Masao Nakamura, International Business, The University of British Columbia
| DATE: | Friday, November 30, 2007 |
|---|---|
| TIME: | 12:00 PM to 2:00 PM |
| PLACE: | IEAS Conference Room, 2223 Fulton Street, 6th Floor |
| FORMAT: | CJS Shorenstein Lecture |
| SPONSORS: | Center for Japanese Studies |
Foreign direct investment (FDI) can have important implications for domestic economies. For example, inward FDI is thought to bring in new foreign technologies, employment and competition, while outward FDI is often associated with hollowing out and skill upgrading of domestic economies. These in turn have effects on domestic wages. However, available empirical evidence on these wage effects of FDI is mixed.
Japan has accumulated significant amounts of inward and outward FDI since the early 1980s but empirical evidence on their impacts on Japanese wages is scarce. Such evidence for Japan's FDI since the 1990s would be of particular interest because of certain FDI-related economic issues. For example, the outward FDI-related transfer of jobs out of Japan was thought by some to have worsened Japan's deep recession, which began after the burst of a financial bubble in 1990 and continued into the early 2000. Meanwhile Japanese manufactures blamed their inflexible domestic keiretsu relationships with Japanese suppliers for their inability to rapidly reduce their production cost by extending their outsourcing and FDI operations in overseas low-cost production sites. In order to combat the recession and employment problems, the Japanese government instituted policy measures, such as promoting inward FDI.
This paper estimates the effects on workers' wages of Japan's inward and outward FDI in manufacturing industries in the 1990s. Using linked worker-employer data sets covering most of Japan's manufacturing firms and their employees, the authors find that Japanese employees benefit, in the form of wage gains, from their employers' association with FDI in both directions. The main findings are as follows. (1)Firms' preferences towards higher ownership shares in their overseas subsidiaries (such as fully-owned subsidiaries) are justified given that higher ownership shares lead to higher wages at home. (2)Workers in higher ranks benefit more from outward FDI. (3)Contrary to their foreign connections, Japanese firms' equity connections with other domestic firms (keiretsu) have negative effects on the wages of their employees.
