Japan's Manufacturing Foreign Direct Investment Towards East Asian Countries: An Empirical Analysis

This paper studies empirically the macro-economic determinants of Japan's manufacturing foreign direct investment in East Asian countries. To do so, we first extend the marginal q theory of investment to its multi-regional version, and then carry out an empirical analysis. Specifically, it is shown that (1) Japan's manufacturing foreign direct investment has responded quite straightforwardly to the changing relative wage structure across East Asian countries including Japan, and that (2) the FDI regulations imposed by host countries have significantly affected the behavior of FDI. Furthermore, we show an empirical evidence that (3) the upsurge in stock prices in the second half of the 1980's had in part helped to stimulate the FDI by allowing the firms to raise funds cheaply.