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+ #! -1 $ # * $ # ' ' 1 (L$ # 7333G339"! 1 ' 1 %,"$')( (%,# :44::" '!$%,'K. # :@::"# ' 1 # # '' %,#*(- $# '# ' '1$#%,(E! # "!! " '' ( K* *!1$# /E 7::@9"! )( (' $# # $ (- '!!* G* "*" )( ((!*! $$1$"'! '' * ' ($ "! ''! )( (%, (5B$!!1$$ * (% " '' %,(;(; $!!# '1$# ; (E '1$ $!! 1! 8B! ' * ' ( E " 1 $ # #$* ' ' %, $# ( %!$ #!" * '! * '1$$ ' $ # #* # $ ( ; $ * 1 ' ' $'' "! $* $ ( $ & 7::49" * 1 56B ' (H$ 7:@69E (7339$ # %, # '' 1 %,(% + 73339" "' $* # "! '*!(- " > ' '' * $* # * "!1 7 :@49( 5
! "! H # ' %, '! $ :@:333 $! 7$(9(- #! * ::::; * '' '! '. *# ::@( %, '! * :::! $'' *! ' *(-" :: " %, '! # # # # * $( H(/.#' %,'! 7+Q33 9 100 000 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Japanese Ministry of Finance # "*# $ 7$9(- ' ::5."! * $ # ' $( $%, # $ " 2 ' %, '!# 7$(89(- * $ $ 1* ( ' %,G'!! ::6::: >! ::@:::(-$ 1 * #$" # *('.. $ ' %,'!( @
Graph.2: Distribution of Japanese FDI in the world, by group of countries (1989-2000) Graph.3: Distribution of Japanese FDI in developing countries, by geographical destination (1989-2000) % 90 80 70 60 50 40 30 20 10 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: UNCTAD (2003) Developed countries Developing countries % 80 70 60 50 40 30 20 10 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: UNCTAD (2003) Africa Latin America and the Carribean Asia Central and Eastern Europe #* " # %,!!1$$ 6 7$;9(- $ %,'!: # $ "$ '!* "!$ 1$#!7; 9!# $ #76 9( E 7::@9 )( ( %, # $ "' * ::3( $ '!" $ '1$#' (H64 " $ %,'! I1$ J" *$ )( ( (-" ' ' $ # " # ' ( H;/ %,'! 7': # $ ) 9 14000 12000 10000 8000 6000 No TS TS 4000 2000 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Japanese Ministry of Finance (2000); authors' own calculations 6 - # $ ' "!!1$$ " 1,( :
Graph.5: Average share of U.S. and Japanese FDI flows in developing countries with whom Japan has no tax sparing agreements Graph.6: Average share of U.S. and Japanese FDI flows in developing countries with whom Japan has tax sparing agreements % 1,4 1,2 1 0,8 0,6 0,4 0,2 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Japanese Ministry of Finance (2000); authors' own calculations Japan U.S.A. % 2 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Japanese Ministry of Finance (2000); authors' own calculations Japan U.S.A. #,! '!(,! '(, L"! ' 1 E < $ *( '!"! $ '1$' $ '%,(- ' *! '* (,! $ *! # '"! ' '*( '* ' ' ( %*" "! " '1$#%,#*( 9 ' - *''# ' '/ = 7 G 9 + ε %,I%, J ' E 1$ *# - 4 G (- $ 5 ' # # 4-1 I1$ *J! $ ' $ * "'" ' 1$# ( 3
