Trade with Japan: Has the Door Opened Wider? (National Bureau of Economic Research Project Report)

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A number of Japanese companies in labor-intensive industries, such as textiles, moved production to Asia. For example, pressure from U. In contrast to the gradual easing of restrictions on inward FDI, the Japanese government rapidly lifted restrictions on outward FDI in the early s.

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Sony and Matsushita, for instance, made investments in U. Despite its heightened activity in manufacturing investments, much of Japan's direct investment still flowed into wholesale trade subsidiaries to distribute exports from parent companies; during the late s and early s, Japanese FDI in the United States increased rapidly, along with direct Japanese exports.

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Japanese automakers doubled their share of the U. The recession of the early s put additional pressures on U. In response to the threat of congressionally imposed limits on Japanese imports, MITI and the Japanese automakers agreed to voluntary limits in This VER on Japanese autos then spurred the large direct investments of Japanese automakers and their parts suppliers in the United States of the s.

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When in the mid s the value of the yen rose sharply and the yen price of U. FDI in Japan since the mid s.

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Japanese FDI in the United States during the late s through the first few years of the s can be divided into several categories, some of which are more relevant than others to technology relationships between the two countries 37 The first category relevant to technology relationships consists of major manufacturing investments. Japanese FDI concentrated in the automobile, steel, and electronics industries—both end-product manufacturers and suppliers— was motivated largely by a desire to maintain access to the U. In other industries Japanese MNCs made strategic acquisitions and other investments not explicitly linked to trade frictions.

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For example, in some labor cost-sensitive industries, such as consumer electronics, Japanese firms are moving U. There is some consensus among analysts that this category of Japanese investments has served to transfer technology to the United States. In the automobile industry, which has been the most extensively studied, U. Most of the economic benefit of this new technology appears to have been realized through imitation and adoption by U. Therefore, it is difficult to determine the extent to which performance improvements by U.

We do know that U. The same appears to be true for other U. Another category of Japanese direct investment in the United States, with implications for technology flow between the two countries, became quite visible and common during the late s. These were investments aimed at tapping U. Such investments took two forms: Japanese MNCs have made a large proportion of both types of investment. These activities have raised concerns in the United. Spencer, Foreign Acqusitions of U.

Economic Strategy Institute, It has been argued that foreign MNCs can enhance their competitiveness through access to the U. MNCs abroad do not have comparable opportunities in countries which do not have as extensive or accessible a research base, such as Japan. High-Technology Companies by Industry, Spencer, Foreigen Acquisitions of U. Dalton and Manuel G.

Canadian affiliates include a major U. The flood of Japanese investments has been followed by a competitive resurgence on the part of U. Although it is relatively straightforward to link the key technologies licensed in the past by U. It is also difficult to measure the contribution of these investments to the U. Particularly for the fundamental research laboratories, one of the stated objectives of Japanese MNCs in establishing them was to contribute to the U. In the next chapter we will return to a discussion of FDI and contributions to the host country technology base.

Although Japanese FDI in the United States has dropped considerably during the last several years, owing to the bursting of Japan's asset price bubble and to economic conditions in both countries, Japanese MNCs continue to maintain a significant presence in U. But despite the relative openness of the U. A number of Japanese subsidiaries in the United States have had difficulty in achieving profitability in recent years. In descending order, other problems mentioned were the strengthening of tax evasion enforcement, the difficulties in hiring labor and employing locals, and the requirements existing to source locally.

However, many of the conditions underlying the asymmetries in investment and technology access are likely to continue for at least the near term.

Has the Door Opened Wider?

Still, the environment in Japan has improved, and attractive opportunities exist for U. We will explore more of the specifics in the next chapter. Multinational Enterprises and the Global Economy. American Multinationals and Japan: Harvard University Press, p. What have we learned over the last years?

Robert Zachary Lawrence

In contrast to FILapproved investments, which were mostly minority foreign owned, these yen-based subsidiaries were mostly majority owned. The yen-based system was suspended, following a sudden influx of foreign MNCs utilizing it in the early s. See Encarnation, , pp. The most important example is the petroleum industry—the industry sector that attracted the most U. FDI in Japan through most of the postwar period up to , when it was surpassed by wholesale trade. See Encarnation, , p. For example, limits on foreign exchange restricted the amount of syrup that could be imported, the number of designated outlets was limited to in the Tokyo area, retail dealers had to pledge to charge no less than 35 yen per bottle competing domestic drinks sold for 20 yen , a luxury tax of yen per bottle case was imposed, and all Coca-Cola advertising via the media or in outdoor locations was banned throughout Japan.

See also the Japanese working group's report in this publication. The Role of U. The Japanese Enterprise System: Competitive Strategies and Cooperative Structures.


Oxford University Press, p. Japan's Challenge to IBM.

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Harvard University Press, pp. Technology Transfer, Competition, and Public Policy. While this share was relatively low, it has been rising rapidly. Sive growth in Japanese imports. But no one expected negotiations in a few sectors to turn the entire imbalance around. The problem may not be the approach, that is, emphasizing rules, but the limited resources and narrow focus of the number of sectors brought into consideration.

We need not only tough, persistent negotiations but enough patience to let the results begin to build. In what approach is the japanese economy assorted, and is it to be emulated or challenged? The individuals, from either the USA and Japan, discover jap alternate styles, marketplace constitution and exchange, monetary markets, and business and exchange coverage. Amid rapid internationalisation and the prognosticated advent of a new global system, the Japanese economy once more underlines its flexibility to adjust to new challenges.

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report). Includes bibliographical references and index. 1. Japan-Commercial policy. (A National Bureau of Economic Research project . How Open Is Japan?. The book Trade with Japan: Has the Door Opened Wider?, Edited by Paul Krugman is published by University of Chicago Press.

It is the juncture of continuity and change of the economic system at which this module is situated. Knowledge about Japan is essential to make informed corporate decisions. Japanese Multinational Enterprises in China: Successful Adaptation of Marketing Strategies. Long Range Planning, 42 4 , — Interdisciplinary Engagement as an Acculturation Process: The Case of Japanese Studies. Social Science Japan Journal, 16 2 , — Japanese Management at a Crossroads? Asia Pacific Business Review, 15 3 , — The Journal of Asian Studies, 48, 1 , Representations of the Salaryman and his Organization in Japanese Manga.