently erected various barriers to FDI, which are discussed in detail.

Suggested Citation

  • Ralph Paprzycki & Kyoji Fukao, 2005. "The Extent and History of Foreign Direct Investment in Japan," Hi-Stat Discussion Paper Series d05-84, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hst:hstdps:d05-84
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    File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2005/pdf/D05-84.pdf
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    Cited by:

    1. Kyoji Fukao & Keiko Ito & Hyeog Ug Kwon & Miho Takizawa, 2008. "Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data," NBER Chapters,in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 347-389 National Bureau of Economic Research, Inc.
    2. Ralph Paprzycki, 2006. "The Impact of Foreign Direct Investment in Japan: Case Studies of the Automobile, Finance, and Health Care Industries," Hi-Stat Discussion Paper Series d05-141, Institute of Economic Research, Hitotsubashi University.
    3. Ralph Paprzycki, 2007. "The Determinants of and Prospects for Foreign Direct Investment in Japan," Hi-Stat Discussion Paper Series d07-211, Institute of Economic Research, Hitotsubashi University.

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