Ralph Paprzycki and Kyoji Fukao's book Foreign Direct Investment in Japan: Multinationals' Role in Growth and Globalization provides an in-depth account of recent trends in inward foreign direct investment (FDI) in Japan and their impact on the Japanese economy. The book shows why Japan has had particularly low levels of FDI compared to other developed nations, and explores the consequences on the Japanese economy.
This book should appeal to several audiences, including academics and policy makers. For scholars of the Japanese economy and business, this book provides a historical perspective as well as both macro- and micro-level analyses of the causes of low FDI. For political scientists, it provides additional insight into the role of government in shaping foreign firms' decisions to invest in Japan. For policy makers in Japan, the authors provide policy prescriptions that might promote FDI and contribute to the country's economic performance.
The book is organized into eight chapters. The introduction refers to existing scholarship on FDI in Japan, provides an outline of the book's contents, and identifies the shortcomings of sources used to measure FDI. Chapter 2 follows the history of FDI in Japan. Chapter 3 looks at the recent surge in inward FDI in Japan and suggests several causes. Chapter 4 examines the reasons for the relatively weak performance of the Japanese economy in the 1990s and early 2000s and suggests several ways in which FDI could stimulate the economy through total factor productivity growth. Chapters 5 and 6 consider the macro- and microeconomic benefits of FDI, respectively. Chapter 7 evaluates the prospect for FDI in Japan by analyzing the determinants of FDI. The book's findings are summarized and placed within the context of Japanese globalization in the final chapter.
The authors offer comprehensive explanations for low inward FDI in Japan, the impact of low FDI on the economy, and the future prospects of FDI in Japan. With extensive research and a broad knowledge base, the authors succeed in synthesizing the narrow focus of existing works and providing a larger picture of FDI in Japan. The book also has a political agenda—not only to investigate the causes and impact of low inward FDI, but also to advocate the further liberalization of capital in Japan.
Clearly written and superbly organized, Paprzycki and Fukao write authoritatively as to why inward FDI in Japan has remained low and what impact this has had on the Japanese economy. Structure-wise, the aim of each chapter is clearly identified at the beginning and summarized at the end. The authors have made the book reader friendly by highlighting key points and subheadings and defining terminology for nonspecialists. The text is interspersed with useful figures and tables throughout (e.g., pp. 40, 41, 141, 270), with detailed references to existing works where relevant. The authors show the shortcomings of existing measures of FDI in Japan, and use an alternative measure—employment share as a share of total employment—to better illuminate historical trends in FDI. The advantage of this measure is that the data are based on a compulsory survey of all establishments in Japan. This allows for a more accurate assessment of FDI penetration over time without running into inconsistency problems stemming from changes in methods of measuring FDI.
There are, however, a few minor points that should be mentioned. First, throughout the book, Paprzycki and Fukao catalogue but do not assess the relative importance of factors that have resulted in particular phenomena. This refers to explanations for low inward FDI in Japan, discussions on the role of foreign firms in the Japanese economy, structural problems limiting FDI, and the impact of FDI on the Japanese economy. The authors neglect to discuss the degree to which each of the factors matters. A second problem relates to the selection of case studies in chapter 6. In this chapter, the authors study specific sectors: automobiles, banking and insurance, as well as health care. While the case studies are highly informative in showing the impact of FDI in these sectors, there is no explanation for why these sectors were selected and to what extent they might represent the impact of inward FDI on the Japanese economy as a whole. To arrive at a more comprehensive understanding, the authors might also have investigated other sectors in which the entry of foreign firms was much more common before drawing conclusions. In addition, the authors might have extended their rather brief discussion of the role of culture and touched on the role of language in influencing FDI in Japan. Finally, they make the assumption—as does Mark Mason's book on FDI in Japan—that firms are relatively powerless (and are therefore very responsive) to government policy.
The foregoing points, however, are minor criticisms. This book offers an excellent view of FDI in Japan. I hope that it will act as a springboard for addressing other important questions that remain unanswered. For example, what is the degree to which different factors have impeded the influx of foreign capital in Japan? How has FDI impacted different sectors of the Japanese economy? Perhaps this book may even act as an impetus for further policy reform.
