Inter- and intra-sectoral linkages in foreign direct investment: evidence from Japanese investment in Europe

Abstract

This paper studies the location choices of Japanese manufacturing and non-manufacturing firms in Europe between 1970 and 1994. We find that Japanese firms tend to locate where other Japanese firms previously located. At the sectoral level, this effect changed over time: in the 1970s the presence of Japanese manufacturing FDI attracted other Japanese investors in both manufacturing and services. This effect was reversed after the mid-1980s when the presence of Japanese service companies attracted manufacturing. We argue that the overall pattern of Japanese FDI is consistent with the presence of supplier switching costs. J. Japanese Int. Economies 19 (1) (2005) 110–134.