The Effects of Japanese Foreign Direct Investment on Bilateral Food Trade with East Asian Countries

Abstract

This paper analysed the effect of Japanese foreign direct investment (FDI) on bilateral food trade with East Asian countries by applying the panel data econometrics approach to provide empirical evidence. The results indicated the existence of a complementary effect in the cases of ASEAN4 countries and China, suggesting that FDI was mainly the vertical type that promotes bilateral trade. In contrast, only an export complementary effect was detected in the cases of Hong Kong and Singapore, suggesting that FDI was mainly the horizontal type, as Japanese affiliates started to buy intermediate goods from their home country, Japan. In the cases of Korea and Taiwan, a substitution effect was found, suggesting that FDI was the horizontal type, with local production more efficient than importing goods from Japan. Japanese Multinational Enterprises (MNEs) have been interested in using the ASEAN4 countries and China as production bases, and in accessing local markets of the Newly Industrialized Economies (NIEs). The promotion of inward FDI policy in East Asia by the Japanese food industry should be achieved by more trade liberalization in the case of ASEAN4 and China but, to a lesser extent in the case of NIEs.JEL classification: P45, Q17, R11, R12