Determinants of Japanese Foreign Direct
Investments: A Comparative Study Between
Brazil and Mexico, from 2005 to 2017

Kim Ueda Soares

BULLETIN OF SOCIAL SCIENCES AND HUMANITIESGraduate School
TOKYO INTERNATIONAL UNIVERSITY
No. 4 offprint September 20, 2019

Determinants of Japanese Foreign Direct
Investments: A Comparative Study Between
Brazil and Mexico, from 2005 to 2017
Kim Ueda Soares

Abstract
Foreign direct investments have been part of the strategy of multinational companies, in orderto reach new markets and increase profitability. In the case of the Japanese companies, it could
not be different, with investments spread all over the world. The pattern of Japanese investments
overseas and the analysis of the characteristics of the investments in Brazil and Mexico are the aimof this study. Despite the Japanese immigration and the long tradition of cultural exchange, theeconomic cooperation and the volume of Japanese investments never reached the values as otherregions, in the world. However, the volume of investment has presented a change in pattern, during
the last years. In 2005, Mexico signed an Economic Partnership Agreement that helped Japanesecompanies to increase their presence, in the country, although the Japanese investments, in Brazil,
at the year of 2011, reached US$ 7,536 million dollars, the highest amount, in their cooperation
history. From these points of view, this study examines the determinants of Japanese investments,
in Brazil and Mexico, through a sectoral analysis of the Japanese investments, in both countries, andan econometric analysis about the factors. The empirical results show that Japanese investments
follow the efficiency-seeking strategy, in Mexico (that are related to both economic partnerships
and production networks), while, in Brazil, it follows the market seeking strategy (that are related toeconomic situation).
Keywords: Brazil. Japan. Mexico. Foreign direct investments. Determinants. Geopolitical economy

Table of Contents
Chapter I: Introduction
1.1 Background
1.2 Statement of the problem
1.3 Research purpose and methodology
1.4 Relevance of the study
1.5 Hypothesis
1.6 Structure of the thesis
Chapter II: Overview of Japanese investments, in Brazil

2.1 Introduction
2.2 Analysis of Japanese investments, from 20052017
2.2.1 Manufacturing industry
2.2.2 Automobile sector
2.3 Geographical distribution
2.4 Conclusion
Chapter III: Overview of Japanese Investments, in
Mexico3.1 Introduction
3.2 Analysis of Japanese investments, from 20052017

̶ 48 ̶人文・社会科学研究

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3.3 Sector distribution
3.3.1 Japanese Automobile industry, in Mexico
3.4 Geographical distribution
3.5 Conclusion
Chapter IV: Econometrics analysis from Brazil and
Mexico4.1 Introduction
4.2 Methodological procedure and definition ofvariables
4.2.1 Dataset
4.3 Econometrics tests
4.4 Conclusion
Chapter V: Summary of main findings
5.1 Policy Implications
5.2 Limitation and Future Research Needs
5.3 Conclusion

第4号

2019 年 9 月

Foreign Direct Investments and the factorsthat determine the decision of companies
to invest abroad have been deeply studied
by researchers. With the development ofmultinational and transnational corporations,authors, such as Caves (1971)1) and Dunning(1973) 2) , have studied the pattern of theinternationalization of companies, in overseas
markets. The predominant factors for thedecision of investments in one country should
vary from another country, due to the different
macroeconomics and microeconomics factorsthat influence, in the analysis (difference
in interest rates, currency values, market
size, GDP, average salary, as many as other

Glossaryvariables). These differences make the analysis
wider, since the examination of specific

