The effect of political events on Japanese foreign direct investments

This article presents the findings of an investigation of the impact of conflictive and cooperative political events in 62 host countries on Japanese foreign direct investments during the period 1965 to 1980. In addition, the study provides evidence of the relative importance of economic conditions and intergovernmental relationships as determinants of foreign direct investments by Japanese firms. It is argued that in analyzing the effect of political events on foreign direct investments, one must not only take into account the conflictive political conditions within the host countries, but also cooperative political developments and changes in intergovernmental relationships. The findings of this study are compared with the results of investigating the impact of political events on foreign direct investments by United States and German multinational firms. Similarities and differences are highlighted as well as their probable causes. As such, this study makes a contribution to the conceptualization of political risk in an international business context.Dr. Hans Schollhammer is Associate Professor and Chairman of the International Management Program, Graduate School of Management, UCLA; Dr. Douglas Nigh is Assistant Professor of International Business, Pennsylvania State University, State College, Pennsylvania. The authors acknowledge with gratitude the financial support provided by the United States-Japan Friendship Commission for this research project.     

Foreign direct investment,political conflict and co-operation: The asymmetric response hypothesis

Previous empirical research has demonstrated that political factors do affect the foreign direct investment decisions of multinational enterprises. This study explores the nature of this relationship in more depth. Specifically, it examines the extent to which investors response to political conflict and co-operation is asymmetric, i.e. investors respond differently depending on whether the political conflict or cooperation is increasing or decreasing. The asymmetric response hypothesis is tested through regression analysis of pooled time-series (13 years) and cross-sectional (62 countries) data on Japanese investors. The study finds evidence of asymmetry for intra-nation conflict and co-operation but not for inter-nation conflict and co-operation.