Impact of Extensive and Intensive Margins of FDI on Corporate Domestic Performance: Evidence from Japanese automobile parts suppliers

Author Name MATSUURA Toshiyuki  (Keio Economic Observatory, Keio University)
Creation Date/NO. March 2015 15-E-032
Research Project Global Markets and Japan's Industrial Growth
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This study investigates the impact of foreign direct investment (FDI) on domestic corporate performance using firm-level data on Japanese automobile parts suppliers. While previous studies used the propensity score matching method and focused mainly on the impact of the extensive margin of FDI, this study uses data on the automobile makers' FDI as an instrumental variable for suppliers' FDI and estimates the impact of both extensive and intensive margins of FDI on domestic corporate performance. Our empirical results reveal that while the impact of intensive margins of FDI has no significant impact on corporate performance, FDI in both developed and developing countries has a positive impact on sales and total factor productivity (TFP) in the case of extensive margins. Furthermore, the impact of the first flow of FDI is more profound than that of subsequent flows.