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Spillovers from FDI and local networks: The importance of transactional linkages and vertical keiretsu in Japan

Kimino, Satomi; Driffield, Nigel; Saal, David

Authors

Dr Satomi Kimino S.Kimino@hull.ac.uk
Lecturer in International Business and Programme Director BA International Business

Nigel Driffield

David Saal

Abstract

Purpose – The purpose of this paper is to explore the importance of host country networks and organisation of production in the context of international technology transfer that accompanies foreign direct investment (FDI). Design/methodology/approach – The empirical analysis is based on unbalanced panel data covering Japanese firms active in two-digit manufacturing sectors over a seven-year period. Given the self-selection problem affecting past sectoral-level studies, using firm-level panel data is a prerequisite to provide robust empirical evidence. Findings – While Japan is thought of as being a technologically advanced country, the results show that vertical productivity spillovers from FDI occur in Japan, but they are sensitive to technological differences between domestic firms and the idiosyncratic Japanese institutional network. FDI in vertically organised keiretsu sectors generates inter-industry spillovers through backward and forward linkages, while FDI within sectors linked to vertical keiretsu activities adversely affects domestic productivity. Overall, our results suggest that the role of vertical keiretsu is more prevalent than that of horizontal keiretsu. Originality/value – Japan’s industrial landscape has been dominated by institutional clusters or networks of inter-firm organisations through reciprocated, direct and indirect ties. However, interactions between inward investors and such institutionalised networks in the host economy are seldom explored. The role and characteristics of local business groups, in the form of keiretsu networks, have been investigated to determine the scale and scope of spillovers from inward FDI to Japanese establishments. This conceptualisation depends on the institutional mechanism and the market structure through which host economies absorb and exploit FDI.

Journal Article Type Article
Publication Date Jul 15, 2014
Journal Multinational business review
Print ISSN 1525-383X
Electronic ISSN 2054-1686
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 22
Issue 2
Pages 176-193
Institution Citation Kimino, S., Driffield, N., & Saal, D. (2014). Spillovers from FDI and local networks: The importance of transactional linkages and vertical keiretsu in Japan. Multinational business review, 22(2), 176-193. https://doi.org/10.1108/mbr-01-2014-0004
DOI https://doi.org/10.1108/mbr-01-2014-0004
Keywords FDI spillovers, Keiretsu, Transactional linkages
Publisher URL http://www.emeraldinsight.com/doi/full/10.1108/MBR-01-2014-0004
Copyright Statement ©2016 University of Hull
Additional Information Authors' accepted manuscript of article published in: Multinational business review, 2014, v.22 issue 2.

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