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Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis

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  • Katayama, Seiichi
  • Lahiri, Sajal
  • Tomiura, Eiichi

Abstract

This paper first of all develops a Cournot oligopolistic model with heterogeneous firms to examine each firm's choice between export-oriented foreign direct investments (FDI) and FDI to serve the host-country market. It is shown that there exist a critical level of efficiency such that all firms below that level choose the former and those above it the latter. The hypothesis is tested using firm-level data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.

Suggested Citation

  • Katayama, Seiichi & Lahiri, Sajal & Tomiura, Eiichi, 2011. "Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis," Japan and the World Economy, Elsevier, vol. 23(3), pages 170-177.
    • Handle: RePEc:eee:japwor:v:23:y:2011:i:3:p:170-177
    DOI: 10.1016/j.japwor.2011.02.001
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    References listed on IDEAS

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    1. Liu, Yi & Lahiri, Sajal & Liu, Tianqi, 2018. "Optimal Partial Privatization in the Presence of Foreign Competition: The Role of Efficiency Differentials and Unemployment," MPRA Paper 91471, University Library of Munich, Germany, revised 23 Jan 2019.

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    More about this item

    Keywords

    Cost heterogeneity; Oligopoly; Foreign direct investment; Export-oriented FDI; FDI destination;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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