Macro determinants of FDI inflows to Japan:an analysis of source country characteristics

This paper examines the source country determinants of FDI into Japan. The paper highlights certain methodological and theoretical weaknesses in the previous literature and offers some explanations for hitherto ambiguous results. Specifically, the paper highlights the importance of panel data analysis, and the identification of fixed effects in the analysis rather than simply pooling the data. Indeed, we argue that many of the results reported elsewhere are a feature of this mis-specification. To this end, pooled, fixed effects and random effects estimates are compared. The results suggest that FDI into Japan is inversely related to trade flows, such that trade and FDI are substitutes. Moreover, the results also suggest that FDI increases with home country political and economic stability. The paper also shows that previously reported results, regarding the importance of exchange rates, relative borrowing costs and labour costs in explaining FDI flows, are sensitive to the econometric specification and estimation approach. The paper also discusses the importance of these results within a policy context. In recent years Japan has sought to attract FDI, though many firms still complain of barriers to inward investment penetration in Japan. The results show that cultural and geographic distance are only of marginal importance in explaining FDI, and that the results are consistent with the market-seeking explanation of FDI. As such, the attitude to risk in the source country is strongly related to the size of FDI flows to Japan. © 2007 The Authors Journal compilation © 2007 Blackwell Publishing Ltd.

Shadow economy and entrepreneurial entry

We analyze theoretically and empirically the impact of the shadow economy on entrepreneurial entry, utilising 1998-2005 individual-level Global Entrepreneurship Monitor data merged with macro level variables. A simple correlation coefficient suggests a positive linear link between the size of the shadow economy and entrepreneurial entry. However, this masks more complex relationships. With appropriate controls and instrumenting for potential endogeneity where required, the impact of the shadow economy on entry is found to be negative, based on a linear specification. Moreover, there is also evidence of nonlinearity: entrepreneurial entry is least likely when the shadow economy is of medium size. We attribute the negative effects of shadow economy on entry to perceived strong competition faced by new entrants when the shadow economy is widespread. At the individual level, an extensive shadow economy has a more negative impact on respondents who are risk averse. In addition, in the economies where property rights are strong, the negative impact of the shadow economy is weaker.

The measurement and decomposition of economy-wide productivity growth:Assessing the accuracy and selecting between different approaches

Productivity at the macro level is a complex concept but also arguably the most appropriate measure of economic welfare. Currently, there is limited research available on the various approaches that can be used to measure it and especially on the relative accuracy of said approaches. This thesis has two main objectives: firstly, to detail some of the most common productivity measurement approaches and assess their accuracy under a number of conditions and secondly, to present an up-to-date application of productivity measurement and provide some guidance on selecting between sometimes conflicting productivity estimates. With regards to the first objective, the thesis provides a discussion on the issues specific to macro-level productivity measurement and on the strengths and weaknesses of the three main types of approaches available, namely index-number approaches (represented by Growth Accounting), non-parametric distance functions (DEA-based Malmquist indices) and parametric production functions (COLS- and SFA-based Malmquist indices). The accuracy of these approaches is assessed through simulation analysis, which provided some interesting findings. Probably the most important were that deterministic approaches are quite accurate even when the data is moderately noisy, that no approaches were accurate when noise was more extensive, that functional form misspecification has a severe negative effect in the accuracy of the parametric approaches and finally that increased volatility in inputs and prices from one period to the next adversely affects all approaches examined. The application was based on the EU KLEMS (2008) dataset and revealed that the different approaches do in fact result in different productivity change estimates, at least for some of the countries assessed. To assist researchers in selecting between conflicting estimates, a new, three step selection framework is proposed, based on findings of simulation analyses and established diagnostics/indicators. An application of this framework is also provided, based on the EU KLEMS dataset.

Shadow economy and entrepreneurial entry

The impact of the shadow economy on entrepreneurial entry across countries is analyzed utilising 1998-2005 individual-level Global Entrepreneurship Monitor data and national macro-economic variables. A simple correlation coefficient suggests a positive relationship between the size of the shadow economy and the likelihood of entrepreneurial entry. However, this masks more complex relationships, if, as argued, the shadow economy is an embedded social phenomenon. With appropriate controls and instrumenting for potential endogeneity, the impact of the shadow economy on entry in a linear specification is found to be negative. Further, there is evidence of a U-shaped relationship: entrepreneurial entry is least likely when the shadow economy amounts to about a quarter of gross domestic product (GDP). At the individual level, an extensive shadow economy has a more negative impact on respondents who are risk averse. In addition, in the economies where property rights are stronger, the negative impact of the shadow economy is weaker. © 2012 Blackwell Publishing Ltd.