(-!#$ /' ' '$ #! '' ( $ ': # :@:333( - # / % $ # ' * ' % ( - # '-1 $%,( - ''! '*IJ %,'! '*IJ)( (%,'!()( %, ' L '.*(- $*' # E 7::@9( %,'!/ %,'!*IJ(- ) ( '<#**%,'! # ' * * ''!( $ * # # * $ #*'!*%,'!"'' $'' ' # " *! # $ # (% "$%,'! $* %, ( # $ %,'!/-%,'!# * ' *IJ(L*!!*(-! # $ '%,'! * ( $!% '$ * # (- ' )F-,*+' /73389" *# ' @ '! :@::::( /- '' $'' ' -F*$ $ ") (.* /- * '' $'' ' -F* $ $" ' * ( 5 - '$' * ' $# # #" # ' $# * ( @ $ "L" 1""E&$",", "*"+ "& " $ " -(
, # & '%H ) O(- ' IH # F!H! J * L( - ' * # '%,7" 339(- ' 1 * ' * H+(K * "$$ ' ' ( # " $ '%, " *7::9 * # $' # $ # ( - ' %, 1 # $*$'( / - ' * IJ # $ # " * $$ 7# $ *9(- ' )F- %,( '* $# ' # '$ ' * # ( $$ * 7::39" ' $ # ' '$ ' $$ ' (,# 1*' $$ ''! $# %,'! # ( ( /-! * ' 1 '$ #! *IJ"# * ' < H+"!* $$ 7# $ *9(- ' I, - "33J * K.(,'! ' # 2 1 "*< $ ' '' $(- $ 1 # ( # / - 1$! * IJ" 1 ' *' Q G *#$ 1$! )( ( *! 1$! )( ( Q (- ' *
1$ *! '. # ") '$ ( - * * * *# * >''!! ( - $' 1$ # # (!/- # % E $$(-FHK " '57!9" 1! * '' # ' $ "! 1 *' (-"! # $'' $ $$ * > " $$! ' ' (- ' # *'' * (! $ "%, ' "!!*7:::9" $" " # # (, " # * "! $* ' %, 7 " :::G " 339( ' 1 *# # '' %,'!"! $# $"$ '( ) %! '$ 1 ) (- ' 7339 I ' J( ' # '%, 7" 339(- * %, *!!" ' $ 1 $# ( % - * ' ' ' ' # # * * *I1$ *$ J*I1$ *J( - 1$ *$ # /-# "! * *" $' 1$ * $! # $*(,' 1$$!" # # ' ( 8
- 1$*# /# # ' ' # $! # $*" # '! ( - ', L '% -1- "!# ' 1 '( - * ' # * # #! #$ '$ ' ( 1$$ "'! '1 '* '' 'I$'J$ * $# ( 1 ' $ %, # ( L9 $'! -1 $#%, E < * 1 E * $ 45 # $ # ' * ::3!* 1*# 7H+"1$*! 1$* H+9(- '' '# (, 1 ' "9! $ * # ' ' $ 9! * # $ "89! # ' ;9! 1 $$ # ' *('!*L$ # 7333G339" '1$ ** ' '! $ ' $$' ( # " $$ * * '' %,"! * $ (# *" *$ #!! '' $ ' 1$* # $*( ;
! " Dependant variable : Share of country i in Japanese total FDI outflows minus share of country i in U.S total FDI outflows (1) (2) RE/GLS Explanatory variables RE/GLS GDP -0.0041*** (0.0015) -0.0043*** (0.0015) Lagged stock of FDI 0.0025** (0.0011) 0.0023** (0.0011) Exchange Rate 0.0013*** (0.0004) 0.0013*** (0.0004) Political rights (instability) 0.0014 (0.0020) 0.0018 (0.0021) Labour costs -0.0013 (0.0015) -0.0015 (0.0015) Tax Sparing treaty dummy 0.0065** (0.0030) Tax Sparing treaty age 0.0003** (0.0001) Constant 0.1217*** (0.0423) 0.1268*** (0.0431) R-squared 0.2176 0.2036 Number of observations 304 304 Number of i countries 29 29 #/ RRR"RR"R $' 3(3"3(36"3(3 # # *./ '' ( ''! $ E 7:5@9 : (- H+" $$ '%, 1$ $'" $' '' #*' )( (%, 7-9(% 1 " $# $'H+ 1 * ')( (%, $ %,( - *' # "!" $'! ' '' (- 1 $' ' $( L1$# " * *$ " $' 3(36 # (E " $ '' ' *# ''! )( (%, 3(46B$! : = α + $ β + εε = δ + ", " #!! $ $ (S # ' '' # '( # ' '' # ' *! #7S " T 9U3"I'1 '' J 6
