Abstract
The fraction of exporters and multinational enterprises (MNEs) varies substantially across industries. We extend the firm heterogeneity model presented by Helpman et al. (Am Econ Rev 94(1):300–316, 2004) to derive testable predictions about the prevalence of these internationalized modes. The model indicates that intra-industry firm heterogeneity and R&D intensity play large roles in inter-industry variation of the fraction of internationalized firms. We investigate whether these factors affect the structure of export and foreign direct investment (FDI) using Japanese industry-level data. We obtain results that are consistent with the model. First, industries with larger productivity dispersion have a larger fraction of MNEs and a larger fraction of the sum of exporters and MNEs. Second, MNEs are heavily concentrated in R&D-intensive industries.
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Notes
- 1.
Our model and approach differ from those of Helpman et al. (2004) in several respects. We simplify the model, as Yeaple (2009) did. First, the model is not closed via a free-entry condition. Second, we do not solve for the full general equilibrium of the model. Rather, we present a partial-equilibrium analysis. We, therefore, take a reduced-form approach in our empirical analysis.
- 2.
We omit to describe the mechanism how a firm chooses to enter an industry.
- 3.
We assume that k is given and do not consider what determines k. Recent studies suggest that demand structure is one of determinants of k. Syverson (2004) reveals high-substitutability industries exhibit less productivity dispersion.
- 4.
- 5.
Taking derivative of δ X with respect to k, we obtain \(\frac{{\partial \delta }^{X}} {\partial k} = \frac{{\partial \delta }^{N}} {\partial k} -\frac{{\partial \delta }^{I}} {\partial k} = \left (\frac{{\varphi }^{D}} {{\varphi }^{X}}\right )^{k}\ln \left(\frac{{\varphi }^{D}} {{\varphi }^{X}}\right ) -\left(\frac{{\varphi }^{D}} {{\varphi }^{I}} \right )^{k}\ln \left(\frac{{\varphi }^{D}} {{\varphi }^{I}} \right )\), where both of the first and second terms are negative since \(0 <\left(\frac{{\varphi }^{D}} {{\varphi }^{I}} \right )^{k} < \left (\frac{{\varphi }^{D}} {{\varphi }^{X}}\right )^{k}\) and \(\ln \left(\frac{{\varphi }^{D}} {{\varphi }^{I}} \right ) <\ln \left(\frac{{\varphi }^{D}} {{\varphi }^{X}}\right ) < 0\). The sign of this derivative, therefore, is negative if a decrease in k raises the fraction of the sum of exporters and MNEs more than that of MNEs. In such a case, a decrease in k leads to an increase in the fraction of non-MNE exporters.
- 6.
We do not have access to firm-level data for this study, although we have information about the number of foreign affiliates, dispersion of sales, and other industry-level variables. Appendix explains the data and variables we use in this chapter in more detail.
- 7.
List of countries by regions are given in Table 5.
- 8.
The Middle East, Central and South America, Africa, and Oceania are all classified as “the other regions” in our data.
- 9.
While we have import tariff data, we do not have any data on variable trade costs of Japanese firms when they export their goods.
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Acknowledgements
I thank Masahiro Endoh, Masahisa Fujita, Taiji Furusawa, Jota Ishikawa, Naoto Jinji, Fukunari Kimura, Yoshinori Kurokawa, Naoko Matsumoto, Masayuki Morikawa, Se-il Mun, Jee-Hyeong Park, Kotaro Tsuru, Ryuhei Wakasugi, Naomitsu Yashiro, and other participants in seminars and conferences at Kyoto and Hitotsubashi Universities and RIETI, and the 2010 fall meeting of the Japanese Economic Association for their helpful comments and suggestions. I also thank Toshiyuki Matsuura and Banri Ito for providing me with diverse data, used in this chapter.
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Tanaka, A. (2014). Heterogeneity and the Structure of Export and FDI: A Cross-Industry Analysis of Japanese Manufacturing. In: Wakasugi, R. (eds) Internationalization of Japanese Firms. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54532-3_3
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