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Stability of Complementarity between Japanese FDI and Import of Intermediate Goods: Agglomeration Effects and Parent-Firm Heterogeneity

Discussion Papers

No.560

by Tadashi Ito, Toshiyuki Matsuura, Chih-Hai Yang
March 2016

ABSTRACT

This paper examines the duration of intermediate goods imports and its determinants for Japanese affiliates in China. Our estimations, using a unique parent-affiliate-transaction matched panel dataset for a discrete-time hazard model over the 2000–2006 period, reveal that products with a higher upstreamness index, differentiated goods, and goods traded under processing trade are less likely to be substituted with local procurement. Firms located in more agglomerated regions with more foreign affiliates tend to shorten the duration of imports from the home country. For parent-firm characteristics, multinational enterprises that have many foreign affiliates or longer foreign production experience import intermediate goods for a longer duration.

Keywords: FDI, Trade duration, intermediate goods, agglomeration
JEL classification: F14

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