!1$$ " * " > $ $ " '' #! )( ( %,*3(38B( K E <"!'3(:(5B( %, ' -' * '! 1$#%,#*" $ ' #"$ " %,'!" # $ %,'! *' * ( - ' # ' #* %,'!( $ 2*$'"!*$' (, *#!!!1$$ "! #!*!(-1*' * ' 1! *IJ "# * ' <H+(- '# $ $* $$ #! # * (- $$ # $*! 1* # 3 ( - '# $'* 1 $ ' 7-9(,! * " # ' ' ' * "$$ (-! '# 1$ *$(.# '!' **<! *'*! 7% "::GL$ "::59"* # ' '! 1$ %,#*"' 1 " # 7::9E *+ 7::89( (K "' # ' '' #! # VW *! #7S " T 9P3"I '' J ( 3-1# 1,,( 4
$!"* ''!!! * * $ $ * * 7 " 339( -! $! 3(88 $$ $ *" $ ( - $'! $%,'!# $ %,'!$$ ' # *!# (, " ' $ '!'%,(E! # "!!$ * * "! $* $'" * $( - 1 #!$"!!$ $ " ' ' $! > ' ' (, #* # ' '$! ( - $' '#! $' $" $$ ' $! $!(-*!!$ $! '$(- # '' * '!!! * ( K' " 1 $# * $' $ (.79$$ * %,'!*;(4B(F '' '79"*$ * %,$$( 1$$ $ " $ '! (. 789 # $ *(5B * > $ ' #(%! $ # $!! *# ' $ * ' ' (.7;9769 $$ 1$# '# ( F% * # **(8B;(6B *! $ ( 5
% "! Dependant variables FDI flows FDI cases Firm Sales Firm Employment (1) (2) (3) (4) (5) RE/GLS RE/GLS RE/GLS.XH.XH Explanatory variables GDP 0.8253*** 0.8180*** 0.2260*** 3(;68RRR 3(;8@RRR (0.1328) (0.1321) (0.0854) 73(@59 73(6@59 Trade links with Japan 131.2015*** 133.4105*** 10.1801 3(@34RRR 5:(6RRR (24.2145) (24.1439) (16.1945) 76(;39 76(8459 Exchange Rate 0.0302 0.0312 0.0270 3(355 3(3: (0.0451) (0.0449) (0.0308) 73(3:69 73(3;39 Political rights -0.4568** -0.4566** -0.3428** 3(;3:RR 3(@6: (0.2144) (0.2141) (0.1601) 73(4@9 73(38;9 Labour costs 0.0256 0.0583 0.1722 3(83;@RRR 3(88;:RRR (0.1618) (0.1638) (0.1062) 3(35:6 3(333 Tax Sparing treaty age 0.0416*** 0.0594*** 0.0170** 3(388RRR 3(3;6RRR (0.0153) (0.0224) (0.0098) 73(334@9 73(33:89 Tax Sparing treaty age squared -0.0008 (0.007) Constant 2.9217 2.8194 16.1833 8(:85RRR 3(:83 (3.5639) (3.5394) (2.2611) 78(589 7;(:;9 R-squared 0.5737 0.5784 0.2761 3(5;5 3(66:8 Number of observations 314 314 298 : 6 Number of i countries 29 29 29 #/ RRR"RR"R $' 3(3"3(36"3(3 # # *./ '' ( -"!!! *'* "' # $$ %, (K' " $ '' ' ' # H+" *" $ ' 1 $ # ' $'( @
9 $ * E 7::@9 1$# * $ (L*"! *#!!! $$ $ '' (L* 1 " $ 1$! (, " 8$$ 1 '!# # 1$$ 7 1 'E$&$9(E*"$ $*"* *" $ ( &"' (! ))*+*,%---. TS Rank Countries FDI flows agreement 64:@3 -, 8433: - 8 E$&$ ;3535 F ; - 35:685-6 $ ::@565-4 * 4638@4-5 L 6@:;3 - @ & ;6635 - : + ;458-3 1 :4;8: -, ;64: - L ;6883 F 8 E$* 44;65 F ; - * 4;5;; - 6 $ 6565 F 4 M ;883 F 5 ;3 - @ + 845:; - : 8;@36 F 3 + ;8;3 F 4@5 F L$ ;:4: - 8 ;@3; F ; + 3;6 F 6 * 5436 F 4 446 F 5 +F!H 6:3 F @.$* 6@33 F :, ;;:8 F / *'% ", L '% "!(, " # 1*' 1 '' ' $ ' ' 1$ :
