Outward Foreign direct investment and Firm-level Employment Dynamics in Japanese Manufacturing Firms

Author Name LIU Yang (Fellow, RIETI) / NI Bin (Hosei University)
Creation Date/NO. October 2018 18-E-069
Research Project RIETI Data Management Project
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The effects of overseas foreign direct investment (FDI) on domestic employment have drawn much academic and policy attentions. Most previous studies focused on the effect on net employment growth. However, the firm-level dynamic of "net employment growth = job creation - job destruction" means that the effects on job creation and destruction within firms are not clearly understood. For example, a positive effect on net employment growth could result from increasing job creation and decreasing job destruction, but it could also indicate decreasing job creation with a greater decrease in job destruction, for example. Furthermore, the mechanisms differ among effects on job creation and destruction. This study uses a unique dataset of Japanese firms' overseas activities to examine the individual effect of outward FDI on firm-level job creation and destruction, respectively. We found that investment in Asian countries has a positive impact on domestic job creation in Japan, whereas the impact of investment in European and North American countries is negative. In terms of job destruction, the impact is negative regardless of the FDI destination. The results are explained using the standard theory of job creation and destruction with FDI introduced.