Comment on “Has Abenomics Succeeded in Raising Japan's Inward Foreign Direct Investment?”

• Published date: 01 January 2018
• Author: Kozo Kiyota
• Date: 01 January 2018
• DOI: http://doi.org/10.1111/aepr.12213

Comment on “Has Abenomics Succeeded in

Raising Japan’s Inward Foreign Direct

Investment?”

Kozo KIYOTA†

Keio University and RIETI

JEL codes: F21, F23, O53

Accepted: 29 July 2017

It is well known that Japan has an exceptionally low level of inward foreign direct

investment (FDI). The ratio of inward FDI to gross domestic product (GDP) was

196th of the 199 countries in the world (Ministry of Economy, Trade and Industry,

METI, 2015). For this reason, in 2013, the Abe administration announced that it would

set a doubling of the inward FDI stock from 17.8 trillion yen at the end of 2012 to

35 trillion yen in 2020 as one of its policy target.

Based on this background, Hoshi (2018) asks whether or not Abenomics has suc-

ceeded in raising Japan’s inward FDI. After reviewing the literature in Sections 3 and

4, Hoshi’s Section 5 explains that the numerical target of the Abe administration was

to double the inward FDI stock and it was an example of key performance indicators.

Because the inward FDI stock has been increasing at a rate that would be sufficient to

achieve the goal of 35 trillion yen by 2020, the Abenomics FDI policy seems to be on

track. However, Hoshi argues that, in order to answer the question regarding whether

the Abenomics has succeeded, one needs to compare the actual level of inward FDI

stock to the level that would have been realized if the policy was not in place. To do

so, Hoshi’s Section 6 examines two counterfactual scenarios using annual Japanese

inward FDI stock data from 1996 to 2015.

The first counterfactual scenario is that the FDI stock would have followed the

trend implied by a constant growth rate. The analysis finds no evidence suggesting that

the Abenomics FDI policy has been successful. The second counterfactual scenario

assumes a constant trend growth rate for the FDI stock to GDP ratio. This analysis

finds that, although the FDI stock/GDP ratio is increasing, its increases have just fol-

lowed the trend that existed before Abenomics started. To address the second scenario

more formally, Hoshi uses an econometric model where he regresses the FDI stock/

GDP ratio on a time trend, a 0–1 Abenomics dummy that takes the value 1 for the

Abenomics years and 0 otherwise, and an interaction term between them. In both sce-

narios, Hoshi finds that the observed increase in inward FDI stock in Japan under the

Abe administration was not very different from what we would have expected from

†Correspondence: Kozo Kiyota, Keio University and RIETI, 2-15-45, Mita, Minato-ku, Tokyo

108-8345, Japan. Email: kiyota@sanken.keio.ac.jp

© 2018 Japan Center for Economic Research 171

doi: 10.1111/aepr.12213 Asian Economic Policy Review (2018) 13, 171–172