Business groups foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates.

R.A. Belderbos, R. Wakasugi, J. Zou

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We examine the impact of buyer–supplier relationships within business groups on capital goods trade by taking into account potential simultaneous effects of business group ties on foreign direct investment. We posit that (1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing home country exports; (2) if the establishment of overseas affiliates by business group firms attracts foreign direct investment by their capital goods suppliers, business group ties are localized and the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by japanese multinational firms, combined with information on linkages with machinery suppliers within horizontal and vertical business groups, provides broad support for these predictions. Our findings suggest that it may be incorrect to infer from the absence of a simple relationship between business group ties and trade that such ties are unimportant; instead, intra-group ties may be replicated abroad through foreign direct investment.
Original languageEnglish
Pages (from-to)187-200
Number of pages14
JournalJournal of the Japanese and International Economies
Volume26
Issue number2
DOIs
Publication statusPublished - 1 Jan 2012

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