A new institutional approach to Japanese firms' foreign direct investment under free trade agreements

Ishido Hikari

No 608, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper examines the determinants of foreign direct investment (FDI) under free trade agreements (FTAs) from a new institutional perspective. First, the determinants of FDI are theoretically discussed from a new institutional perspective. Then, FDI is statistically analyzed at the aggregate level. Kernel density estimation of firm-size reveals some evidence of "structural changes" after FTAs, as characterized by the investing firms' paid-up capital stock. Statistical tests of the average and variance of the size distribution confirm this in the case of FTAs with Asian partner countries. For FTAs with South American partner countries, the presence of FTAs seems to promote larger-scale FDIs. These results remain correlational instead of causal, and more statistical analyses would be needed to infer causality. Policy implications suggest that participants should consider "institutional" aspects of FTAs, that is, the size matters as a determinant of FDI. Future work along this line is needed to study "firm heterogeneity."

Keywords: Foreign investments; International trade; International agreements; Foreign direct investment; Trade in services; Free trade agreements; ASEAN countries; Location choice (search for similar items in EconPapers)
JEL-codes: F14 F15 F21 (search for similar items in EconPapers)
Date: 2016-07-01
New Economics Papers: this item is included in nep-bec and nep-int
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 608. 2016-07-01

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