Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5047652 | China Economic Review | 2010 | 16 Pages |
This paper applies a dynamic panel model to investigate whether China is crowding out Japanese foreign direct investment (FDI) from other economies of Asia. We examined this with industry-level data on Japanese FDI flows into Asian economies. In order to deal with possible problems of serial correlation and endogeneity, we estimated coefficients using a difference and system generalized method of moments to examine the “China effect” on industries. We found a significantly high degree of crowding out effect by China on its Asian counterparts. Among twelve industries, a crowding out effect was found in nine industries, including electrical & electronics-the biggest industry for Japanese FDI. However, a complementary effect was found in two industries, one of them being transport, which is the second biggest industry for Japanese FDI. We conclude that while China's rise is a prominent threat for the region, it could be transformed into an opportunity in vertically fragmented industries.
Research HighlightsâºThere is a high degree of crowding out effect by China on Japanese FDI. âºAmong 12 industries investigated, 9 had crowding out, 2 had complementary and 1 had no effect. âºThe largest industry â “electrical and electronics” experienced the crowding out effect. âºThe second largest industry â “transport” had complementary effect. âºChinaËs rise could be transformed into an opportunity in the vertically fragmented industries.