Rrh : Overseas Investment and Firm

A firm can serve overseas customers by exporting or by producing in the foreign market. Thus, ceteris paribus, one might expect increases in overseas investment to displace exports. However, most empirical work has found a positive relation between the two variables. We use a panel data set containing 25 years of data on 932 Japanese manufacturing firms to investigate the effect direct investment abroad has on exports. For the full sample of firms, we find complementarity. The relationship, however, varies across firms. Those that are unlikely to ship intermediates to overseas production affiliates exhibit substitution. *Head: Faculty of Commerce, University of British Columbia, 2053 Main Mall, Vancouver, BC, V6T1Z2, Canada. Tel: (604)822-8492, Email: [email protected]. Ries: Faculty of Commerce, Universityof British Columbia, 2053 Main Mall, Vancouver, BC, V6T1Z2, Canada. Tel: (604)822-8493, Email: [email protected] We appreciate the helpful comments of an anonymous referee, Robert Lipsey, Hideki Yamawaki, and Joe Stone as well as participants at the 1997 Purdue Empirical Investigations in International Trade conference, the conference on The Evolving Japanese Corporation at UCLA, and the 1997 meeting of the WEA. We thank Meng Zhang for research assistance. JEL classification: F2