INVESTMENT FRICTION ANALYSIS BASED ON CATASTROPHE-THEORY

In previous periods of export expansions, we witnessed a subsequent in crease in trade friction. Similarly, the current rapid expansion of ov erseas investment has a high potential to cause severe investment fric tion. Applying Catastrophe theory, this paper aims to analyze how inve stment friction is generated, and search for a method to prevent such events. Most communities generally welcome the foreign investment beca use of job creation. But, some complain intensified local competition and foreign ''over-presence''. The worse a local economy may be, the s tronger both opinions for and against Japanese investment may become. Misery index (inflation plus unemployment rate) and the growth rate of overseas investment accumulation as two exogenous variables, the prop ortion of opposing opinions as endogenous variable, and a ''cusp catas trophe'' potential function, I formulated an investment friction model . The model parameters were estimated using data from opinion surveys and economic statistics of 13 nations from ASEAN, EU and USA. Based on the findings of this model, investment friction is classified into tw o categories by origin. I conclude that: (1) Rapid growth rates in ove rseas investment usually cause a ''depressed'' friction with time-lag. (2) When local business conditions make a turn for the better, it is also the critical point for ''independent'' friction.