Investigation of the “China effect” on crowding out of Japanese FDI: An industry-level analysis (1990–2004)

This paper applies a dynamic panel model to investigate whether China is crowding out Japanese foreign direct investment (FDI) from other economies of Asia. We examined this with industry-level data on Japanese FDI flows into Asian economies. In order to deal with possible problems of serial correlation and endogeneity, we estimated coefficients using a difference and system generalized method of moments to examine the “China effect” on industries. We found a significantly high degree of crowding out effect by China on its Asian counterparts. Among twelve industries, a crowding out effect was found in nine industries, including electrical &; electronics—the biggest industry for Japanese FDI. However, a complementary effect was found in two industries, one of them being transport, which is the second biggest industry for Japanese FDI. We conclude that while China's rise is a prominent threat for the region, it could be transformed into an opportunity in vertically fragmented industries.     

Fixed Come Hell or High Water? Selection and Prepayment of Fixed‐Rate Mortgages Outside the United States

We examine the decision to prepay a fixed‐rate mortgage in the United Kingdom, Canada, Ireland, Australia and New Zealand. These countries are characterized by having substantial fees which are associated with breaking a fixed‐rate mortgage. We develop a model which allows for fluctuations both in banks’ wholesale rates and credit spreads. We find that households can achieve economically significant benefits both from following an optimal prepayment strategy contingent on the break fee used by their bank and also by selection of fixed interest rate term and (where available) break fee structure.     

Understanding FDI and production networks in East Asia

We provide evidence from the electronics industry in East Asia supporting Kojima's (1973) hypothesis that FDI moves from capital‐exporting countries' disadvantaged industries into host countries' advantaged industries. These results imply that FDI and trade are complementary, unlike in Mundell's (1957) model where they are substitutes. The results also indicate that exchange rate volatility deters trade, implying that reductions in the service link costs between production blocks can promote fragmentation. These findings imply that host countries in East Asia can receive technology transfers by lowering service link costs.