ADF: Augmented Dickey Fuller Test
AIC: Akaike’s information criteria
ASEAN: Association of Southeast Asian Nations
BRICS: Brazil, Russia, India, China and South Africa
CSN: Companhia Siderurgica Nacional
EURO: European Union Currency
EU: European Union
FDI: Foreign Direct Investment
FPE: Final Prediction Error
GATT: General Agreement on Trade and Tariffs
GDP: Gross Domestic Product
HQIC: Hannan and Quinn information criteria
IR: International Relations
JAPEX: Japan Petroleum Exploration
JBIC: Japan Bank for International Cooperation
JEXIM: Export-Import Bank of JapanJOGMEC: Japan Oil Gas and Metals Corporation
MERCOSUR: South American Common Market
NAFTA: North American Free Trade Agreement
TPP: Trans-Pacific Partnership
USIMINAS: Usinas Siderurgicas de Minas Gerais S.A
VECM: Vector Error Correction Modelcountries and periods of time could be valuable,
to understand the different aspects that affectthe determinants of Foreign Direct Investment.
For example, in the case of Japan, Japanese
FDI patterns of investment, in overseas markets,has also been focused, on studies from different
perspectives and different chains of thoughts,
from authors, including Kojima (1978)3), Roger
Farrell (2008)4) and Tanaka (2009)5), and theperiod of time and the nuances, in the typesof investments, have been deeply analysed.
Regarding a more specific region, as Latin
America, and two specific countries (Brazil
and Mexico), the literature about Japanese
investments, in Brazil, for example, has been
limited to studies of the pattern of investments,
until the year 2005, such as the works of Renato
Furuse Martins (2010)6) and Alexander Uehara(2007)7), and, in the case of Mexico, part of theliterature are focus on the benefits of the Japan-

Chapter I: Introduction

Mexico trade agreement, the bilateral relations
and the impact of the global crises, in this

1.1 Background
Throughout the world, the research about

relationship, as the papers of Melba Falck Reyes(2012)8) and Martha Elena Campos Ruiz, Leo

Determinants of Japanese Foreign Direct Investments

̶ 49 ̶

Guzman Anaya and Guadalupe Lugo Sanchez

of Japanese descendants, living in the area.

(2018) .

Alexandre Uehara (2002) pointed that the9)

The changes, in Japanese pattern ofgeographical distance, the cultural differences

investments, and the variation of Brazil andand the political structure of the Japanese

Mexico economies, during the period 2005-

companies made the economic cooperation

2017, created a perspective of changes, in theweaker.

way that Japan could see both countries as

However, the lack of economic coopera-

economic partners. Due to this background,tion presented changes, in the past years.

the current study aims to analyse the Japanese

In September 2004, the Japanese ex-prime

Foreign Direct Investments, in these two

minister Junichiro Koizumi signed an Economic

recipient countries (Brazil and Mexico), duePartnership Agreement 11) (EPA) with theto the similarities (developing countries, with

Mexican ex-president Vicente Fox. The

increasing economic cooperation with Japan,

agreement includes quotas for Mexican products

but geographically and culturally distant),

to enter Japan with less tax charge. For theeven though with differences, considering FDI

Japanese side, the agreement helped theattraction.

Japanese companies to establish, in Mexico,
to compete with equality of conditions with

1.2 Statement of the problem

European and American companies. This

The international cooperation and external

agreement was the second free trade agreement

relations, between Japan and Latin American

signed by the Japanese. at that time, after thecountries, have been established for more thanagreement signed with Singapore, and the firsta hundred years. For example, the Japanesetreaty signed with a Latin American country.

immigrants in Brazil, Peru and Mexico, at theIn the case of Brazil, instead of not having

beginning of the 20th century and after Worlda direct trade agreement, the Japanese FDI,War II, had strong impact, in the societies of thein the period, had significantly increased,

recipient countries and created a vivid active

reaching, in 2011, US$ 7,536 million 12) thecommunity, in different sectors of the economy.

maximum value of Japanese investments, in

In Brazil, according to Alexandre Uehara (2002),

Brazilian history. However, political instabilities

until 1970, when it registered the last wave ofand economic changes made the trajectory ofJapanese immigration, more than two hundred

Japanese investments not as constant as otherthousand Japanese nationals immigrate to thecountries. The impeachment of Brazilian past

country. In the 1980s and 1990s, the reverse

president Dilma Roussef and the uncertainties

flux of immigration also happened, with aabout the Brazilian economy made, in the past

movement called dekaseguis , when the sons

years, a decreasing, in the volume of Japaneseof the Japanese immigrants moved back toinvestments, in Brazil.

10)

Japan, attracted by the flourish of the Japanese
economy.

