Abstract
By using firm-level data on the Japanese manufacturing industry, we examine and compare the characteristics of internationalized Japanese firms, namely firms that engage in exports and/or foreign direct investment (FDI), with those from selected European countries. We find that the productivity of internationalized firms is higher than that of domestic firms, thus confirming the findings of previous studies on Japan and other countries. In addition, we show that the productivity differences between domestic firms, exporters, and FDI firms are substantially smaller in Japan than they are in European countries. This finding suggests that productivity differences alone cannot determine the export or FDI behavior of Japanese firms.
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Notes
- 1.
EFIM, a research network, was established in 2006. The EFIM research network consists of the Brussels European and Global Economic Laboratory (Bruegel), the Centre for Economic Policy Research (CEPR), and eight research institutes in EU countries. For details, see Mayer and Ottaviano (2007).
- 2.
See Helpman (2006) for an excellent survey on trade theory with firm heterogeneity.
- 3.
We define skill intensity as the number of skilled workers per unskilled worker. Moreover, following previous studies such as Head and Ries (2002), we use nonproduction workers and production workers as proxies for skilled workers and unskilled workers, respectively.
- 4.
This is partly because most previous studies do not distinguish between pure FDI firms and export and FDI firms. One exception is Tomiura (2007), who uses a firm-level dataset for Japan taken from a different data source than ours and finds that the productivity of pure exporters is lower on average than that of pure FDI firms. One possible reason for the difference between the findings of Tomiura (2007) and ours is that Tomiura (2007) uses data that incorporates no firm size threshold.
- 5.
Note that the foreign ownership cut-off ratio most commonly used in Japan (such as in Japanese government statistics) is 33.3 %. In this chapter, we use the 50 % cut-off ratio for the purposes of international comparison.
- 6.
- 7.
A summary of such studies is provided by Greenaway and Kneller (2007).
- 8.
Altogether, 44 firms were switchers, while 3,976 were non-switchers.
- 9.
Altogether, 62 firms were switchers, while 4,871 firms were non-switchers.
- 10.
Labor productivity is defined as value added per worker.
- 11.
To simplify the presentation, we do not distinguish between pure FDI firms and export and FDI firms in this section.
- 12.
By eliminating the firms that have an extremely low level of productivity, we can find an OLS fit P(ln TFP > x) = −k ln TFP + b with k = 2.2. With k = 2.2, the export and FDI cut-off TFPs are 1.16 and 1.18, respectively. Hence, this alternative estimation widens the productivity difference between domestic firms and exporters. However, the relatively small productivity difference between exporters and FDI firms remains.
- 13.
We also find that there is little difference in cut-off productivity between pure exporters and pure FDI firms.
- 14.
The survey covers all Japanese firms that had affiliates abroad as of the end of the fiscal year (March 31). A foreign affiliate of a Japanese firm is defined as a firm that is located in a foreign country in which a Japanese firm had an equity share of 10 % or more.
- 15.
A more detailed description of the procedure for constructing the panel data can be found in Kiyota et~al. (2008).
- 16.
- 17.
- 18.
Because the sales data in the database are recorded in Japanese yen, we converted them into international dollar values using the price level data in PWT6.2. The price level of GDP in PWT, P, is given by P = 100 × (PPP / the exchange rate). Thus, after conversion into US dollar values, sales data were multiplied by 100 / P.
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Acknowledgments
This study was conducted as part of the “International Trade and Firms” project undertaken at the Research Institute of Economy, Trade, and Industry (RIETI). The authors would like to thank RIETI for allowing us the opportunity to conduct this study, and the METI in Japan for providing valuable firm-level datasets. The authors are also grateful to the participants of the workshop on “Trade and the Euro” in Bern and the seminar at RIETI for their helpful comments and suggestions. The opinions expressed and arguments made in this chapter are the sole responsibility of the authors and do not necessarily reflect those of RIETI, the METI, or any institution the authors are related to.
