Global production sharing and the FDI–trade nexus: New evidence from the Japanese automobile industry

The growing importance of global production sharing makes the nexus between outward foreign direct investment (FDI) and trade in intermediate goods ever more important. This study employs newly-constructed product-level data covering 32 products and 49 host countries over the period 1993–2008 and finds evidence that FDI by upstream firms leads to additional exports of intermediate goods from the home country. The finding of a complementary relationship between FDI and intermediate exports from Japan runs counter to the popular view that the growing overseas activity of multinational enterprises could replace intermediate exports from a home country, thereby depriving the home country of job opportunities.

► I examine the substitution hypothesis that FDI by upstream firms replaces intermediate exports from home. ► This study employs newly-constructed product-level data. ► This study finds evidence that FDI by upstream firms leads to additional exports of intermediate goods from home. ► The finding runs counter to the view that the overseas activity of multinationals could deindustrialize home.