Japanese multinationals in Asia: Drivers and attractors

Abstract

This paper studies the choice by Japanese multinationals of Asia and of specific Asian countries as investment destinations. High costs in Japan exert a general push towards investing in Asia. Unlike investment in the US and Europe, trade barriers do not drive Asian investment. While domestic markets of host countries are important, conditions for efficient production in the host country also determine its attractiveness. In Asia, firms have looked for industrially literate workers, though the new Japanese investment is being guided more by low wages. Japanese investors also stake out early positions in growing markets. The inability to repatriate earnings is the strongest disincentive to Japanese investment. A favourable foreign direct investment policy is desirable but its importance declines as a firm gains experience in a country.