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Appendix: Data Sources and Variable Construction
Appendix: Data Sources and Variable Construction
1.1 Firm-Level Data
The data on firms’ exports and FDI activities as well as the variables used for the calculation of TFP at the firm-level in Sects. 2, 3, and 5 were derived from Kigyo Katsudo Kihon Chosa (KKKC) for 1997–2005. This annual national survey conducted by the METI in Japan, which is mandatory for all firms that have 50 or more employees and whose paid-up capital is over 30 million yen, covers the mining, manufacturing, wholesale, retail, and food and beverage industries. We transformed nominal values into real values using appropriate deflators from the Japan Industry Productivity (JIP) Database 2008, which provides comprehensive data at the three-digit industry level for Japan for 1970–2005. We used KKKC with legal permission, while the JIP database 2008 is downloadable from RIETI (http://www.rieti.go.jp/en/).
1.2 Labor Input
Labor input is defined as the total number of employees of all kinds, including full-time employees, part-time employees, and temporarily dispatched workers. We did not adjust the number of employees on the basis of work hours or education level since these data were unavailable.
1.3 Value Added
We calculated value added as total sales minus intermediate inputs, that is, the sum of the cost of goods sold and general and administrative expenses minus wages, rental costs, depreciation, and taxes. Total sales and intermediate inputs were deflated using the output and input deflators of the JIP Database 2008, respectively. Since wage payments to temporary workers received from recruitment companies are recorded under outsourcing expenses, which are part of the cost of sales, we defined payments to temporary workers as the average ratio of payments to non-regular employees over regular employees in Japanese manufacturing industries (0.578) multiplied by both the number of temporary workers and the average payments to the regular employees of each firm.
1.4 Capital Stock
Real capital stock was calculated by using the perpetual inventory method. While firms report the book values of fixed tangible assets, this is transformed into real values using the ratio of the real values of fixed tangible assets to their book values at the three-digit industry level provided by Tokui et~al. (2007). The investment goods deflator used for deflating the value of investment flows and the depreciation rate were also taken from the JIP Database 2008.
1.5 TFP
We estimated TFP for each sampled firm by using firm-level data from 1997 to 2005. The direct calculation of TFP using the estimated coefficients of capital stock and labor in the Cobb–Douglas function form suffers from endogeneity. As the benchmark of TFP, the estimated labor and capital proportions are 0.78 and 0.18, respectively, when estimating the Olley–Pakes production function using investment as a proxy for productivity shocks. We also used an alternative method by employing intermediate inputs or the purchase of inputs as a proxy, as proposed by Levinsohn and Petrin (2003); however, since the results changed greatly by this choice of proxy, we relied on the result of the Olley–Pakes procedure.
1.6 Exports and FDI
We used the real value of exports deflated by the output deflator of the JIP Database 2008 and defined exporters as firms that reported positive export values. For FDI firms, we used data from KKKC and defined firms that have at least one subsidiary or affiliate in foreign countries as FDI firms. In the survey, Japanese firms’ subsidiaries in foreign countries are defined as overseas firms in which the Japanese parent holds an equity stake of over 50 %, while foreign affiliates are overseas firms in which the Japanese parent holds between 20 and 50 % of the equity. Hence, FDI firms in this study are firms that hold 20 % or more of the equity of an overseas firm.
1.7 Sources and Data Construction for Sect. 4
Firm-level variables were derived from the Kaigai Jigyo Katsudo Kihon Chosa, an annual survey conducted by the Ministry of Economics and International Trade.Footnote 14 The dataset used was a panel and the number of observations was 65,430 affiliate-years (cumulative total from 1995 to 2004).Footnote 15
Country-level variables such as real GDP and exchange rates were derived from the Penn World Tables (PWT6.2). Distance data were taken from Haveman’s International Trade Data.Footnote 16 Data on WTO membership were constructed based on information provided on the WTO’s website.Footnote 17
Sales of FDI firms were constructed as follows. We summed the sales of foreign affiliates recorded in the panel by parent firm and country. Thus, for example, the number of firms operating in country i is the number of parent firms that have foreign affiliates in country i rather than the number of foreign affiliates in country i. Average sales were derived by dividing total sales in country i by the number of parent firms.Footnote 18
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Wakasugi, R., Ito, B., Matsuura, T., Sato, H., Tanaka, A., Todo, Y. (2014). Features of Japanese Internationalized Firms: Findings Based on Firm-Level Data. In: Wakasugi, R. (eds) Internationalization of Japanese Firms. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54532-3_2
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