Firm–Specific Assets and the Link between Exchange Rates and Japanese Foreign Direct Investment in the United States: A Re–examination

Jie Q. Guo and Pravin Trivedi

The Japanese Economic Review, 2002, vol. 53, issue 3, 337-349

Abstract: Blonigen has studied Japanese foreign direct investment (FDI) in the USA using panel count models and data for 1975–92. He reports that appreciation of Japanese yen had a positive impact on Japanese FDI in the USA. We re–examine the robustness of this conclusion using Blonigen’s data and a family of econometric models—finite mixture panel count models—that are more flexible and appear to provide an improved fit to his data. Although our results broadly support Blonigen’s conclusions regarding the link between the exchange rate and Japanese FDI in the USA, our approach highlights the considerable diversity in the response of FDI to exchange rate variations. JEL Classification Number: C25.

Date: 2002
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