Heterogeneous multinational firms and productivity gains from falling FDI barriers

Arita Shawn and Kiyoyasu Tanaka

No 324, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: During the past decade of declining FDI barriers, small domestic firms disproportionately contracted while large multinational firms experienced a substantial growth in Japan’s manufacturing sector. This paper quantitatively assesses the impact of FDI globalization on intra-industry reallocations and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton, Kortum, and Kramarz (2011) to micro-level data on Japanese multinational firms. Estimating the structural parameters of the model, we demonstrate that the model can strongly replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20% reduction in FDI barriers is found to generate a 30.7% improvement in aggregate productivity through market-share reallocation.

Keywords: Japan; International business enterprises; Foreign investments; Manufacturing industries; Industrial management; Multinational firms; FDI; Firm heterogeneity; Investment Liberalization (search for similar items in EconPapers)
JEL-codes: F10 F23 L23 L25 R12 R30 (search for similar items in EconPapers)
Date: 2012-02-01
New Economics Papers: this item is included in nep-bec, nep-cmp, nep-eff and nep-opm
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 324. 2012-02-01

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https://ir.ide.go.jp/record/37850/files/IDP000324_001.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Heterogeneous multinational firms and productivity gains from falling FDI barriers (2014)
Working Paper: Heterogeneous Multinational Firms and Productivity Gains from Falling FDI Barriers (2012)
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