| Budget Amount *help |
¥2,400,000 (Direct Cost: ¥2,400,000)
Fiscal Year 2005: ¥800,000 (Direct Cost: ¥800,000)
Fiscal Year 2004: ¥1,600,000 (Direct Cost: ¥1,600,000)
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| Research Abstract |
The purpose of this research is to investigate the role of exchange rates in the global competition for FDI. The first stage of the research consists of two parts : theoretical modeling and empirical analysis.
Theoretical modeling : in the theoretical model, a Japanese multinational firm is assumed to invest in two foreign countries, producing the same products for exporting back to Japan with same technology. The production function is a conventional Cobble Douglas function. It is derived that, the relative FDI between the two FDI hosting countries is a function of relative exchange rate, which is the weighted sum of the relative wage and capital rent. The comparative static analysis based on the model shows that, if one FDI hosting country devalues its currency, relatively more FDI will be expected while the other FDI hosting country would have relative less FDI inflows.
Empirical Analysis : Using data on Japanese FDI in nine Asian manufacturing sectors from 1981 to 2002, the research also examined the theoretical conclusion in the context of the competition between China and ASEAN-4 (Indonesia, Malaysia, the Philippines and Thailand). Empirical results show that the relative exchange rate is a statistically significant factor determining the relative inflows of Japanese FDI for manufacturing as a whole and for such sub-sectors as textiles, food, electronics, transportation equipment, and others. It suggests that devaluation of Chinese Yuan in the last two decades is one of the major factors diverting Japanese FDI from ASEAN-4 to China. Exchange rate polices of these countries played a critical role in dynamically reshaping the geographic distribution of Japan's FDI in Asia.
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