However, the change in patterns ofinvestments, in both countries, and the many

In contrast, the economic cooperation,

uncertainties about the topic, leads us to a

between Japan and Latin America countries,

puzzle situation, that helped to build up thenever flourished, if it is compared with othermain question of this research: Which are theregions, especially if we emphasize the number

determinants that affect the decision of̶ 50 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

Japanese Foreign Direct Investments, inand documents about the 2005-2017 period. The

Brazil and Mexico?

documentary research has been made, throughthe systematic monitoring of specialized media

1.3 Research purpose and methodology
The study aims to analyse the characteristics
and motivations that lead the Japanese direct

and the examination of public documents (thatare available for research), that confirm orstrongly suggest investing, in the countries.

investment, in Brazil and Mexico, from 2005
to 2017. The project investigates, through

1.4 Relevance of the study

a detailed study, the characteristics of theThis research could be relevant for policy-

Japanese projects that were implemented, inmakers and scholars, whose study JapaneseBrazil and Mexico, and its subsequent impact on

Foreign Direct Investments strategies, providing

business relationship, among the countries.

data and economic analysis for a better

To establish comparison, the researchunderstanding of Japanese Foreign Direct

focused on the sectoral analysis of the Japanese

Investment (FDI). It can improve public policies,

investments, in both countries, and it had use

in the field, and future strategies. Despite

one analytical model, based on Vector Error

Japanese immigration and cooperation have been

Correction Model (VECM) methodology, as part

deeply studied, by scholars, the new pattern ofof the time series analysis, which checks plausible

Japanese investments, in the region, is still a

economic relations. The model included variables

new topic, that can help future researchers for a

to explain FDI and the relevance of them, in the

better understanding of multilateral relations.

results. For example, to explain FDI, we can use
factors, as GDP growth, exchange rate, interest
tax, commodities price and economic openness,

1.5 Hypothesis
The hypothesis to be tested are:and, with the time series analysis, to check the

1. Japanese multinational company’s

correlation and the predominant factors thatstrategy for developing countries are related

had influence, in the period.

to Dunning’s eclectic paradigm, using the

The final point to pick the countries Brazil

efficiency-seeking and resource-seeking

and Mexico is because both countries are thestrategies, but, in recent years, this pattern has

highest recipients of Japanese FDI, in Latinchanged to market-seeking objectives.

America, and Mexico has a direct free trade

2. Japanese investments, in Mexico, areagreement with Japan, although Brazil does not

mainly related to efficiency-seeking strategy,

have any trade, which affects FDI differently.

due to the trade liberalization conditions.

This study is also aiming to identify the

3. Japanese investments, in Brazil, areJapanese investments trends through Japaneserelated to market-seeking strategy, due toperspective. The different results, as well as theBrazilian domestic market’s conditions.

similarities, which are expected, can enrich the

4. Trade liberalization has positive effect, inresearch and help future scholars to understandattract FDI. However, the industry concentration

Japanese investments, in the region.

makes the impact of investments in the economy

About more specific methodologicalprocedures, the data (quantitative research)
have been collected in different ways, as books

weaker.
5. Governments and public institutions havepositive effect, on investments decisions.

Determinants of Japanese Foreign Direct Investments

1.6 Structure of the thesis

̶ 51 ̶

period.

This study has 5 chapters. After the present
introductory chapter, the study structure will be
as follows:

Chapter II: Overview of Japanese
investments, in Brazil

Chapter 2: Sectoral analysis of Japanese
FDI, in Brazil, using Brazilian Institute of

2.1 Introduction

Foreign Trade data, the study aims to identify

In order to analyse Japanese investments,

the sectors, in which the Japanese investments

in Brazil, from 2005-2017, this chapter will do

are allocated and its geographical distribution.

(1) the historical background of the Japanese

Chapter 3: Sectoral analysis of Japanese

investments, in Brazil, (2) a brief analysis of

FDI, in Mexico, using Mexican Ministry

Brazilian economic situation, in the period, andof Economy data, that includes Japanese(3) the geographical and sectoral analyses ofForeign Direct Investment statistics, in thethe Japanese investments, in Brazil, from 2005

country, the study aims to make both sectoral

to 2017. The last part of this chapter will be theand geographical analysis of the Japanese

conclusion.

investments, in order to identify in which

The geographical analysis will use thesectors the Japanese FDI are allocated and theinvestment values, separated by States of thegeographical distribution of this investments.

