Multinationals and Economic Growth in East Asia: Foreign Direct Investment, Corporate Strategies and National Economic Development (Routledge International Business in Asia Series)

513 Pages·2006·2.59 MB·English

by  Urata Kimura Yu

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Multinationals and Economic Growth
in East Asia
This is a comprehensive examination of the role of foreign direct investment
in East Asia before and after the financial crisis of mid-1997. Developing
countries in East Asia recorded remarkable economic growth until the Asian
financial crisis erupted in mid-1997. Although several countries experienced
devastating setbacks, most of them recovered to achieve reasonable rates of
economic growth over the next few years. Sound macroeconomic
management, export-oriented policies, and the availability of skilled and
low-wage labor are among the factors that contributed to the rapid economic
growth before the crisis and the recovery thereafter. Especially noteworthy
in this regard is the role played by foreign direct investment (FDI) by
multinational companies. This book identifies the factors that contributed to
the expansion of FDI inflows in East Asia and the factors that enabled
recipient countries to utilize FDI effectively. It discusses the strategies of the
multinational companies making the investments, and also the impact on
the countries affected. It includes case studies on China, South Korea,
Taiwan, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and
Vietnam. Also included is a comparative study of investing firms
headquartered in the United States, Japan, and Hong Kong.
Shujiro Uratais Professor of Economics at Waseda University, Japan.
Chia Siow Yue is Senior Research Fellow at the Singapore Institute of
International Affairs.
Fukunari Kimura is a Professor in the Faculty of Economics at Keio
University, Japan.
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Routledge International Business in Asia Series
Series editor:Hafiz Mirza,
Bradford University School of Management
The primary aim of this series is to publish original, high-quality, research-level work,
by both new and established scholars in the West and East, on all aspects of
international business in Asia. Works of synthesis, reference books and edited
collections will also be considered. Submissions from prospective authors are
welcomed, and should in the first instance be sent to the series editor:Professor Hafiz
Mirza, Bradford University School of Management, Emm Lane, Bradford BD9 4JL.
Email: [email protected].
1. The Future of Foreign Investment in Southeast Asia
Edited by Nick J. Freeman and Frank L. Bartels
2. Multinationals and Asia
Organizational and institutional relationships
Edited by Axèle Giroud, Alexander T. Mohr and Deli Yang
3. Multinationals and Economic Growth in East Asia
Foreign direct investment, corporate strategies and national economic
development
Edited by Shujiro Urata, Chia Siow Yue and Fukunari Kimura
00a-Front:00a-Front 8/18/06 4:35 AM Page iii
Multinationals and Economic
Growth in East Asia
Foreign direct investment, corporate
strategies and national economic
development
Edited by
Shujiro Urata, Chia Siow Yue and Fukunari Kimura
First published 2006
by Routledge
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British Library Cataloguing in Publication Data
Acatalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Multinationals and economic growth in East Asia : foreign direct investment, corporate strategies and
national economic development / edited by Shujiro Urata, Chia Siow Yue, and Fukunari Kimura.
p. cm. — (Routledge international business in asia series 3)
Includes bibliographical references and index.
ISBN 0-415-38271-8 (hardback : alk. paper) 1. Investments, Foreign—East Asia. 2. East Asia—Economic
conditions. I. Urata, Shujiro, 1950– II. Chia, Siow Yue. III. Kimura, Fukunari. IV. Series.
