Working Paper: NBER ID: w4878
Authors: C. Keith Head; John C. Ries; Deborah L. Swenson
Abstract: We study Japanese investments between 1980 and 1992 to assess the effectiveness of state promotion efforts in light of strong agglomeration economies in Japanese investment. Two policy variables are consistently shown to influence the location of investment - foreign trade zones and labor subsidies. We use simulations to explore the impact these policies had on the geographic distribution of Japanese investment. The simulations reveal that in aggregate promotion programs largely offset each other; however, unilateral withdrawal of promotion causes individual states to lose substantial amounts of foreign investment.
Keywords: Foreign Direct Investment; Agglomeration Economies; State Policies
JEL Codes: F21; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign trade zones (F10) | Japanese investment (F21) |
| labor subsidies (J89) | Japanese investment (F21) |
| absence of incentives (D52) | loss of foreign investment (F21) |
| withdrawal of promotion programs (M51) | substantial losses in foreign investment (F21) |
| agglomeration economies (R11) | effectiveness of state policies (F68) |
| state policies (H70) | Japanese investment (F21) |