On Japanese Macroeconomic Theories of Direct Foreign Investment

Abstract

In recent years some attempts have been made to provide explanations of the causes of increased Japanese direct foreign investment.' These attempts all begin with the argument that the (or the intangible-capital hypothesis) of international investment fails to explain Japanese direct foreign investment in manufacturing industries.2 In its place are offered macroeconomic theories of direct foreign investment which their proponents argue are uniquely applicable to Japanese direct foreign investment. In the light of this research development, one is inclined to repeat a question raised earlier by Caves: Would the intangible-capital hypothesis retain its potency if the countries under study were not all in the Anglo-Saxon cultural orbit?3 Studies of Japanese direct foreign investment in several Asian countries seem to suggest a negative answer to this question, as many characteristics of Japanese direct foreign investment are shown to be inexplicable in terms of the intangible-capital hypothesis.4 Consequently, one may take the position, as Kojima and Ozawa have done, that there must be two separate theories of direct foreign investment-the monopolistic theory for countries in the Anglo-Saxon cultural orbit and a macroeconomic theory for Japan. This position is not, however, a tenable one because, as noted by Johnson, the intangible-capital hypothesis is microeconomic in its approach and complementary to a macroeconomic theory of direct foreign investment.5 The intangible-capital hypothesis is not an alternative to a macroeconomic theory of direct foreign investment. To argue, therefore, that it fails to explain phenomena which are essentially macroeconomic is no more valid a criticism than to say, for example, that the theory of consumer behavior fails to explain the rate of unemployment. Which approach one chooses depends, of course, on the question