Is Japanese manufacturing really hollowing out

This essay is a non-technical summary of evidence from previous studies that examine the relationship between Japanese exports or the exports of Japanese multinational parent firms on the one hand and the economic activities of foreign affiliates of Japanese multinationals on the other. Although there are many possible definitions of hollowing out, one of the most common definitions refers to a process where the transfer of economic activities to foreign affiliates of multinationals leads to reduction of economic activities in home country and more specifically in the home country parents of those multinationals. The economic activity most directly affected is exports, and changes in exports can then lead to changes in production, employment, and so on. However, the empirical evidence summarized in this essay suggests that there is no negative relationship between economic activities of foreign affiliates and exports of Japanese parents or Japanese manufacturing exports. These results are generally consistent with previous results for Sweden and the United States, which suggest that activities of foreign affiliates usually stimulate or have no relationship to economic activity in the parent firm or home industry. 1 The author wishes to thank Robert E. Lipsey and Magnus Blomstrom, who have co-authored previous papers on this topic, for their advice on related topics. I would also like to thank members of the Committee for Analysis of the Survey of Overseas Business Activities of Japanese Companies (Nihon Kigyou no Kaigai Jigyou Katsudou Chousa Bunseki Kenkyukai) in 1998-2001, particularly Kyoji Fukao, for comments on related research, data, and information that helped me understand the nature of the data being used. The author is solely responsible for all remaining errors and for all opinions expressed.