International Fragmentation of Production
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International Fragmentation of Production

The Impact of Outsourcing on the Japanese Economy

Nobuaki Yamashita

Using state-of-the-art econometric tools, this book examines the implications of international fragmentation of production for the performance of the Japanese manufacturing industry.
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Chapter 7: Overseas Operations and Home Employment of Japanese Multinational Enterprises

Nobuaki Yamashita


INTRODUCTION 7.1 This chapter considers the labour market implications of production fragmentation from a different perspective. It undertakes a firm-level econometric analysis of the effects of the expanded overseas operations of Japanese manufacturing MNEs on home (domestic) employment. As will be shown in Section 7.2, overseas operations of Japanese manufacturing MNEs during this period have mainly been driven by international fragmentation of production. The controversy over the possible adverse effects of overseas production by MNEs on employment in the home economy first arose in the USA in the late 1960s and has gained increased attention in policy circles of industrial countries in recent years with the growing importance of international fragmentation of production (Lipsey, 1995; Harrison and McMillan, 2006). This phenomenon, the possible substitution of home employment of MNEs with increased overseas production, is known in the literature as the ‘exporting jobs’ hypothesis (Kravis and Lipsey, 1988). It also became the subject of heated policy debate in Japan under the label of ‘manufacturing hollowing-out’ (sangō kudouka) following a surge of Japanese FDI outflow associated with the spread of production networks to low-cost countries in East Asia from the mid-1980s. Numerous journalistic reports on possible job losses to overseas largely based on anecdotal evidence have been published (for example, Nikkei newspaper). However, only a few systematic empirical studies are available and most of them have largely focused on the overall trends and patterns based on readily available FDI data at the aggregated industry level (Fukao, 1995; Fukao and Amano, 1998; Fukao...

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