Globalization and Domestic Operations: Applying the JC/JD method to Japanese manufacturing firms

This paper applies the job creation (JC)/ destruction (JD) method to the micro data of Japanese manufacturing firms and provides a bird's eye portrait of the dynamism of globalizing firms in terms of domestic employment, domestic establishments, domestic affiliates, and trade. It examines gross and net changes in domestic operations and trade by multinational enterprises that expand operations abroad (expanding MNEs), compared with non-expanding MNEs and local firms, in the periods of 1998-2002, 2002-2006, 2006-2008, and 2008-2010. It also conducts the Kolmogorov-Smirnov test to investigate whether the changes in domestic operations and trade by expanding MNEs are larger than those by other firm types. Major findings are the following: (i) gross changes in domestic employment/operations are much larger than net changes, showing restructuring dynamism and firm heterogeneity, (ii) de-industrialization or the shrinkage of the manufacturing sector is not salient except for 1998-2002 although a slight declining trend in manufacturing activities has been observed recently, (iii) expanding multinational small and medium enterprises (SMEs) tend to enlarge domestic employment/operations, compared with other types of SMEs, (iv) expanding MNEs intensify headquarters activities, probably within international production networks, and (v) expanding multinational SMEs are likely to expand exports and imports more than other types of SMEs, suggesting active operations in international production networks particularly in East Asia.