The Impact of Foreign Direct Investment in Japan: Case Studies of the Automobile, Finance, and Health Care Industries

Having historically received very little foreign direct investment, Japan has experienced a substantial increase in such inflows in recent years. This paper analyzes the impact of the growing presence of foreign firms on the Japanese economy through detailed case studies on the automobile, finance, and health care industries. The wholesale & retail and the telecommunications sector are also briefly examined. The case studies show that in the sectors considered, foreign firms in one way or another are contributing to a greater degree of competition, are exposing domestic firms to global best practice, and are increasing the range of products and services available in Japan. In many of the sectors, they are also contributing to changes in industry structure and employment practices. The case studies thus illustrate that foreign direct investment - even at its present levels, which, although large by Japanese standards, are still low in international comparison - can be an important catalyst for change and hence help to reinvigorate the Japanese economy.

What Caused the Recent Surge of FDI into Japan?

In recent years, foreign direct investment (FDI) in Japan has jumped to unprecedented levels. This paper examines the underlying reasons, looking at both the international factors - the global boom in FDI and mergers & acquisitions(M&A) during 1998-2000 - and domestic regulatory, structural and other changes. It is argued that while domestic changes created the necessary conditions for Japan to participate in the global M&A boom, FDI inflows failed to develop a momentum of their own. Thus, rather than the result of a sudden transformation of the country into a major destination for global FDI flows, the recent surge in Japan was primarily driven by global trends.

The Determinants of and Prospects for Foreign Direct Investment in Japan

Although Japan experienced a significant jump in inward foreign direct investment (FDI) around the turn of the millennium, the level of inward FDI penetration remains much lower than in many other countries. Looking at the factors that determine Japan's attractiveness as an investment destination for foreign multinationals, this paper examines the prospects for future FDI inflows. Topics addressed include the macroeconomic outlook for Japan (an important factor for market-seeking FDI), political, social and cultural factors reflecting Japan's willingness to embrace globalization, and policies the government could pursue to attract more FDI. It is argued that although Japan has clearly "opened up," lingering unease over a more laissez-faire market economy and inward foreign inward remains widespread and certain patterns from the past are beginning to reappear. A key issue in this context are merger and acquisition (M&A) rules and their implications are discussed in detail. The paper concludes by suggesting that unless Japan embarks on further substantial deregulation, increases in FDI inflows are likely to remain moderate and inward FDI penetration will continue to significantly trail behind that in other major advanced economies.

Investment, Production and Trade Networks as Drivers of East Asian Integration

This paper shows that foreign direct investment (FDI), production and trade networks have been a principal driver of East Asian integration. A key element in this has been the role of production sharing, in which different stages of the production process are dispersed across countries in the region. The rise of such patterns of production has been facilitated by the unilateral liberalization of trade and investment by governments in the region to attract FDI. However, liberalization and the resulting pattern of regional integration have been heavily concentrated in a select number of industries (led by electrical machinery) and are largely confined to a particular form of supply]side integration (production sharing), and the region continues to depend on external demand.

Deposit Insurance and Depositor Discipline: Direct Evidence on Bank Switching Behavior in Japan

As Japan's financial system moves toward a more market oriented one, depositor discipline is expected to play a larger role in the monitoring of the country's banks. Relying on detailed survey data on households' bank switching behavior matched with banks' financial data, we examine households' response to bank risk and different deposit insurance schemes. We find that bank switching in response to risk was more frequent in 2001 than in 1996 and that households' choice of bank provides an adequate reflection of banks' financial health. We also examine the determinants of households' knowledge of the deposit insurance scheme and find that income, the amount of households' financial assets, and educational attainment are all significant factors. What is more, households' extent of knowledge regarding the deposit insurance scheme was an important determinant of bank switching behavior. The results suggest that depositor discipline appears to work and could play an important supplementary role in monitoring the banking sector.depositor discipline, deposit insurance, pay-off, dopositor-level data

Investment, Production and Trade Networks as Drivers of East Asian Integration

This paper shows that foreign direct investment (FDI), production and trade networks have been a principal driver of East Asian integration. A key element in this has been the role of production sharing, in which different stages of the production process are dispersed across countries in the region. The rise of such patterns of production has been facilitated by the unilateral liberalization of trade and investment by governments in the region to attract FDI. However, liberalization and the resulting pattern of regional integration have been heavily concentrated in a select number of industries (led by electrical machinery) and are largely confined to a particular form of supply-side integration (production sharing), and the region continues to depend on external demand

Regional Inequality and Industrial Structures in Pre-War Japan: An Analysis Based on New Prefectural GDP Estimates

Studies comparing regional income in Japan before and after World War II have frequently drawn a picture of radical change from an economy characterized by large regional disparities to one characterized by small regional disparities. This paper comes to a very different conclusion. Based on estimates of prefecture-level value added for five benchmark years from 1890 to 1940 (a detailed description of our estimation methodology is provided), we examine trends in the gap of economic development between prefectures during the pre-war period and find that this gap was much smaller than claimed in preceding studies and, in fact, not much greater than during the post-war period. Observing, moreover, a decline in inter-prefectural differences in terms of per-capita gross value added during the pre-war period, we conduct a factor analysis and find that a major reason for this decline was a decline in inter-prefectural differences in same-industry labor productivity. Thus, the picture of modern Japan's economic development presented here is very different from the one painted by preceding studies.

The Determinants of and Prospects for Foreign Direct Investment in Japan

Although Japan experienced a significant jump in inward foreign direct investment (FDI) around the turn of the millennium, the level of inward FDI penetration remains much lower than in many other countries. Looking at the factors that determine Japan's attractiveness as an investment destination for foreign multinationals, this paper examines the prospects for future FDI inflows. Topics addressed include the macroeconomic outlook for Japan (an important factor for market-seeking FDI), political, social and cultural factors reflecting Japan's willingness to embrace globalization, and policies the government could pursue to attract more FDI. It is argued that although Japan has clearly "opened up," lingering unease over a more laissez-faire market economy and inward foreign inward remains widespread and certain patterns from the past are beginning to reappear. A key issue in this context are merger and acquisition (M&A) rules and their implications are discussed in detail. The paper concludes by suggesting that unless Japan embarks on further substantial deregulation, increases in FDI inflows are likely to remain moderate and inward FDI penetration will continue to significantly trail behind that in other major advanced economies.21世紀COEプログラム = 21st-Century COE Progra

Investment, Production and Trade Networks as Drivers of East Asian Integration

December 2009This paper shows that foreign direct investment (FDI), production and trade networks have been a principal driver of East Asian integration. A key element in this has been the role of production sharing, in which different stages of the production process are dispersed across countries in the region. The rise of such patterns of production has been facilitated by the unilateral liberalization of trade and investment by governments in the region to attract FDI. However, liberalization and the resulting pattern of regional integration have been heavily concentrated in a select number of industries (led by electrical machinery) and are largely confined to a particular form of supply‐side integration (production sharing), and the region continues to depend on external demand.グローバルCOEプログラム = Global COE Program46 p