Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates

Rene Belderbos, Ryuhei Wakasugi () and Jianglei Zou ()
Additional contact information
Jianglei Zou: ABN AMRO Bank

No 2010-066, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: We examine the impact of buyer-supplier relationships within business group on capital goods trade in the context of foreign direct investment by buyer firms and capital goods producers. A simple model in which cost-reducing relationship specific investments are underlying business group ties suggests that 1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing Japanese exports 2) if the establishment of overseas affiliates by business groups firms attracts FDI by their capital goods suppliers, the 'trade creating' impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms in 1996 provides broad support for these predictions and demonstrates a sizeable impact of buyer-supplier ties in business groups on trade. Affiliates of member firms of horizontal and vertical business groups with supplier ties exhibit a greater propensity to import from Japan, but this impact is mitigated or transformed into a smaller import propensity if the groups' capital goods producers have substantial manufacturing investments abroad.

Keywords: : Multinational firms; imports; capital goods; FDI; business groups (search for similar items in EconPapers)
JEL-codes: D21 F14 F23 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2010066

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