Potential for Inward Foreign Direct Investment in Japan

Takeo Hoshi and Kozo Kiyota

No 25680, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Promotion of inward foreign direct investment (FDI) into Japan has been an important policy in the Abenomics growth strategy. This paper examines if we observe positive impacts of the policy in the data. We first estimate a gravity model of bilateral FDIs using data for 35 OECD countries as destination countries. In estimating the model, we handle zero values for FDI stock explicitly. We take the model prediction as a reasonable counterfactual and compare that to the actual inward FDI stock for Japan. Although the actual inward FDI stock has been growing and is likely to achieve the goal of 35 trillion yen by 2020, the growth under the Abe administration has been comparable to or slightly lower than the counterfactual suggested by the estimated model. We also estimate the model without Japan as a destination country and use the estimated model to calculate the counterfactual level of Japan’s inward FDI. Although we expect the gap between the counterfactual and the actual become narrower if Abenomics policy has been successful, we fail to find that. These results cast a doubt on the effectiveness of the Abenomics policies to encourage inward FDI at least as of 2015.

JEL-codes: F21 O24 O38 O53 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-int
Note: CF ITI
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Citations: View citations in EconPapers (15)

Published as Takeo Hoshi & Kozo Kiyota, 2019. "Potential for Inward Foreign Direct Investment in Japan," Journal of the Japanese and International Economies, .
Published as Potential for Inward Foreign Direct Investment in Japan , Takeo Hoshi, Kozo Kiyota. in Globalization and Welfare Impacts of International Trade , Fukuda, Hoshi, and Kimura. 2020

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Journal Article: Potential for inward foreign direct investment in Japan (2019)
Chapter: Potential for Inward Foreign Direct Investment in Japan (2018)
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