Vertical linkages and agglomeration effects in Japanese FDI in Thailand

This paper formally investigates how industrial linkages between Japanese firms in Thailand affect the inter-industry pattern of FDI. It does so in the context of a model of FDI where production is vertically integrated between the home and host economies, using a distinctive industry data set constructed from firm-level information. The econometric evidence indicates that, in addition to the factors that facilitate vertical integration (lower transport costs, lower labour cost, etc.), the opportunity to create industrial linkages or supply networks leads to additional clustering or agglomeration of FDI. J. Japanese Int. Economies 20 (2) (2006) 193-208.