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Is starting FDI more productive than staying at home? Manufacturing and service sectors in Japan

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  • Yukiko Ito

Abstract

We highlight the difference between the service sector and the manufacturing sector in regard to the determinants for a firm to start foreign direct investment (FDI) and the resulting productivity growth. This paper analyzes two questions: (1) whether a certain level of initial productivity explains a firm's choice and (2) how the productivity of such a multinational firm changes over time after FDI. Using the longitudinal panel data on Japanese firms from 1980 to 2005, we trace firm-level decisions over decades. We find that the total factor productivity (TFP) does not explain a firm's choice for starting FDI in manufacturing, but it does in service sector. In contrast, the size and the profitability of firms motivate their FDI in the manufacturing sector, but these do not matter in the service sector. In addition, after FDI, we observe 1.3% annual growth rates of TFP in service, whereas firms in manufacturing show only 0.9% growth rates. To eliminate the selection bias, each multinational firm is paired with domestic firm(s) with similar ex-ante characteristics in the same industry.

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  • Yukiko Ito, 2015. "Is starting FDI more productive than staying at home? Manufacturing and service sectors in Japan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(1), pages 105-131, February.
    • Handle: RePEc:taf:jitecd:v:24:y:2015:i:1:p:105-131
    DOI: 10.1080/09638199.2013.877064
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    Cited by:

    1. Mitsuo Inada & Yung-Hsing Guo, 2016. "Heterogeneous Impacts of a Change in Chinese FDI Regulations on Domestic Market Outcomes: Empirical Evidence from Taiwanese Plant Data," KIER Working Papers 934, Kyoto University, Institute of Economic Research.
    2. Natália Barbosa, 2022. "Outward FDI, restructuring, performance upgrading and resilience: Firm-level evidence from Portugal," GEE Papers 0168, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Sep 2022.
    3. Kazunobu Hayakawa & Toshiyuki Matsuura & Kazuyuki Motohashi, 2016. "How Does FDI Affect Productivity at Home?: Evidence from a Plant-Level Analysis," Journal of Industry, Competition and Trade, Springer, vol. 16(4), pages 403-422, December.

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