Abstract
We show that an appreciation of the yen against the dollar and against the Asian currencies significantly increases Japanese foreign direct investment (FDI) in Asia. Also, a depreciation of the Asian currencies against the dollar, while not significantly affecting the FDI in aggregate manufacturing, have a significant positive impact in the export-oriented electrical machinery sector. The labor productivity differential has a significant impact on FDI in most sectors but the direction of the effect varies across sectors. Also, there is evidence that a higher import tariff rate or wage rate in the host country significantly decreases Japanese investment in Asia.
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