%,( # " '1 *$ # * %,#*' 1 1$$! $! *** $( %*" $ " # ' $ * / ' 1$ *# ( - ' - ' ' # ' (K '' # '* *'' # 7K9( $# $ K * * $ # * # $!($&! -$7339" $! # ' K( K " * K! ' (K " # 7::89 ($ ' K ' *< ' ( '' ' ' # "# * "! $# ' ( % "!! * # / - * <$$ K$'!( * <$$ "! K%, ( K$'! (- $' 1 ' #! *! '# 2 (-! # # 1,,,( 3
! ' *$ (- ' ( -$ $' ' # " 1 $#!! / - P7YZ[9!#7YG9P3#7[G9U3 K*!! "( (Y" (-!* "! 1$$ $ "! "! $ ( 9 -,M L$<!$ > 7L$":@G L$"333" 5 9( '' %,'!,M (79 H ''! ',M (79,M ' 1$ * #! $ 7/K\ K 39789,M!* 7K39 ( ' 7- ;9" 1 $ * $ # * $' '' $*(.79789 $ ' 1$! $!! ' 79(- $ ''!,M H "!'#' ( $ '' "!1! $ # $ ' *!! "!$ > 7. 9 1! $ # $ '!! (
/ )0" "! Explanatory variables Dependent variable : Japanese FDI flows (1) (2) (3) GLS/RE IV/RE IV/RE GDP 0.8253*** 0.6387*** 0.5948*** (0.1328) (0.0943) (0.1029) Trade links with Japan 131.2015*** 114.6652*** 110.4033*** (24.2145) (21.0060) (22.2279) Exchange Rate 0.0302 0.04216 0.0435 (0.0451) (0.0324) (0.0363) Political rights (instability) -0.4568** -0.3333-0.3180 (0.2144) (0.2110) (0.2207) Labour cost 0.0256 0.0997 0.1755 (0.1618) (0.1134) (0.1274) Tax Sparing treaty age 0.0416*** 0.0960*** 0.1139*** Instruments ODA - technical cooperation (z1) (0.0153) (0.0162) (0.0187) ODA t-10 (z2) X X X Constant 2.9217 6.4767 6.6886*** (3.5639) (2.2400) (2.4571) R-squared 0.5737 0.5272 0.4896 Number of observations 314 306 314 Number of i countries 29 29 29 #/ RRR"RR"R $' 3(3" 3(36"3(3 # # *"./ '' ",M # '( $ # * H+! $'( +$ $'!,M 1$ (!! %,'!( 79789' 6! # # $ ' # * '' * 1 $ #(-,M ' '' '# $*( 1$#$ # $ '$! (5B * > $ ' 1 *(- ' # $ ' ' '%,'!" $ /' ' #! *1$$! *(
1 2 0" "! Explanatory variables Dependant variable : FDI cases (1) (2) (3) GLS/RE IV/RE IV/RE GDP 0.2260*** 0.1608*** 0.1647*** (0.0854) (0.0560) (0.0554) Trade links with Japan 10.1801 0.2602 2.2015 (16.1945) (12.5914) (12.0926) Exchange Rate 0.0270 0.0428** 0.0426** (0.0308) (0.0195) (0.1932) Political rights (instability) -0.3428** -0.2282* -0.2210* (0.1601) (0.1354) (0.1337) Labour cost 0.1722 0.2555*** 0.2609*** (0.1062) (0.0688) (0.0696) Tax Sparing treaty age 0.0170** 0.0201** 0.01951** Instruments ODA - technical cooperation (z1) (0.0098) (0.0095) (0.0098) ODA t-10 (z2) X X Constant 16.1833 17.0770*** 16.9200*** X (2.2611) (1.3265) (1.2879) R-squared 0.2761 0.2830 0.2826 Number of observations 298 290 298 Number of i countries 29 29 29 #/ RRR"RR"R $' 3(3" 3(36"3(3 # # *"./ '' ",M # '( ' 1*# $'" 1! %,'!/!"*$ # $ ' '! ( *$ # $ ' " %,'!" ' ' "$ $ ''! 1$ # (- ' # *' *'( # '' ' * # $ ''!' " # '' '!$ ""* $ * ( 8
