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Foreign Direct Investment and Exchange Rate Pass-through: Export Pricing Behaviors of Japanese Multinational Corporations

Author Info

  • Yushi Yoshida

    ()

    (Faculty of Economics, Kyushu Sangyo University)

Abstract

We examine the effect of foreign direct investment by exporters on a price of their exporting products. We propose several theoretical models of foreign direct investment for both vertical market structure and horizontal expansions of plants. The features of models considered include partial ownership, bargaining power, multiple investments and capacity constraints. Existing empirical researches of foreign direct investment are mostly presented with macroeconomic aggregated data. Our micro survey data offers explanations for purpose of foreign direct investment, indicating for either distribution subsidiary, production subsidiary, or both. By distinguishing the purpose of investment, different hypothesis for the effects of foreign direct investment on exchange rate pass-through can be tested. We find significant effects of foreign direct investments for both distribution subsidiary and production subsidiary. Moreover, foreign direct investments in a European country are shown to affect exchange rate pass-through of other European countries whereas investments in an Asian country do not affect the pricing behavior in other Asian countries.

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File URL: http://www.ip.kyusan-u.ac.jp/keizai-kiyo/dp20.pdf
File Function: First version, 2005Feb
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Paper provided by Kyushu Sangyo University, Faculty of Economics in its series Discussion Papers with number 20.

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Length: 69 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:kyu:dpaper:20
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Keywords: bargaining; exchange rate pass-through; foreign direct investment; horizontal and vertical structure; partial ownership;

Find related papers by JEL classification:

  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade
  • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
  • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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  1. repec:dgr:uvatin:20010006 is not listed on IDEAS
  2. By Shinji Takagi & Yushi Yoshida, 2001. "Exchange Rate Movements and Tradable Goods Prices in East Asia: An Analysis Based on Japanese Customs Data, 1988–1999," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 266-289.
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  14. Paul R. Bergin & Robert C. Feenstra, . "Pricing To Market, Staggered Contracts, And Real Exchange Rate Persistence," Department of Economics 99-01, California Davis - Department of Economics.
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  18. Kadiyali, Vrinda, 1997. "Exchange rate pass-through for strategic pricing and advertising: An empirical analysis of the U.S. photographic film industry," Journal of International Economics, Elsevier, vol. 43(3-4), pages 437-461, November.
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