Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates

Rene Belderbos, Ryuhei Wakasugi () and Jianglei Zou

Journal of the Japanese and International Economies, 2012, vol. 26, issue 2, 187-200

Abstract: We examine the impact of buyer–supplier relationships within business groups on capital goods trade by taking into account potential simultaneous effects of business group ties on foreign direct investment. We posit that (1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing home country exports; (2) if the establishment of overseas affiliates by business group firms attracts foreign direct investment by their capital goods suppliers, business group ties are localized and the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms, combined with information on linkages with machinery suppliers within horizontal and vertical business groups, provides broad support for these predictions. Our findings suggest that it may be incorrect to infer from the absence of a simple relationship between business group ties and trade that such ties are unimportant; instead, intra-group ties may be replicated abroad through foreign direct investment.

Keywords: Multinational firms; Imports; Capital goods; FDI; Business groups (search for similar items in EconPapers)
JEL-codes: D21 F14 F23 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:26:y:2012:i:2:p:187-200

DOI: 10.1016/j.jjie.2012.02.001

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