Impact of Japanese foreign direct investment on the Japanese trade surplus

This article focuses the effects of Japanese foreign direct investment (FDI) on the balance of payment. I built an econometric model to analyze such effects quantitatively. The model includes equations that describe Japanese overseas activities and trade between Japanese foreign affiliates and domestic firms by industry. These equations enable me to explicitly analyze the displacement and associated effects of Japanese exports and the boomerang effect caused by the increased overseas production. Some simulation results of the model showed that an increase of Japanese FDI did not necessarily decrease the Japanese trade surplus in the latter half of the 1980s. (C) 1998 Society for Policy Modeling. Published by Elsevier Science Inc.