HG5770.5.A3M85 2006
332.67'3095—dc22 2006014389
ISBN 0-203-96669-4 Master e-book ISBN
ISBN10: 0-415-38271-8 (hbk)
ISBN10: 0-203-96669-4 (ebk)
ISBN13: 978-0-415-38271-7 (hbk)
ISBN13: 978-0-203-96669-3 (ebk)
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Contents
List of Boxes vi
List of Tables vii
List of Figures xii
Foreword xiii
List of Contributors xv
Introduction 1
Shujiro Urata, Chia Siow Yue, and Fukunari Kimura
1. FDI Flows, their Determinants, and Economic Impacts
in East Asia 21
Shujiro Urata
2. Japanese Manufacturing FDI and International Production
and Distribution Networks in East Asia 65
Fukunari Kimura and Mitsuyo Ando
3. U.S. Firms and East Asian Development in the 1990s 105
Robert E. Lipsey
4. Hong Kong as a Source of FDI: Experience and Significance 131
Edward K. Y. Chen
5. The Role of Inward FDI: ACase Study of Foreign Firms in
the Republic of Korea 157
Taeho Bark and Hwy-Chang Moon
6. Inward FDI in Singapore: Policy Framework and
Economic Impact 181
Chia Siow Yue
v
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vi Contents
7. Firm-Level Productivity and FDI in Taiwan 223
Bee-Yan Aw
8. Foreign Investment and Development: Indonesia’s Experience 253
Mari Pangestu and Titik Anas
9. FDI Inflows and Economic Development:
The Postcrisis Experience of Malaysia 287
Sieh Lee Mei Ling
10. FDI and Economic Development: The Case of the Philippines 319
Myrna S. Austria
11. The Experience of FDI Recipients: The Case of Thailand 351
Peter Brimble
12. FDI and Economic Development: The Case of Vietnam 393
Tran Van Tho
13. The Experience of FDI Recipients: The Case of China 423
Yu Yongding
14. Liberalization, FDI Flows, and Economic Development:
The Indian Experience in the 1990s 453
Nagesh Kumar
Index 489
Boxes
5.1. FDI-Friendly Policies in the Republic of Korea 166
5.2. The Commitment of LG-Philips to the Korean Market 174
8.1. Summary of Deregulation in Indonesia, 1986–89 263
8.2. Summary of Liberalization in Indonesia, 1992–94 265
8.3. The Manulife Case: An Example of the Uncertainties Facing
Foreign Investors in Indonesia 272
8.4. The Cemex Case: An Example of the Conflict between
Privatization and Nationalism in Indonesia 273
9.1. Measures for the Crisis in Malaysia 296
9.2. Approved FDI and Actual FDI in Manufacturing,
1988–95 299
9.3. Malaysia’s Distributive Trades 304
10.1. Measuring Foreign Direct Investment in the Philippines 324
10.2. Supplier Clustering in the Philippines 339
10.3. NAIA3 and the Philippine Legal System 341
11.1. New Forms of FDI in the Knowledge-based Era 353
11.2. Phases of Thailand’s Industrial Development 356
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Contents vii
14.1. Performance Requirements and India’s Auto Industry 466
14.2. Export Obligations and Technology Diffusion: Pepsi Foods
and Contract Farming in Punjab 468
14.3. Local Learning in Joint Ventures: ACase Study of the
Two-Wheeler Industry in India 472
Tables
1.1. Foreign Multinational Corporations’ Role
in East Asian Economies, 1990–2002 30
1.2. Intraregional Foreign Direct Investment in East Asia 32
1.3. Bilateral Investment Treaties, 1990–2002 38
1.4. Impediments to FDI Reported by Japanese Companies,
2000 43
1.5. The Determinants of FDI Inflows 48
1.6. The Ratio of Actual to Expected Values of FDI Inflows
for Selected East Asian Economies, 1990–2000 49
1.7. Regionalization in Foreign Trade in East Asia, NAFTA,
and EU Countries, 1990 and 2001 51
1.8. Regional Production Systems in East Asia, 1985 and 1995 53
A1.1. FDI Inflows to East Asian and Other Economies, 1990–2002 56
A1.2. M&ATransactions in East Asian and Other Economies,
1990–2001 57
A1.3. M&ATransactions as a Share of FDI Inflows to East Asia
and Elsewhere, 1990–2001 58
A1.4. FDI Outflows to East Asian and Other Economies,
1990–2002 59
A1.5. Investment Regimes and Individual Action Plans 60
2.1. Japanese Exports to and Imports from East Asia, 1991–2000 68
2.2. Trade Intensity Indices for Japan and East Asian Countries,
1990 and 2000 69
2.3. Japanese Outward Direct Investment by Case and by Value,
Fiscal Years 1989–2002 72
2.4. Japanese Parent Firms and their Foreign Affiliates by Industry,
Fiscal Year 2000 83
2.5. Foreign Affiliate Ownership Patterns of Japanese Parent Firms,
Fiscal Year 2000 84
2.6. Sector Switching between Parent Firms and their Affiliates,
Fiscal Year 2000 86