Brazilian confederation, although the sectoral

Chapter 4: Analysis of the results and theanalysis will divide the investments by economic

analytical model, that are based on the Vector

sectors. During the analysed period, theError Correction Model (VECM) methodology.

investments pattern has changed, depending on

Using Brazil and Mexico’s collected data, bytime. Within the period, it was possible to see

year, during the period 1990-2015 and using thethe highest value of Japanese FDI, in Brazil, in

analytical model and time series analysis, thea single year (US$ 7,536 million). The study will

research intends to determine how the factors

also focus, specially, on how the impeachment

affect Japanese investments.

of the ex-president Dilma Roussef affected the

Chapter 5: Conclusion and policy recommendations.

Japanese investments, in Brazil, considering
this turbulent moment of Brazilian economy.

The structure of the thesis is divided in five

In addition to both the changes in Brazilian

chapters. After the introduction, progressively

domestic condition and the new pattern

the study enters, in the analytical process, inof Japanese investments, in the developing

order to identify the determinants of Japanesecountries, this chapter aims to evaluate if

investments, passing through both countries’

these investment trends follow any investment

sectoral and econometrics analysis.

patterns, which has already been studied, by past

In order to analyse the theories, in the field,

scholars, in order to identify new patterns. The

and to create a theoretical framework for the

results will help researchers to understand thestudy, the next section, Overview of Japanesecharacteristics of Japanese investments, in Brazil,

investments, in Brazil, will analyse the patternand how the macroeconomic conditions couldof Japanese investments, in Brazil, through anaffect the investments, in the sectoral analysis.

historical, sectoral and geographical analysisof the investments, in the country, during the̶ 52 ̶人文・社会科学研究

東京国際大学大学院

2.2 Analysis of Japanese investments, from第4号

2019 年 9 月

the geopolitical scenario. The positive economic

2005-2017perspectives and the growth of Brazilian

The period from 2005 to 2017, which is

economy, together with political stability,

studied in the beginning of this chapter, was aenabled the highest levels of investments fromgrowth period, in Brazilian economic history,

Japanese companies, in Brazilian history. It is

increasing the perspectives of Brazil, as apossible to analyse, from Figure 2.1 and Table

counter-hegemonic power, as part of the BRICS

2.1, the evolution of Japanese investments,(Brazil, Russia, India, China and South Africa), in

during the period. The volume of investments

Table 2.1. Value of Japanese FDI, in Brazil, by Year, in Million Dollars (2005-2017)

Source: Brazilian Central Bank report, on Japanese FDI, in Brazil.

Source: Report from Brazilian Ministry of Trade and Commerce, about Japanese FDI, in the country.

Figure 2.1. Value of Japanese FDI, in Brazil, by Year, in Million Dollars (2005-2017)

Determinants of Japanese Foreign Direct Investments̶ 53 ̶

reached peak levels, in 2011, with the amountsegments. Due to that, the next fragment ofof 7,536 million dollars. The examination of thethe chapter will analyse each sector and theevolution of the investments, the companies thattype of investments, which were made by

were responsible for these investments and theJapanese companies, in Brazil, and will bring

sectors in which the values were distributed are

the conclusions of this study, regarding theseapproached, in the next fragment of the chapter.

investments.

Furthermore, it is also possible to analyse the

The data were collected from RENAI

impact of the Brazilian political instability and(Brazilian national network of investments),

the results of the GDP growth, to the years ofwhich is a branch of Brazilian Ministry of

2015, 2016 and 2017.

Trade. These data comprise every investment

In order to analyse the different paths ofannounced, in the country, from 2005 to 2017,

Japanese investments and its periods of time, it

including investment, reinvestments andis necessary to divide the 2005-2017 period inmodernization operations. It is possible to divide

two different phases, according to both politicalthe data by country and by sector, in order toand economic situation. In the years from 2005

obtain the results of the Japanese investments.

to 2011, which comprises the end of the first

The quantity of Japanese investments, inmandate of president Lula, his second mandate

Brazil, reached 382, with an amount of 85,461

and the first year of ex-president Dilma Roussef

million dollars. However, the total Japanesemandate, it is possible to see the increment of

FDI announced, in Brazil, according to thethe values, especially, in energy, metallurgy andTable 2.1, was 28,395 million dollars, for the

manufacturer industry sectors.

