Intra- and Inter-industry Linkages in Foreign Direct Investment: Evidence from Japanese Investment in Europe

This paper studies the location choices of Japanese manufacturing and service firms in Europe between 1970 and 1995. We examine whether the presence of Japanese manufacturing (service) firms attracts other Japanese manufacturers (service providers), whether there exist interindustry linkages between the two sectors, and how such intraand interindustry agglomeration effects have evolved over time. We find evidence of circular causation: in the 1970’s the presence of Japanese manufacturing FDI in a particular location attracted other Japanese investors in both manufacturing and services. This effect was completely reversed in the 1980’s and the first half of the 1990’s. In this period, it was the presence of Japanese service companies that attracted manufacturing.