The Role Of Fdi In Revitalizing Japan’S Economy

After more than a decade-long economic decline that Japan has experienced (the so-called “lost decade1” episode), the national government has currently turned to looking at foreign direct investment (FDI) as a way to improve potential growth rate and productivity. Consequently, it has at present become incontestable what significant value the global capital and FDI can have for the performance of Japanese economy, being a catalyst for growth and reform. The aim of the present paper is to analyze the trend of FDI inward flows in Japan before and during the economic international crisis, highlighting their role in sustaining and promoting economic growth. Although, during the crisis, FDI flows have declined dramatically in all developed countries, showing a steadily drop-off both in Europe and United States, at that time, in Japan, the trend of FDI inflows has increased. The analysis will focus on the main factors that have contributed to this tendency, pointing out the comparative advantages of Japan over the other developed countries (investment-friendly policies of the Japanese government, political stability, physical, financial and technological infrastructure, etc.). Besides, the article reviews the role of Japanese economy characteristics as determinants of foreign direct investment location patterns, underlying the internal macroeconomic factors that stimulate the flows of FDI and the linkage between FDI, trade, and other macroeconomic variables. Finally, the analysis will emphasize what policy actions the Japanese government may take with the view to increase foreign direct investments within the country.