Globalizing Corporate Activities in East Asia and Impact on Domestic Operations: Further evidence from Japanese manufacturing firms

This paper empirically investigates the pattern of globalizing corporate activities of Japanese manufacturing firms and its impact on their domestic operations and international trade, using 1998-2006 firm level data. More specifically, we compare changes in the domestic operations and international trade of firms expanding operations in East Asia against firms not expanding operations in two periods, 1998-2002 and 2002-2006. For our analysis in the latter period, we also incorporate the information on the firms' globalizing behavior in the former period. In addition, we conduct analyses to compare changes of firms becoming MNEs with firms choosing to remain domestic, and we also compare MNEs that are expanding operations with those not expanding operations. Although the globalization of corporate activities in less developed countries is thought to negatively affect operations and employment at home, our analysis finds that Japanese manufacturing firms expanding operations in East Asia are more likely to increase domestic employment and both the number of domestic affiliates and establishments. Such a tendency is particularly observed in the latter period, when the international division of labor in the region is more active. Furthermore, manufacturing firms that expand operations in East Asia tend to intensify their export and import activities in the region, suggesting the existence of complementary operations. At the individual firm level, the fragmentation of production by Japanese manufacturing firms seems to generate additional jobs and boost operations at home by effectively utilizing the mechanics of production process-wise division of labor in East Asia.