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Macroeconomic, institutional, and sectoral determinants of outward foreign direct investment: Evidence from Japan
Author(s) -
Chiappini Raphael,
Viaud François
Publication year - 2021
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12347
Subject(s) - foreign direct investment , openness to experience , economics , international economics , gravity model of trade , value (mathematics) , language change , investment (military) , manufacturing sector , monetary economics , macroeconomics , psychology , social psychology , art , literature , machine learning , computer science , politics , political science , law
This paper empirically explores the determinants of outward foreign direct investment (FDI) in the Japanese manufacturing sector. We estimate a gravity model of FDI for 30 host countries covering the period 2005–2017, using Poisson pseudo maximum likelihood to tackle the issue of zero‐value observations. The results indicate that Japanese overseas investments are not only driven by traditional factors, such as market size, the yen real exchange rate, trade openness, differences in perception of corruption, and financial instability, but also by industry characteristics. In particular, we find that low technological industries characterized by growing labour costs are more likely to be relocated abroad. Furthermore, we demonstrate nonlinearities in the determinants of Japanese overseas investments depending on the host country's development, the host country's region, and the category of FDI implemented (vertical vs horizontal).