2.7. Intraregional Production Networks: Sales and Purchases
by Japanese Affiliates in East Asia, Fiscal Year 1998 89
2.8. Strong and Weak Points of Prospective Destination Countries
for Japanese Manufacturing FDI 95
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viii Contents
A2.1. Industry Classification 100
A2.2. Logit Estimation: Japanese Parent Firms, Fiscal Year 1995 101
3.1. Developing-Country Share of U.S. Affiliate Activity,
1989 and 2000 106
3.2. Shares of Developing Countries, Latin America, and
Developing Asia in Worldwide Production and
Employment of Majority-Owned Nonbank
Affiliates of Nonbank U.S. Parents, 1989 and 2000 107
3.3. Gross Product of U.S. Manufacturing Majority-Owned
Foreign Affiliates by Country, 1989 and 2000 108
3.4. Employment in Nonbank Affiliates of Nonbank U.S. Parents,
by Country, 1989 and 2000 109
3.5. Gross Product of Nonbank Nonmanufacturing MOFAs of
U.S. Nonbank Parents, by Country, 1989 and 2000 111
3.6. Output and Employment of U.S. Affiliates Relative to
Host-Country Economies, 1989 and 2000 112
3.7. Determinants of World FDI in Developing Countries 114
3.8. Determinants of World FDI in Twenty-two Asian and
Latin American Countries 116
3.9. Coefficients of Equations Explaining Employment and
Property, Plant, and Equipment (P.P.E.) of U.S. Affiliates
in Latin America and Developing Asia, 2000 119
3.10. Coefficients of Equations Explaining Employment Relative
to Labor Force and Property, Plant, and Equipment
Relative to GDPof U.S. Affiliates in Latin America
and Developing Asia, 2000 120
3.11. Business Costs, Governance Indicators, and “Doing Business”
Indicators for Latin America and Developing Asia 122
3.12. Correlation between Residual Openness and Host-Country
Institutional Characteristics, Latin America and
Developing Asia 123
3.13. Exports as Percentage of Sales in U.S. Majority-Owned
Foreign Affiliates, 1977, 1989, and 2000 124
3.14. U.S. FDI Capital Flows to and Operations in Developing Asia,
1996–2002 125
4.1. FDI Outflows from Hong Kong to Developing Economies,
1981 132
4.2. Hong Kong’s FDI in China, 1990-2002 133
4.3. Hong Kong’s Manufacturing Activities in China, 2002 134
4.4. Hong Kong’s FDI in the Pearl River Delta, 2002 136
4.5. Value Added, Guangdong’s Exporting Industries,
1990–2001 146
4.6. FDI and Innovation in Guangdong Cities, 1996–2000 147
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Contents ix
4.7. Technology Transfer by Transnational Corporations in
Hong Kong, Newly Industrializing Economies, and
Industrial Countries 148
4.8. Industrial Production in the Pearl River Delta, 1998–2001 150
4.9. Industrial Production in Guangdong, 1995, 2000, and 2001 150
5.1. Inflow of FDI in the Republic of Korea, by Selected Economies,
1990–2002 160
5.2. Inflow of FDI in the Republic of Korea, by Industry,
1990–2002 162
5.3. Explanatory Variables for FDI 168
5.4. Employment by Firms in the Republic of Korea, 1998–2001 171
5.5. Labor Disputes in the Republic of Korea, by Type of Firm,
1996–2000 176
6.1. Singapore’s FDI Stocks, Flows, and Commitments 183
6.2. Sectoral Distribution of Foreign Equity in Singapore 185
6.3. Singapore’s Stock of Foreign Direct Investment by Country
and Sector, 2001 186
6.4. Singapore’s Stock of Foreign Direct Investment in
Manufacturing, 1986, 1990, and 2001 187
6.5. Singapore’s Electronics Industry 190
6.6. Manufacturing Establishments in Singapore with
Pioneer Status 199
6.7. Singapore’s Domestic Exports 204
6.8. Singapore’s Manufacturing Sector by Industry, 2001 206
6.9. Singapore’s Manufacturing Sector by Capital Structure 207
6.10. Singapore’s R&D 216
7.1. Average Annual Rates of Growth in Taiwan of FDI, GDP,
and Exports 225
7.2. Inward and Outward FDI in Value and as a
Percentage of GDP 226
7.3. Principal Sources of Overseas Chinese and Foreign Investment
in Taiwan 228
7.4. Employees and Sales by Foreign-Owned Firms in Taiwan’s
Manufacturing Sector 228
7.5. Firms in Taiwan that are FDI Firms, Exporting Firms, and
Firms with both FDI and Exports, by Industry 236
7.6. Characteristics of FDI, Non-FDI, and Exporting Firms
in Taiwan, by Industry 237
7.7. Productivity Difference between FDI Firms and Non-FDI Firms
in Taiwan, by Industry 238
7.8. FDI Intensity and Firm Productivity in Taiwan, by Industry 239
7.9. Productivity of FDI Firms and Exporting Firms, and Firms
with Both FDI and Exports, by Industry 241