Financing of Japanese direct foreign investment

Abstract

This thesis seeks to verify the hypothesis that the financial support provided by the Japanese government and the Japanese banking system has been a key factor in the rapid growth of Japanese direct foreign investment (dfi) activities. It has been asserted that the majority of Japanese firms are incapable of undertaking direct foreign investment on their own, as by Western standards they are "immature" in size, technological sophistication and financial strength. Financial support has therefore been provided to defray part of the private costs and to realise the social benefits of overseas production. By examining the investment and financing activities of Japanese firms that have undertaken dfi in resources development and electronics manufacturing, it is found that, generally, financing has not been a critical factor underlying the Japanese firms' decisions to undertake dfi. However, the substantial subsidy available for dfi in resources development could have resulted in some firms undertaking higher levels of equity investment in a project . The provision of government concessionary loans has been concentrated in resources development, where dfi is undertaken by a small group of major Japanese companies with considerable financial resources and political influence. It is suggested that instead of the national interest arguments that have been put forward to justify this policy, the subsidisation of Japanese dfi may be better explained in terms of the rent-seeking behaviour of these firms.