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Economy 1951–1997

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Economy 1951–1997 JAPANESE FOREIGN DIRECT INVESTMENT IN THE WORLD ECONOMY 1951–1997 Since the 1980s Japan has emerged as one of the world’s leading sources of foreign direct investment (FDI) reflecting the continuing internationalisation of Japanese corporations. This paper provides a broad survey of trends in Japanese FDI in the postwar period by both country and industry and discusses the motivations for investment. Overseas investment reflects the growth and adjustment of the Japanese economy since the 1950s and is an indicator of how industries have responded to factors such as the appreciation of the yen and the choice between exporting and overseas production. The paper also considers the scope and limitations of the available statistics on Japanese FDI, especially the benchmark Ministry of Finance (MOF) series. The internationalisation of Japanese industry and its geographical allocation and inten- sity are examined using a consolidated database of MOF statistics of overseas investment. The paper highlights the opportunities that the database creates for future investigations of the determinants of Japanese FDI in the postwar period. Other data sources, such as the MITI, EXIM and Toyo Keizai surveys are drawn upon to provide a detailed overview of the international operations of Japanese corporations. Measures of the rate of internationalisation of Japanese industry and of the intensity of investment by industry and country are estimated. Introduction Since the mid-1980s Japan has become one of the largest sources of foreign direct investment (FDI) in the world. Japanese corporations have actively pursued FDI in response to the appreciation of the yen, protectionism, slower domestic growth and the need to secure natural resources and markets. Foreign investment has facilitated Japan’s adjustment to its changing comparative advantage, as the economy has evolved from a focus on light manufacturing to more advanced industries. The geographical distribution of investment has changed signifi- cantly over time in response to economic restructuring in Japan. As the world’s second-largest economy, Japan has established extensive trade and investment linkages with other countries – linkages that have significantly affected trade and industry development in many of these economies. However, while an understanding of the changing global pattern of Japanese FDI has become increasingly important, often only selected FDI statistics are published in English. Pacific Economic Papers This paper surveys the pattern of Japanese FDI since 1951 using statistics from a range of official and private sources. Ministry of Finance (MOF) statistics are the most commonly used official source for Japanese FDI and provide a continuous time series on the value and number of investments. They have a number of flaws because the definitions and coverage of FDI have changed over the years, for instance until 1980 overseas investments were measured as approvals, but then notifications of intended investment were used.1 Using a series of these annual reports this paper provides a new perspective on Japanese FDI by constructing a consolidated database of MOF statistics for the postwar period. The database covers Japanese FDI statistics by industry and country, over the fiscal years (April to March) 1951 to 1997, and investment reported by host countries by industry from 1980 to 1995. The database, giving details of investment for over 60 countries and 18 industry categories, is published in full in Farrell (1998).2 The use of notifications rather than actual investment may exaggerate the scale of FDI, since some projects are notified but do not proceed, or occur in stages (Ramstetter 1996). This was especially the case in the early 1970s when MOF controls on FDI were eased and then reimposed because of the oil crisis (Ito 1992). If the overestimation was significant, it would vary by industry and country (Stein 1995) and may well be counterbalanced by the extent of reinvestment and overseas financing (EXIM 1997).3 The other official source of investment statistics is the Bank of Japan’s series, which is compiled on a balance of payments or actual disbursement basis. These are net figures and represent the difference between actual payments from Japan and the receipt in Japan of payments from returns to investment, the disposal of equity and the redemption of loans. Furthermore, no industry breakdown is given and details of the geographical distribution of investment have become available only recently. Both series exclude reinvestment and the MOF series can further underestimate FDI because of its use of thresholds and the nominal and unadjusted valuation of investment, and because of the increasing prevalence of host-country financing (MITI 1998). The MOF series is more complete than the BOJ series because investments must legally be reported within two months of their partial or full completion and this applies to every overseas investment project above a specified threshold (Watanabe 1993).4 A comparison of the two series suggests a relationship that is fairly stable (Figure 1). There are a number of other major sources of data on Japanese FDI. Since 1970 the Ministry of International Trade and Industry (MITI) has conducted an annual survey of 2 No. 299 January 2000 Japanese manufacturing firms that have overseas operations, with a more comprehensive Basic Survey taken every third year since 1980 (Watanabe 1993:154). These surveys provide a detailed description of the pattern of FDI, but are restricted to manufacturers and a selected number of countries. The Japan Export–Import Bank (EXIM) and the private Toyo Keizai database provide detailed snapshots of Japanese FDI but, unlike the MOF data, do not have a global coverage by industry and country over time. Table 1 shows Japanese FDI by industry from 1966 to 1997 using the expanded MOF database. The extent of reinvestment and local financing as a source of funding for Japanese FDI has varied by country and over time. As a subsidiary becomes more established and successful, it tends to be less reliant on remittances from the parent company and more able to draw on Figure 1 Comparison of MOF and BOJ measures of Japanese FDI, 1966–97 80000 6 70000 5 60000 MOF BOJ Ratio of MOF to BOJ (%) 4 50000 n 40000 3 % $US millio 30000 2 20000 1 10000 0 0 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 Sources: Ministry of Finance, Summary of Japanese FDI; and Bank of Japan, Monthly Economic Statistics, various years. 3 Pacific EconomicPapers 4 Table 1 Japanese FDI by industry, 1966–97 (US$m, current prices) 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Agriculture, Forestry & Fisheries 5 8 13 15 18 65 28 98 52 64 64 150 123 155 73 111 Mining 73 62 159 296 235 222 919 511 742 605 995 452 338 857 565 2534 Manufacturing 86 77 68 133 239 534 528 1499 879 1027 1025 1074 2038 1693 1706 2305 Food & Beverages 2 6 5 4 15 52 29 68 64 58 25 48 67 103 54 142 Textiles 11 17 15 34 49 74 163 326 176 98 112 158 172 89 91 91 Lumber & Pulp 36 2 17 5 79 33 35 64 61 89 63 52 23 33 78 65 Chemicals 9 3 5 7 25 42 66 394 97 253 270 325 705 238 314 228 Steel & Non-ferrous 6 20 4 38 9 60 53 245 149 148 171 99 498 578 493 521 General Machinery 3 7 5 9 16 50 40 86 90 98 53 61 119 160 102 207 Electrical Machinery 5 7 7 22 22 111 69 156 99 96 164 161 243 180 309 475 Transport Equipment 10 12 4 6 3 13 42 80 40 101 93 86 114 150 176 406 Other Manufactures 3 3 5 7 22 99 31 79 103 87 74 85 99 161 89 169 Construction 6 1 1 7 5 38 8 18 18 32 51 39 72 85 37 96 Wholesale & Retail 23 42 118 58 47 485 227 440 351 674 404 344 823 834 797 1174 Finance & Insurance 21 46 50 44 89 65 174 308 143 310 219 176 154 198 380 843 Real Estate na na na na na na 55 120 18 11 15 35 98 105 91 167 Transport & Communication na na na na na na na na na na na na na na na 722 Services na na na na na na na na na na 124 109 192 244 251 623 Total 227 275 557 665 904 1774 2338 3494 2395 3280 3462 2806 4598 4995 4693 8931 ¥/US$ rate 360 360 360 360 360 349.3 303.2 271.7 292.1 296.8 296.6 268.5 210.4 219.1 226.7 220.5 Table 1 (continued) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Agriculture, Forestry & Fisheries 62 35 50 54 67 141 256 198 214 348 230 129 368 199 245 168 Mining 685 382 484 598 669 511 1013 1262 1328 1003 1270 946 475 1100 1622 2374 Manufacturing 2076 2588 2505 2352 3806 7832 13805 16284 15486 12311 10057 11132 13784 19400 2093719612 Food & Beverages 78 77 118 90 127 328 419 1300 821 632 517 888 1260 863 754 972 Textiles 67 174 85 28 63 206 317 533 796 616 428 498 641 1072 626 356 Lumber & Pulp 76 91 115 15 57 317 604 555 314 312 431 346 140 373 640 580 Chemicals 322 450 223 133 355 910 1293 2109 2292 1602 2015 1742 2601 2212 2128 1433 Steel & Non-ferrous 468 479 718 385 328 786 1367 1591 1047 907 824 754 1038 1594 2528 2950 General Machinery 164 169 185 352 626 687 1432 1762 1454 1284 1104 1171 1622 1926 1486 1302 Electrical Machinery 267 502 409 513 987 2421 3041 4480 5684 2296 1817 2762 2634 5521 6731 6783 Transport Equipment 439 486 437 627 828 1473 1281 2053 1872 1996 1188 942 2021 2063 4003 3056 Other Manufactures 195 160 215 208 435 703 4051 1901 1207 2666 1732 2029 1826 3776 2040 2181 Construction 44 55 112 94 250 87 309 646 300 429 534 274 357 410 331 463 Wholesale & Retail 1899 1164 1482 1550 1861 2269 3204 5148 6156 5247 3705 5096 4391 5478 4942 5612 Finance & Insurance 533 1167 2085 3805 7240 10673 13104 15395 8047 4972 4579 6401 6499 5609 803712139 Real Estate 354 375 430 1207 3997 5428 8641 14143 11107 8899 5147 6070 5122 6184 6418 6570 Transport & Communication 924 1363 1651 1240 1925 2145 2372 2927 2169 2489 1725 2157 2603 2347 1860 2724 Services 702 622 681 665 1560 2780 3732 10616 11292 5413 6530 3543 7061 11011 4182 4436 Total 7703 8145 10155 12217 22320 33364 47022 67540 56911 41584 34138 36025 41051 52732 4962854735 ¥/US$ rate 249.1 237.5 237.5 238.5 168.5 144.6 128.2 138.0 144.8 134.7 126.7 111.2 102.2 0.94 109.0121.0 Notes: (a) Figures for 1995, 1996 and 1997 in yen values (converted at ¥100=US$), while those for previous years were in US$ values; (b) Excludes No.
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