A macroeconomic model of direct investment in foreign affiliates of Japanese firms

This paper analyses the operations of the Japanese multinational corporatio ns in the world economy by constructing and estimating a Japanese foreign d irect investment system. This system models the determinants of manufacturi ng foreign direct investment (FDI), the trade between Japan and her oversea s affiliates as well as the sales of the manufacturing subsidiaries and tho se of the trading subsidiaries. The error-correction modelling techniques a re adopted for estimation in order to capture both the short- and long-run adjustment processes. Finally, simulations are conducted on the model to an alyse the effects of changes in the world economy. (C) 2000 Elsevier Scienc e B.V. All rights reserved. JEL classification: P23; F21; F15; C22.