Firm-Specific Assets and the Link between Exchange Rates and Japanese Foreign Direct Investment in the United States: A Reexamination

Abstract

Blonigen has studied the Japanese foreign direct investment (FDI) in the United States using panel count models and data for 1975-92. He reports the overall finding that appreciation of Japanese yen had a positive impact on Japanese FDI in the U.S.A. This paper reexamines the robustness of this conclusion using Blonigen's data and a family of econometric models, finite mixture panel count models, that are more flexible and also appear to provide an improved fit to the Blonigen data. Although our results broadly support his conclusions regarding the link between the exchange rate and Japanese FDI in the U.S.A. our approach also highlights the considerable diversity in the response of FDI to exchange rate variations.

JEL Classification: C25