Template-type: ReDIF-Paper 1.0
Author-Name: Yuqing Xing
Author-Name-First: Yuqing
Author-Name-Last: Xing
Author-Workplace-Name: International University of University
Author-Workplace-Homepage: http://www.iuj.ac.jp/
Author-Name: Laixun Zhao
Author-Name-First: Laixun
Author-Name-Last: Zhao
Author-Workplace-Name: Hokkaido University
Author-Workplace-Homepage: http://www.hokudai.ac.jp/
Title: Reverse Imports, Foreign Direct Investment and Exchange Rates
Abstract: This paper investigates systematic linkages among "reverse imports", foreign direct investment, and exchange rates. We have in mind the competition in the Japanese market of a Japanese multinational firm and a Chinese domestic firm. Products are differentiated based on Japanese consumers' brand name recognition. The model shows that yen appreciation leads to an increase in Japanese FDI in China and "reverse imports", and a decrease in Japanese domestic production. Due to the barriers in brand name, the exports of the Chinese firm may fall, because the increase of reverse imports may erode the market share of Chinese firm, even though total exports from China increase. Further, we find that yen appreciation may improve the profits of the Japanese firm and welfare in Japan under reverse imports, against conventional wisdom. The predictions of the model fit well with the actual figures, and shed light on the current, heated China debate.
Classification-JEL: F1
Length: 28 pages
Creation-Date: 2003-08
Number: EMS_2003_03
File-URL: https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2003_03.pdf
File-Format: Application/pdf
File-Function: First version, 2003
File-Size: 266KB
Keywords: Reverse Imports, FDI, Exchange Rate, Brand Name, China
Handle: RePEc:iuj:wpaper:EMS_2003_03