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Do International Flights Promote FDI? The Role of Face-to-Face Communication

Discussion Papers

No.554

February 2016

ABSTRACT

Air transportation facilitates face-to-face interactions across borders for the spatial expansion of manufacturing production. I investigate the impact of international flights on FDI entry by Japanese firms. I find that FDI entry significantly increases with the weekly frequency of flights from Japan, and the positive impact increases with a proxy for an intensity of face-to-face communication between the parent firm and foreign affiliate. The results are robust to estimation methods, additional control variables, and definitions of face-to-face communication. Thus, the results suggest that flights encourage FDI entry through a reduction in face-to-face communication costs.

Keywords: Air Transport, Direct Flight, FDI, Face-to-Face Contact, Japan
JEL classification: F21, F23, L9

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