|Author Name||TANAKA Kiyoyasu (Institute of Developing Economies, JETRO)
|Creation Date/NO.||January 2015 15-E-009|
|Research Project||Competitiveness of Japanese Firms: Causes and Effects of the Productivity Dynamics
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Inward foreign direct investment affects industrial productivity in a host country through a wide range of channels as the presence of foreign firms is heterogeneous across industries, regions, and their characteristics such as entry mode and nationality. Because a wide variety of potential variables pose serious model uncertainty, I adopt a Bayesian-model averaging (BMA) approach to estimate the impact of foreign firms on industry- and prefecture-level productivity in Japan. I find that the foreign presence may contribute to industrial efficiency directly through their above-average productivity and indirectly through positive spillovers in intra-industry and local backward linkages. These positive impacts are likely to occur as a result of the foreign firms being owned by North American and European investors and the foreign firms making joint venture and merger and acquisition (M&A) investments to enter the Japanese market. By contrast, the foreign presence in distant downstream sectors and local upstream sectors may have negative impacts.