DYNAMICS OF JAPANESE DIRECT-INVESTMENT IN EAST-ASIA

In the past 25 years, Japan's direct foreign investment (DFI) expanded dramatically. The purpose of this paper is to examine whether this ex pansion has been consistent with assertions that Japan's DFI has been of the pro-trade-oriented (PROT) type. On the one hand, there was a la rge shift of Japan's DFI toward the advanced economies in the 1980s th at was generally not of the PROT type but rather of the anti-trade ori ented (ANT) type. On the other, Japan's investments in East Asian econ omies also expanded and was generally of the PROT type. This expansion of the Japanese investment frontier, bath in country-and industry-wis e dimensions, contributed much to the host economies. However, the pat terns of DFI in East Asia have also shown a tendency to converge. This paper uses a dynamic model of PROT-type DFI to explain and interpret these phenomena.