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Do Overseas Investments Create or Replace Trade? New insights from a Macro-Sectoral Study on Japan

Raphaël Chiappini ()

No 2013-24, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: This paper investigates the relationship between outward foreign direct investment (FDI) and both exports and imports from Japan. Using the Poisson pseudomaximum likelihood (PPML) estimator developed by Santos Silva and Tenreyro (2006) to deal with the problem of zero trade flows when estimating a gravity equation, we show that the complementary relationship between FDI and trade is overestimated when using the Ordinary Least Square (OLS) estimator. The PPML method also allows sectoral estimation of the relationship. We find that whether outward FDI creates or replaces trade depends on the industry under scrutiny. Our results indicate that the complementary relationship between FDI and trade is dominant in the Japanese manufacturing sector, especially in electric machinery, transportation equipment, and precision machinery. We find also that Japanese overseas investments substitute for exports in chemicals products, and for both exports and imports in general machinery.

Keywords: Exports; imports; outward foreign direct investment (FDI); Poisson pseudo-maximum likelihood (PPML) (search for similar items in EconPapers)
JEL-codes: C23 F14 F21 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-06, Revised 2014-03
New Economics Papers: this item is included in nep-cwa and nep-int
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http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2013-24.pdf Revised version, 2014 (application/pdf)

Related works:
Journal Article: Do overseas investments create or replace trade? New insights from a macro-sectoral study on Japan (2016) Downloads
Working Paper: Do overseas investments create or replace trade? New insights from a macro-sectoral study on Japan (2016)
Working Paper: Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan (2013)
Working Paper: Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan (2013)
Working Paper: Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan (2013) Downloads
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