How Does FDI Affect Productivity at Home?: Evidence from a Plant-Level Analysis
This study investigates the effect of foreign direct investments (FDI) on home productivity using plant-level data rather than firm-level data. Our results are consistent with the theoretical predictions. Horizontal FDI (HFDI) does not have a significantly positive effect on home productivity in plants that have the same activities abroad. In contrast, vertical FDI (VFDI) significantly enhances productivity in plants with an input–output relationship with activities relocated abroad. Furthermore, focusing on FDI in East Asia, the productivity improvements at home through VFDI are even greater, which might be caused by significant differences in factor prices between Japan and host countries.
KeywordsProductivity FDI Japan System GMM
JEL ClassificationF23 H32 O53
This research was conducted as a part of the Research Institute of Economy, Trade, and Industry (RIETI) research project. The preliminary version was published as RIETI Discussion Paper #08034. We are grateful to the Ministry of Economy, Trade, and Industry for providing us with the microdata used in this study. The opinions expressed in this paper are those of the authors and do not represent the views of any of the institutions with which we are affiliated. We would like to thank Masahisa Fujita, Kyoji Fukao, Ken Itakura, Fukunari Kimura, Hiroyuki Odagiri, Sadayuki Takii, Eiichi Tomiura, Hiroshi Yoshikawa, and the participants at the Japanese Economic Association Meeting and seminars in RIETI, Nagoya City University, and Yokohama National University for their valuable comments. We would also like to extend our special thanks to Ms. Yurika Uchida for her excellent research assistance. We gratefully acknowledge the financial support received from the Japan Society for the Promotion of Science (Grant-in-aid for Scientific Research C 26380311 to T. Matsuura, Grant-in-aid for Scientific Research B 26285058 to K. Hayakawa and T. Matsuura).
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