Published papers

Promotion of inward foreign direct investment (FDI) into Japan has been an important policy in the Abenomics growth strategy. This paper examines if we observe positive impacts of the policy in the data. We first estimate a gravity model of bilateral FDIs using data for 35 OECD countries as destination countries. In estimating the model, we handle zero values for FDI stock explicitly. The model includes (origin and destination) country-specific effects as well as destination-country specific time trends. We take the model prediction as a reasonable counterfactual and compare that to the actual inward FDI stock for Japan. Although the actual inward FDI stock has been growing and is likely to achieve the goal of 35 trillion yen by 2020, the growth under the Abe administration has been comparable to or slightly lower than the counterfactual suggested by the estimated model. We also estimate the model without Japan as a destination country and use the estimated model to calculate the counterfactual level of Japan's inward FDI. Although we expect the gap between the counterfactual and the actual become narrower if Abenomics policy has been successful, we fail to find that. These results cast a doubt on the effectiveness of the Abenomics policies to encourage inward FDI at least as of 2015.

This paper examines the links between a firm's internationalization status and the type and degree of market imperfections in product and labor markets. We develop a framework for modelling heterogeneity across firms in terms of (i) product market power (price-cost markups), (ii) labor market imperfections (workers’ bargaining power during worker-firm negotiations or a firm's degree of wage-setting power) and (iii) revenue productivity. We apply this framework to analyze whether the pricing behavior of firms in product and labor markets differs across firms that engage in different forms of internationalization using an unbalanced panel of 7,458 manufacturing firms over the period 1994-2012 in Japan. Engagement in international activities is found to matter for determining not only the type of imperfections in product and labor markets but also the degree of imperfections. Clear differences in behavior between firms that serve the foreign market either through exporting or through FDI are observed. Exporters are more likely to be characterized by imperfect competition in the product market whereas the opposite holds for multinationals. Exporters are more likely to share rents based on the bargaining power of workers whereas a firm's wage-setting power seems to generate wage dispersion across firms with foreign subsidiaries.