Investigation of the “China effect” on crowding out of Japanese FDI: An industry-level analysis (1990–2004) |
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Authors: | Nimesh SALIKE |
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Institution: | a Asian Development Bank Institute, Kasumigaseki Building 8F, 3-2-5 Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan |
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Abstract: | 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. |
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Keywords: | China Asia Foreign direct investment Crowding out Production fragmentation |
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