Knowledge Drivers of Japanese Foreign Direct Investment Location

With rising globalization, several countries have been expanding outside their borders through not only trade, but also foreign direct investment. In doing so, they establish subsidiaries in little-known distant countries where they must overcome knowledge gaps to be successful. This research examines some knowledge-related factors that affect the state location choices of Japanese investors when they established affiliates in the United States between 2003 and 2017. The results, constructed from an original database, showed that Japanese foreign direct investment favor states that are closer to Japan and with more direct flight access, which have higher industry concentration, and in which more Japanese firms are already located. These findings suggest that beyond economic considerations, Japanese firms select locations considered to be superior sources of knowledge, knowledge spillovers, and learning for foreign direct investment. These results are specific to Japanese investments in the United States over the past 15 years which tend to be concentrated in manufacturing and IT industries.