The Extent and History of Foreign Direct Investment in Japan

Hi-Stat Discussion Paper No. 84

29 Pages Posted: 28 Feb 2006

See all articles by Ralph Paprzycki

Ralph Paprzycki

Hitotsubashi University - Institute of Economic Research

Kyoji Fukao

Hitotsubashi University - Institute of Economic Research

Date Written: April 2005

Abstract

The past few decades have seen a significant rise in foreign direct investment (FDI) worldwide. While Japanese companies have actively contributed to this trend, FDI in Japan continues to be much lower than in other countries. This paper explores the history of both outward and inward FDI in Japan, looking in particular at the reasons for the low levels of inward FDI. New calculations for this paper - based on data from the Establishment and Enterprise Census - show that foreign firms' role in the Japanese economy may be substantially larger than the most frequently cited published statistics suggest. In some industries (motor vehicles and electrical machinery in particular), inward FDI penetration, as measured by the share of employment accounted for by foreign affiliates, in Japan in fact is on par with the United States. However, a large number of sanctuaries with almost no foreign involvement remain, so that FDI penetration overall is still very low. While to some extent, this can be explained by Japan's relatively isolated geographic location, historical factors play an important role. Throughout the centuries and until quite recently, Japan's rulers have viewed foreign involvement in the economy as a threat and consequently erected various barriers to FDI, which are discussed in detail.

Keywords: foreign direct investment, Japan, history

JEL Classification: F20, F21, F23

Suggested Citation

Paprzycki, Ralph and Fukao, Kyoji, The Extent and History of Foreign Direct Investment in Japan (April 2005). Hi-Stat Discussion Paper No. 84. Available at SSRN: https://ssrn.com/abstract=886000 or http://dx.doi.org/10.2139/ssrn.886000

Ralph Paprzycki (Contact Author)

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Kyoji Fukao

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

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