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 exports and imports from Japan, employing an augmented standard gravity model. Several econometric techniques, including the Gamma Pseudo Maximum Likelihood estimator, are used to rectify possible problems of heteroskedasticity and zero trade flows inherent in the estimation of gravity models of trade. The major finding is that outward FDI is trade enhancing for the Japanese manufacturing industry. However, 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 Japanese manufacturing, especially in the food and beverages, electric machinery, primary metals, and precision machinery sectors. We find also that Japanese overseas investments substitute for imports of chemical products, and for both exports and imports of general machinery.

Keywords: gravity model; outward foreign direct investment (FDI); heteroskedasticity; Gamma Pseudo Maximum Likelihood (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

Published in Journal of International Trade and Economic Development, 2016, 25 (3), pp.403-425. ⟨10.1080/09638199.2015.1062906⟩

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Related works:
Working Paper: Do Overseas Investments Create or Replace Trade? New insights from a Macro-Sectoral Study on Japan (2014)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01219520

DOI: 10.1080/09638199.2015.1062906

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