Direct Foreign Investment: Costs and Benefits

By Richard D. Robinson | Go to book overview

Chapter Five
Japanese Intervention with Respect to Direct Foreign Investment

Noritake Kobayashi


BASIC POLICY AND NEW PROBLEMS

Japan was a late starter in the world economy, and for a long time the primary goal of the Japanese was to catch up with the Western industrialized countries.

For the catching-up process, the Japanese needed both capital and technologies of the advanced world. However, there was also a deeply rooted fear that if Japan accepted foreign resources too easily, it might result in economic overdependence on foreign influence and the domination of the national economy by foreign interests. Accordingly, the Japanese government and business have long shared the same basic attitude and policy toward the receipt of foreign investment, preferring the import of technology to that of capital. For the funds needed to build and construct modern industry and business, it chose loans rather than direct investment.

This policy seems to have worked very well. By the effective utilization of imported technology, the Japanese economy has developed into the world's second largest market economy.

In the meantime, the impact of foreign direct investment on the national economy was kept at an appropriate level. By the end of the 1983 fiscal year, foreign investors had committed approximately $5 billion in Japan, and more than 2,220 foreign capital-affiliated firms were operating in Japan. However, the weight and impact of the foreign investors in and on the Japanese economy was rather small. In terms of assets, those owned by foreign capital-affiliated firms contributed only 1.4 percent of total corporate assets in Japan. Their contribution in terms of sales, net profits, and employment remained also relatively small: 1.5, 2.1, and 0.4 percent, respectively.

The reasons for the success of the Japanese economy and business are attributed not only to the reliance on foreign technology but also to vigorous corporate efforts to achieve the goal of catching up with the Western industrialized countries in accord with the national objective established by the Japanese government. A close cooperative relationship existed

-95-

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