, '"!,M '' * (- 4!',M 79789"1$$ ' $'*8(6B * (- ',MH '# ( 3 " 0" "! Explanatory variables Dependant variable : firm sales (1) (2) (3) GLS/RE IV/RE IV/RE GDP 3(;68RRR 0.3998*** 0.4579*** 73(@59 (0.1199) (0.1288) Trade links with Japan 3(@34RRR 88.4268*** 103.6467*** 76(;39 (14.6485) (15.4540) Exchange Rate 3(355 0.0150 0.0175 73(3:69 (0.0181) (0.0195) Political rights (instability) 3(;3:RR 0.4967** 0.4089** 73(4@9 (0.2021) (0.2173) Labour cost 3(83;@RRR 0.2701*** 0.3019*** 3(35:6 (0.0740) (0.0795) Tax Sparing treaty age 3(388RRR 0.0353*** 0.0226*** 73(334@9 (0.0069) (0.0069) Instruments ODA - technical cooperation (z1) X ODA t-10 (z2) X X Constant 8(:85RRR 15.4140*** 13.8348*** 78(589 (2.9589) (3.1747) R-squared 3(5;5 0.7750 0.7427 Number of observations : 113 119 Number of i countries 12 12 #/ RRR"RR"R $' 3(3" 3(36"3(3 # # *"./ '' ",M # '( L,M '' 5 1$ $ '1$$' # $$ ' * (-!$ ' # " " "$ 1$ *' ( ;
4 " 0" "! Dependant variable : employment by firms Explanatory variables (1) (2) (3) GLS/RE IV/RE IV/RE GDP 3(;8@RRR 0.2363* 0.2436* 73(6@59 (0.1520) (0.1490) Trade links with Japan 5:(6RRR 40.1552** 43.5532** 76(8459 (18.3169) (17.6335) Exchange Rate 3(3: 0.0258 0.0273 73(3;39 (0.0229) (0.0225) Political rights (instability) 3(@6: 0.7218*** 0.7388*** 73(38;9 (0.2570) (0.2528) Labour cost 3(88;:RRR -0.2301** -0.2006)** 73(3339 (0.0968) (0.0950) Tax Sparing treaty age 3(3;6RRR 0.0545*** 0.0517*** 73(33:89 (0.0088) (0.0080) Instruments ODA - technical cooperation (z1) X ODA t-10 (z2) X X Constant 3(:83 4.9799 4.5402 7;(:;9 (3.7711) (3.6901) R-squared 3(66:8 0.6028 0.5914 Number of observations 6 108 115 Number of i countries 12 12 #/ RRR"RR"R $' 3(3 "3(36"3(3 # # *"./ '' ",M # '( - # 1*# $ "$ > 7H 9$# ' '' ' 1*# "* $ # " # ' * *#" *! $ ( $$ # $ '* # ( " @" # ',M '! $ * ' ' ( - '$ $ $ # ' (, $! ' "*#* #"!*! "!**$'(E! # " '" 2*$'( ' %%7G 6
839P8:(: 2 $ * '$' ( K# # ($$ $*L 7::69!! ''$ * '' >*',M (-! 1 # *$' '$ ' # (- ' *' $ ' # L 7::69(E! # "! ' ' I]J$ IJ (E "! $7 ]P9# ' ( "!' #*',M "! # #7]G 9P3( ' #*' ( H' *<7:@@9 $<7:6@9! (- ' # '*$ ## $ $ ',M > ' 1$ $ (- RW' $! $ '' 7 > ' 1 9 * ]# (- $ > #! $ ''!6B # 8(@;( # 1 ' # $ (-# '! * ' ( L '$" '' # '' '$ (, * $'! $ "# ' 1 *# ( F! ' '!!! *! $ # > (- ' *! $ ( $ 7::49" # '* $! #! 13(;(-! 1$# 7K393(;: 8! 1$# ]793(6( 8 I * >* ' '" # *" * 1 $ # '! $ (- *$'* # ]<T $']<T(J7 "::49( 4
