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Do Overseas investments create or replace trade? New insights from a macro-sectoral study on Japan

Raphaël Chiappini ()

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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 exports 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 equipement 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: Poisson pseudo-maximum likelihood (PPML); Exports; imports; outward foreign direct investment (FDI) (search for similar items in EconPapers)
Date: 2013-06-06
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00857203
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Published in XVI APPLIED ECONOMICS MEETING, Jun 2013, Granada, Spain

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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 (2014) Downloads
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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