"Technology Cycle and Japanese Foreign Direct Investment : Theory and Empirical Evidence"

1997 Fiscal Year Final Research Report Summary

• Project/Area Number: 08630108
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Single-year Grants
• Section: 一般
• Research Field: Business administration
• Research Institution: The University of Tsukuba
• Principal Investigator: KIMURA Yui The University of Tsukuba, Institute of Socio-Economic Planning, Professor, 社会工学系, 教授 (50205001)
• Project Period (FY): 1996 – 1997
• Keywords: Foreign Direct Investment / Multinational Firms / Product Cycle Theory / Internationalization Strategy / Technological Evolution / Evolutionary Economics

Research Abstract

This research is an attempt to further explore the relationships between technological innovation and the firms' foreign direct investment activities. It is known from the preceding research that technological innovation is the major driving force of FDI,but this research aims at developing new hypotheses concerning the relationships between technological cycle and the patterns of FDI and providing a piece of empirical evidence from the Japanese data.
As we show in Chapter One of this report, we confirm that the key determinant of Japanese FDI is indeed technological innovation. We also find that while technological innovation is under way at home locations, firms tend to concentrate production close to the R&D location and try to service foreign markets through export rather than FDI.In Chapter Two, we examine statistically the determinants of Korean FDI in the present day. The present Korean FDI seems to resemble very closely that of Japan in the 1960s-1970s when Japanese firms were still weak in technological innovative capacity. The study finds that Korean FDI is indeed based on a very fragile technological base. The Korean firms are active in industries where they are losing comparative advantage in the home lacation, and they are aggressively undertaking FDI in order to maintain their advantage by moving production to foreign locations. This situation resembles that of Japanese FDI in the 1960s-1979s. These two studies imply that the Japanese expansion of FDI has been driven by the technological evolution, which allowed them to transform themselves from the technological follower to the technological leader. The industries that are major foreign investors have also shifted from those that have been dependent on Japan's comparative advantage to those that compete on high-tech based competitive advantage.