Reverse Imports, Foreign Direct Investment and Exchange Rates

Posted: 30 Nov 2006

See all articles by Yuqing Xing

Yuqing Xing

National Graduate Institute for Policy Studies

Lex Zhao

RIEB, Kobe University

Abstract

This paper investigates linkages among "reverse imports", foreign direct investment, and exchange rates. As an example we have in mind the competition in the Japanese market of a Japanese multinational firm and a Chinese domestic firm. Products are differentiated based on Japanese consumers' brand name recognition. The model shows that yen appreciation leads to an increase in Japanese production in China and "reverse imports", and a decrease in Japanese domestic production. Due to the barriers in brand name, the exports of the Chinese firm could fall, because the increase of reverse imports may erode the market share of the Chinese firm, even though total exports from China increase. Further, we find that yen appreciation may improve the profits of the Japanese firm and welfare in Japan under reverse imports, against conventional wisdom. The predictions of the model fit well with the actual numbers, and shed light on the current debate on the Chinese currency.

Keywords: Reverse Imports, FDI, Exchange Rate, Brand Name, China

JEL Classification: F1

Suggested Citation

Xing, Yuqing and Zhao, Laixun, Reverse Imports, Foreign Direct Investment and Exchange Rates. Japan and the World Economy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=948358

Yuqing Xing (Contact Author)

National Graduate Institute for Policy Studies ( email )

Japan
81-3-6439-6141 (Phone)
81-3-6439-6010 (Fax)

Laixun Zhao

RIEB, Kobe University ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
623
PlumX Metrics