The Determinants of Foreign Direct Investments into Japan

Abstract

Foreign Direct Investment inflows into Japan have remained low compared to FDI outflows, and to FDI inflows into other developed countries.However, an increasing trend has been noticed since the mid-1980s.Despite the rise and the importance of FDI in the current stagnation of the Japanese economy, there is little literature focusing on FDI inflows.The present paper presents an econometric analysis of the determinants of FDI inflows into Japan.We find that the size of the market, volatility of exchange rates, price movements, cost of establishing greenfield plants and deregulations of the environment for investments are important determinants.We would like to express our gratitude to Y. Matsubayashi (Kobe University), M.Fukushige (Osaka University) and S. Negishi (Doshisha University) for valuable comments on an earlier version of the present paper.All remaining errors are ours.1)

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