Investigation of the "China effect" on crowding out of Japanese FDI: An industry-level analysis (1990-2004)

Nimesh Salike*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


This paper applies a dynamic panel model to investigate whether China is crowding out Japanese foreign direct investment (FDI) from other economies of Asia. We examined this with industry-level data on Japanese FDI flows into Asian economies. In order to deal with possible problems of serial correlation and endogeneity, we estimated coefficients using a difference and system generalized method of moments to examine the "China effect" on industries. We found a significantly high degree of crowding out effect by China on its Asian counterparts. Among twelve industries, a crowding out effect was found in nine industries, including electrical & electronics-the biggest industry for Japanese FDI. However, a complementary effect was found in two industries, one of them being transport, which is the second biggest industry for Japanese FDI. We conclude that while China's rise is a prominent threat for the region, it could be transformed into an opportunity in vertically fragmented industries.

Original languageEnglish
Pages (from-to)582-597
Number of pages16
JournalChina Economic Review
Issue number4
Publication statusPublished - Dec 2010
Externally publishedYes


  • Asia
  • China
  • Crowding out
  • Foreign direct investment
  • Production fragmentation


Dive into the research topics of 'Investigation of the "China effect" on crowding out of Japanese FDI: An industry-level analysis (1990-2004)'. Together they form a unique fingerprint.

Cite this