Activities of Japanese Multinationals with Productivity Heterogeneity

Abstract

Many studies have shown that a small number of firms with high productivity carry out FDI, but few studies have considered how country-specific attributes affect firm's choice of internationalization. This paper aims to investigate what factors vary the productivity-cutoff for overseas production and how these factors affect the activities of firms: the size of overseas production, the number of firms operating overseas production, the average domestic and overseas sales, and the relative share of overseas production to domestic production. The results of theoretical and empirical examination in this paper show that larger market size and shorter distance between two markets lower the productivity-cutoff for overseas production of Japanese firms, and that both larger market and shorter distance increase the number of firms operating overseas and the size of their overseas production.