Is Japanese FDI a Substitute for or a Complement to Trade in Asia?
This paper analyzes the effects of Japanese FDI on international trade in manufacturing industries during the period 1989-2004. The panel regressions are conducted for the net export of the six selected Asian countries at a sectoral level. The econometric analysis reveals some FDI tends to simulate bilateral trade, while other FDI has a tendency to reduce the volume of bilateral trade. The analysis also reveals that FDI into non-manufacturing sectors and all other manufacturing sectors has spillover effects on trade of manufactured goods in some countries and manufacturing industries. The relationship between capital movement and bilateral trade is not one consistent pattern of substitutability or complementarity but differs across manufacturing sectors and countries in Asia.
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