Japanese Foreign Investment: An Empirical Study Using a Multi-Sectoral Econometric Model

Inaba, K. (1999). Japanese Foreign Investment: An Empirical Study Using a Multi-Sectoral Econometric Model. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-99-031

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Abstract

This paper focuses on the Japanese foreign direct investment (FDI) behaviors and their effects on the balance of payments. An econometric model which we built enables us to analyze these effects quantitatively. The model consists of the domestic sector and the international sector, and its equations describe Japanese overseas activities and trade between Japanese foreign affiliates and domestic firms by industry. The equations of the international sector explain the displacement and associated effects of Japanese exports and the boomerang effect due to the increased overseas production. Some simulation results tell us that an increase of Japanese FDI did not necessarily contribute to reducing the huge Japanese trade surplus in the 1980's, but suggest that the structural changes of overseas production in the 1990's may have had a great impact on the trade balance.

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