Revisiting Complementarity between Japanese FDI and the Import of Intermediate Goods: Agglomeration Effects and Parent-firm Heterogeneity

Author: Tadashi Ito, Toshiyuki Matsuura, Yang Chih-Hai
Date: 2016/11/16
No: DP2016-025
JEL Classification codes: F14, F21, F23
Language: English
[ Abstract ]

The concern regarding the hollowing out by FDI has re-emerged in Japan, with both large and small firms relocating their plants to China since the late 1990s. This study sheds lights on the effects of agglomeration and firm characteristics upon the complementary relationship between FDI and import of intermediate input from home country, which has been overlooked in the literature. Estimating the duration model of Japanese affiliates’ input trade by using parent?affiliate, product-level data from 2000 to 2006, we found while firms in agglomerated regions with more foreign affiliates shorten its duration, small firms import for a longer duration.