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FDI flows FDI cases z2 Z=z1, z2 z2 Z=z1, z2 Coefficient of TS variable GLS 0.0416*** (0.0153) 0.0170** (0.0098) Two-stage least square (2sls) 0.1111*** (0.0285) 0.1153*** (0.0275) 0.0195** (0.0098) 0.0201** (0.0095) Overidentifying Restrictions (nr² test) (55;@ 9.048 Instrument relevance (Wald chi test) 296*** (33) 343*** (35) 272*** (34) 343*** (35) Joint significance (F test) 85.45*** (329) 39.92*** (320) 85.45*** (329) 39.92*** (320) Endogeneity of TS variable Davidson and Mackinnon test (chi2) 4.16** 5.75** 1.11 2.22 Firm sales Firm employment z2 Z= z1, z2 z2 Z= z1, z2 Coefficient of TS variable GLS 3(388RRR 73(334@9 3(3;6RRR 73(33:89 Two-stage least square (2sls) 0.0226*** (0.0069) 0.0353*** (0.0069) 0.0517*** (0.0080) 0.0545*** (0.0088) Overidentifying Restrictions (nr² test) 0.113 0.000 Instrument relevance (Wald chi test) 10724*** (27) 16151*** (28) 2715*** (24) 4868*** (27) Joint significance (F test) 85.30*** (330) 39.87*** (341) 85.30*** (330) 39.87*** (341) Endogeneity of TS variable Davidson and Mackinnon test (chi2) 33.17*** 44.85*** 23.37*** 26.56*** #/ $ '' # *' '' ' "RRR"RR"R $' 3(3"3(36"3(3 # # * +5 "!! "! @
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1,,/ * GDP Trade links Ex. Rate Political rights Labour cost Stock of FDI GDP 1.0000 Trade links 0.2519 1.0000 Ex. Rate 0.1841-1817 1.0000 Political rights 0.3652 0.1553 0.1714 1.0000 Labour cost 0.0504 0.2133-0.2052-0.3285 1.0000 Stock of FDI 0.7025 0.1602 0.0162 0.4664 0.2244 1.0000 1,,,/, # - %- ' I # /.'' ' ' # J" * K.( K3/- K$*IJ" * $$ (K$ ' * K. I '! ' '' '$! ' #! ' ' # $ 2 # (, ''!"- (H" '* 1 (-' * # #7 ($( " *9 $ ( L* # " K'! ' $# $ " # " # $ (J * $$ #*! %,#* K'!( F /- K$ *IJ(-! 'K$'!" *! $ ''!(- ' I' $! #' ' ' $ ' $*' '$$ *! ' '* '# 2 J7K.9(- " # ( - # # > ' ' ' # 2 (! 'K$ ' # ( 85
@! " 0" "! Share of country i in Japanese total FDI outflows minus share of country i in U.S total FDI outflows z2 Z= z1, z2 Coefficient of TS variable GLS 0.0003** (0.0001) Two-stage least square (2sls) 0.0005** (0.0002) 0.0006** (0.0002) Overidentifying Restrictions (nr² test) 2.0128 Instrument relevance (Wald chi test) 290*** (12) 260*** (14) Joint significance (F test) 112.43*** (344) 48.88*** (323) Endogeneity of TS variable Davidson and Mackinnon test (chi2) 1.14 0.99 #/ $ '' # *' '' ' "RRR" RR"R $' 3(3"3(36"3(3 # # * 8@