Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis

Seiichi Katayama, Sajal Lahiri and Eiichi Tomiura

Japan and the World Economy, 2011, vol. 23, issue 3, 170-177

Abstract: This paper first of all develops a Cournot oligopolistic model with heterogeneous firms to examine each firm's choice between export-oriented foreign direct investments (FDI) and FDI to serve the host-country market. It is shown that there exist a critical level of efficiency such that all firms below that level choose the former and those above it the latter. The hypothesis is tested using firm-level data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.

Keywords: Cost heterogeneity; Oligopoly; Foreign direct investment; Export-oriented FDI; FDI destination (search for similar items in EconPapers)
JEL-codes: F2 H2 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:23:y:2011:i:3:p:170-177

DOI: 10.1016/j.japwor.2011.02.001

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