In this paper we statistically test the validity of the mechanics of complex VFDI in Japanesemachinery FDI to East Asia; we do this by estimating a multiple-spatial lag model. From thetheoretical point of view, in complex VFDI, the production activity of affiliates in a given countryis positively related to that in neighboring countries which have large differences in factor priceswith the given country. Our empirical results show that such mechanics of complex VFDI workin Japanese FDI to East Asia, and that they work more strongly in the MNEs with higherproductivity. These results have an important implication for the policies of developing countriesin attracting FDI
