Japanese multinationals in the United States: The determinants of their direct investment

This research explains the determinants of Japan's direct investment in United States enterprises. Also, it describes the U.S. and global patterns of Japan's direct investments.;The study contributes in two ways to the analysis of the determinants of Japan's direct investment in the United States. First, this research develops a theoretical model which is based on the contemporary direct investment models of determinants of foreign direct investment. Second, the model is empirically tested using econometric analysis of U.S. industry and aggregate data for the period 1960-88.;The empirical analysis indicates that Japan's direct investment in the manufacturing industry has been determined by the U.S. return on investment, the tariff rates imposed on Japan's exports, and the policies in Japan. The partial adjustment model, however, has not been successful in explaining Japan's manufacturing direct investment in the U.S.;In the trading, services, and other sectors, the yen/dollar exchange rate variable explains Japanese direct investment in this sector. However, in the model that is not adjusted for multicollinearity, the partial adjustment behavior assumed for investment explains Japan's direct investment in this sector.;In finance, insurance, and real estate sectors, only Japan's manufacturing investment of the previous period explains the presence of this sector in the U.S.;The results for the aggregated industrial sectors indicate that Japan's aggregate direct investment in the U.S. is affected by the following factors: the U.S. return on investment, the return on investment in Japan, and the yen/dollar exchange rate.;The model used has not been successful in explaining Japan's direct investment in the U.S. for the petroleum sector. Instead, historical analysis suggests that securing sources of oil supply was the dominant incentive for Japanese direct investment in the U.S. petroleum industry.;The empirical results indicate that the statistical model used had varying degrees of success in explaining Japan's direct investment in the U.S. across the sectors as well as the aggregated industrial sectors. This suggests that the factors which affect the flow of Japan's direct investment in the U.S. varied across industries.