2005-2017 period. The discrepancy in values

The increment on the price of commodities

can be understandable, since mixed capitaland the good performance of Brazilian economy

companies (for example, Usiminas) can be

attracted the companies that were interested incounted as Japanese investment, in the second

the growth of its domestic market. From 2011 totable, although the flux of capital can come2017, it is possible to analyse, even at the firstfrom other countries. Due to these difficulties,

three years, the recovered investments, sincein establishing a proper classification, thispart of these values are due to energy sector

study will include only investments classified as

deals and there is the perspective of recovery

Japanese capital.

of the Brazilian economy, due to 2014 Football
World Cup and 2016 Olympics mega events,

2.2.1 Manufacturing industry

hosted by the country. But, from 2015 to 2017,

According to Roger Farrell, by the year

it is possible to see the strong decreasing, in

2004, the Latin America manufacturing industry

values, that can be correlated to the poor GDP

represented only one-tenth of the number ofgrowth performance, in the period.

firms, compared with the number of affiliates, inHowever, it is necessary a detailed picture

East Asia. This small proportion, compared withof the period, to analyse every single sector

other parts of the world, reflects the long history

and its investment characteristics, because theof import substitution policies, in the region, andfactors that bases the investment decisions

the lack of single market. However, there areshall be different, according to the ambition

the attempts of MERCOSUR. Kimura and Andoor the strategy of the companies, in different(2003)13) reinforced this concept and stated that̶ 54 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

the production/networks, in Latin America, aremarket share, which the Japanese companies

less developed, compared to East Asia. Latin

have on it. According to a specialized website,

America is seen as “far” for Japanese firms,

Toyota, Honda and Nissan were in the top 10 ofin terms of geography, culture and historicalsales, in Brazil, in the year 201714): Toyota was inbackground.

the 6th position, with 189,569 units sold; Honda

On the other hand, in recent years (2005-

was in the 8th position, with 131,096 units sold;2017), in Brazil, the growth ratio of economy

and Nissan was in the 10th position, with 78,810

increased and the high demand for manufactured

units sold.

products (cars, electronics) appeared, on the

In order to keep themselves competitive, indomestic market, incrementing the volume

Brazilian market, Japanese companies invested,of investments from Japanese companies, inin the period from 2005 to 2017, a total of 6,446

these sectors. The increase, in the new “middle

million dollars, in the implementation andclass” purchasing power, “in Brazil, madeexpansion of their plants. The Honda factorycompanies increase their investments, in plants

plant, in Sumare city, that assemble Honda Civic

and modernization processes of them, in theand Honda Fit car models, the Toyota factory

purpose of keeping themselves competitive, inplant, in Porto Feliz city, and the Nissan plant, inthe market.

Resende city, are examples of implementation of
investment, on the automobile factories, during

2.2.2 Automobile sector
Japanese companies have a long tradition,

the period, that could give the impact on Table
2.2 final total value.

in assembling cars and motor bicycles, in theBoth Nissan and Toyota values are related toBrazilian market. Honda and Yamaha entered

the construction of new factory plants. Mitsubishi

the market, in the beginning of the 1970s, and,invested in the expansion of an existing factory,

after that, Toyota entered, and, in recent years,

in Goias state, and Suzuki invested in the

Nissan followed them. Once Nissan has French

construction of a new factory, which is producing

and Japanese capital, the sectoral analysis

a specific car model, therefore, this plant is notincluded the totality of its capital, although

in a large-scale production.

this amount has no Japanese origin only. The
presence of Japanese companies, in the Brazilian
market, could be seen in the percentage of

2.3 Geographical distribution
To analyse the geographical distribution

Table 2.2. Total Values of Investments, by Company, in the Automobile Sector (2005-2017)

Source: Report on Japanese FDI, in Brazil, from the Ministry of Trade and Commerce15).
Notes: Values in million dollars.

