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Japanese and U.S. Exports and Investment as Conduits of Growth

  • Jonathan Eaton
  • Akiko Tamura

We develop a simple model of the choice between exploiting a technology in another country via export and via direct foreign investment. The model points to the destination country's size, level of technological sophistication, and distance from the source as factors in the decision. Moreover, it suggests that the effects of these variables may not only be nonhomogeneous but nonmonotonic as well. We use the model as a basis for estimating Japanese and U.S. exports and DFI positions around the world. Consistent with the theory we find that the importance of DFI relative to exports grows with population, although, contrary to our theory, the elasticity of DFI, as well as exports, with respect to population is less than one. We find that distance tends to inhibit DFI much less than it inhibits exports, as our theory predicts. We find some tendency for Japanese exports to rise relative to DFI as countries become more advanced with U.S. exports and DFI exhibiting the opposite tendency. Taking population, per capita income, factor endowments, and distance into account, we find Japan to be more open to U.S. exports than any region in the world except East Asia.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5457.

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Date of creation: Feb 1996
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Publication status: published as Financial Deregulation and Integration in East Asia, Takatoshi Ito and Anne O. Kruger, eds., University of Chicago Press, 1996, pp. 51-72
Handle: RePEc:nbr:nberwo:5457
Note: ITI
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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  2. Drysdale, Peter & Garnaut, Ross, 1982. "Trade Intensities and the Analysis of Bilateral Trade Flows in a Many-Country World : A Survey," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 22(2), pages 62-84, February.
  3. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  4. Jonathan Eaton & Samuel Kortum, 1994. "International patenting and technology diffusion," Finance and Economics Discussion Series 94-35, Board of Governors of the Federal Reserve System (U.S.).
  5. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc.
  6. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  7. Douglas D. Purvis, 1971. "Technology, Trade and Factor Mobility," Working Papers 54, Queen's University, Department of Economics.
  8. S. Lael Brainard, 1993. "An Empirical Assessment of the Proximity-Concentration Tradeoff between Multinational Sales and Trade," NBER Working Papers 4580, National Bureau of Economic Research, Inc.
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