EXPANDING FDI AND STRUCTURAL ADJUSTMENT BY JAPANESE FIRMS: THE SALES-SOURCING BOX DIAGRAM, REINVESTED EARNINGS, AND HEADQUARTERS PRODUCTIVITY

Abstract

　The objective of this study is to investigate how foreign direct investment (FDI) contributes to facilitating “structural adjustment.” The research focuses on Japanese transportation machinery industries’ overseas subsidiaries in Asia, specifically examining three aspects: “the sales-sourcing box diagram,” “reinvested earnings,” and “headquarters productivity.” Important findings were made from the study, specifically regarding the expansion of local sourcing networks through “pure horizontal direct investment” and the increase in local research and development investment funded by “reinvested earnings.” Additionally, improving local operations in foreign subsidiaries has a positive impact on the investing country’s economy. Expanding the number of overseas subsidiaries may lead to a productivity surge at the company’s headquarters. Additional research is necessary to validate this claim since the increase in “headquarters productivity” is solely due to the augmented labor input from white-collar personnel. For example, the Japanese government aimed at strengthening domestic industries through the flow of “reinvested earnings” back into the local market through FDI. To determine the effectiveness of this approach, further research is needed that considers the labor input from blue-collar workers.