تاثیر وابستگی بر یکپارچگی اقتصادی جهان: مورد سرمایه گذاری مستقیم خارجی ژاپنی

This paper finds that a country's affinity with a foreign country has a positive effect on foreign direct investment flows from it to that country, by analyzing Japanese foreign direct investment outflows during the period of 1995–2009. A rise in a country's affinity with a foreign country is thought to enhance its trust in that country and as a result lower the transaction costs of its economic activities with it, thereby helping to promote its foreign direct investment flows to the country. These findings imply that a rise in affinity among countries is likely to facilitate international economic integration

International economic integration, or globalization, has intensified greatly in several ways over the past decades. One increasingly salient dimension of this trend is foreign direct investment (FDI).1 The total volume of global FDI inflows has increased rapidly since the late 1980s especially—growing about 38 times from 55.8 billion dollars in 1985 to 2.1 trillion dollars in 2007. FDI is widely, if not universally, assessed as providing significant economic benefits for the host countries, contributing to their growth through provision of external financing, job creation, technology transfer, etc. A number of countries have adopted diverse policies to attract more FDI, as an important economic development strategy. What factors determine the locations of FDI? To which countries do more FDI flow? This research addresses these questions as a way of identifying factors affecting the degree of world economic integration. The existing literature on FDI presents diverse factors as significant determinants of FDI location. Economic conditions in the host countries have been traditionally pointed to as the main factors affecting FDI flows, among them those related to market potential, production costs, business operation environment, etc. Host country political conditions have also attracted growing attention. Although this is at times controversial, a good number of studies argue that certain specific political characteristics, such as political stability and political regime type, have significant effects on FDI inflows. In contrast to such studies, this paper seeks to demonstrate that psychological factors also affect FDI flows substantially. In particular, it argues that one country's affinity (sense of closeness or the positive sentiment of its population) with another country positively impacts its FDI flows to that country, by analyzing the influence of Japanese affinity with foreign countries on Japanese FDI outflows during the years from 1995 to 2009. The mechanism through which affinity affects FDI flows is supposed to be as follows: a rise in one party's affinity with a potential business partner is likely to increase its trust in that partner; this increase in trust is likely to then lower the transaction costs of its economic activities with that partner, in turn boosting the volume of those activities. The findings suggest that increases in affinity among countries may facilitate world economic integration, or economic globalization. This paper is organized as follows. It first briefly reviews the literature on the determinants of FDI location, and then develops its main argument regarding the impact of affinity on FDI flows. It next discusses the research design of its empirical analysis, after which it reviews the results of this analysis. In the final section, it discusses the implications and the limitations of its findings.

FDI is an important element in world economic integration, or economic globalization. Accordingly, study of the determinants of FDI location can provide helpful insight for understanding the factors strengthening world economic integration. In this context, this research has addressed the determinants of FDI location, highlighting the fact that the psychological factor of affinity has a significant positive relationship with FDI flows, by empirically analyzing Japanese FDI outflows. The findings imply that a rise in a country's “soft power,” which is likely to be closely linked to foreigners’ affinity with that country, may help it to engage in cooperative economic activities with other countries more easily, intensifying its economic integration with them.15 It may also be reasonable to expect that a friendly and strong political relationship between two countries will boost their mutual affinity, and accordingly that development of close ties between countries in the political sphere is likely to contribute to their economic integration. This reasoning may be extensively applied to regional integration, emphasizing the importance of regional institutions that can increase political coherence among member countries for economic integration. In closing, two limitations of this research should be mentioned. One is that it does not provide an empirical analysis of the channel through which affinity influences FDI flows, although showing a positive relationship between the two variables per se. As discussed earlier, however, there are empirical studies supporting this paper's suggestion as to the channel through which affinity affects FDI flows. This study's other limitation is that it examines the Japanese FDI case only, although this is mainly related to the availability of data on affinity.16 Note in addition that, as mentioned earlier, Noland (2005a) also finds US affinity with foreign countries to have a positive effect on US trade volume, implying that the significant effect of affinity on economic activities may not be a phenomenon unique to the Japanese alone.