Potential for Inward Foreign Direct Investment in Japan

34 Pages Posted: 26 Mar 2019

See all articles by Takeo Hoshi

Takeo Hoshi

University of California at San Diego; National Bureau of Economic Research (NBER)

Kozo Kiyota

Keio University - Keio Economic Observatory

Date Written: March 2019

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.

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Suggested Citation

Hoshi, Takeo and Kiyota, Kozo, Potential for Inward Foreign Direct Investment in Japan (March 2019). NBER Working Paper No. w25680. Available at SSRN: https://ssrn.com/abstract=3359480

Takeo Hoshi (Contact Author)

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
619-534-5018 (Phone)
619-534-3939 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kozo Kiyota

Keio University - Keio Economic Observatory ( email )

Mita 2-15-45, Minato-ku
Tokyo, 108-8345
Japan

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