Economic Integration in East Asia
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Economic Integration in East Asia

Perspectives from Spatial and Neoclassical Economics

Edited by Masahisa Fujita, Satoru Kumagai and Koji Nishikimi

Increasing numbers of free trade and economic partnership agreements have been concluded among many countries in East Asia, and economic integration has progressed rapidly on both a de facto and de jure basis. However, as the authors of this book argue, integration may intensify regional inequalities in East Asia and so this process has attracted much attention of late. Will it actually succeed in achieving greater economic growth or will it in fact cause growing regional disparity?
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Chapter 9: Location Choices of Japanese MNEs in East Asia

Toshitaka Gokan


Toshitaka Gokan INTRODUCTION 9.1 For Japanese MNEs, Asia is the main host of their FDI and production bases. Asia hosts the majority of the overseas subsidiaries of Japanese MNEs both in manufacturing and non-manufacturing.1 Over 90 percent of the Japanese MNEs in Asia were concentrated in East Asia in 2002.2 In East Asia, the share for manufacturing remains larger than that for nonmanufacturing, the reverse for Japanese MNEs in other regions of the world where manufacturing makes up a smaller share than non-manufacturing (Ando and Kimura 2003). This suggests that East Asia is a production base rather than a market for Japanese MNEs. For this reason, in this chapter we focus on Japanese manufacturing MNEs’ choice of East Asia as a place to locate. MNEs bring benefits to host countries via many channels. First, FDI provides employment. In Hong Kong, Singapore and Malaysia, Japanese MNEs employed over 1 percent of the total population in 2002. Second, FDI induces further investments (Bosworth et al. 1999), and these investments are more stable than other types of capital flow such as portfolio investment. Third, FDI makes it possible for the host county to access foreign markets by utilizing the various marketing resources and skills of MNEs. This access to foreign markets helps the host country achieve economies of scale. Finally, MNEs bring technology transfer to host countries.3 Consequently, the growth in FDI brings about significant progress in productivity. In fact, Marwah and Tavakoli (2004) estimate that the increase in FDI has...

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