Determinants of Japanese Foreign Direct Investments̶ 55 ̶

of the Japanese investments, the study uses

Analysing Table 2.3, it is possible to see that

Ministry of Trade and Commerce’s information

the states of Sao Paulo, Amazonas and Minas

on investments, in Brazil, during the period,

Gerais were the areas with larger concentrations

although this data focus only investments thatof the Japanese investments. The reason for thisare original from Japan. Therefore, companies

is that Amazonas is a “Free Trade zone”, hostingwith mixed capitals, such as Usiminas, which isboth local and international companies. The

a partnership between Italy, Argentina, Brazil,

companies in the manufacturing sector, such as

and Japan, are excluded from the analysis. The

electronic components, motorbikes and home

investments from “non-identify” regions are notappliances assembling, are localized in Manaus.

included in the research, either. In order to haveSony and Panasonic are examples of Japanesea picture about the Japanese investments, it wascompanies, in this area.

making a table with the fields “State”, “Number

The Japanese investments, in Minas Gerais

of investments”, “Main companies” and “Total

state, can be divided into the categories ofvalue, in million dollars”.

natural resources and factoring and assembling.

Table 2.3. Geographical Distribution of the Japanese Companies, in Brazil, by state

Source: Report from Brazilian Ministry of Trade and Commerce, about Japanese FDI, in the country.
Notes: Values in million dollars.

̶ 56 ̶人文・社会科学研究

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2019 年 9 月

The investments in natural resources areproducer condition of some parts of the state.

related to mining and both paper pulp and

In Santa Catarina, the investments are related

celluloses factories. As part of the investments

to the implementation of gas and energy

in celluloses, the Japan Brazil Paper company

infrastructures, due to the presence andhas stock shares composition from JBIC loans

contribution of Marubeni group, in the energy

and Japanese companies, such as OJI paper,state company. In Parana, they are related to

Itochu and Nippon paper industries. Those withthe rubber industry, with Dunlop’s investments,

factoring as reason of investments, examples arein the implementation of a new factory.

Toshiba, that has a factory in the municipality

In the Southwest, the investments areof Betim, and Panasonic, with a factory in therelated to both food and agribusiness industries.

municipality of Extrema.

In the North and Northeast, they are related to

However, the state with the highest amountfood and consumption. In the state of Rio deof Japanese investments, in Brazil, is Sao Paulo.

Janeiro, surprisingly, the values for Japanese

In addition to the long tradition of the Japanese

investments are low, compared to Sao Pauloimmigration (the state’s region concentrated

and Manaus, being Rio de Janeiro the second

the largest numbers of Japanese immigrants

economic vector with 10,8% contribution for

and, afterwards, the most vivid Japanese

the total Brazilian GDP. But, the investments,

community, in Brazil), Sao Paulo state is also

for the implementation of a new Nissan factory,

the economic centre of Brazil, accounting forand the Mitsui corporation investments, in steel

32.12% of Brazilian GDP, in 2015. Japanese

sector, made higher the presence of Rio decompanies are concentrated in different areas,

Janeiro state, in the volume of investments.

depending on the sectors of the area (i.e., IT,
car manufacturing, food industry, glass, rubber

2.4 Conclusionand electronics). In car manufacturing sector,

The possible conclusion, after the analysis

Honda opened the second factory, in Brazil,of Japanese investments for the mentioned

in Sao Paulo state, and Toyota also opened aperiod is that there are two main motivations forfactory, for assembling Etios and Corolla car

Japanese investments, in the country: resource-

models. Also, it should be mentioned that the

seeking and market-seeking. As resource-

investments in industries, such as glass industry,

seeking, it can be cited the investments inand sales and services have happened, in Brazil.

areas, as the iron ore and metallurgy, by

For example, in the case of Nikon, it opened

Japanese multinational giants, as Nippon Steeltheir first subsidiary, in Brazil, at Sao Paulo,

and Sumitomo metal, even acquiring shares ofsince the state has benefits that goes from thestrategic companies of the sector, as Usiminas

possibility of economic growth to the increase

and CSN. Going further, the investments

in consumer demand for products of Japanesein the energy sector, due to Japan’s energy

companies.

situation, and the boom of the ethanol field,

In other Brazilian states, such as themade Japanese companies, as Sumitomo,South region the investments are related toincrease investments, specially, in ethanol,state’s characteristics. For example, in Rio

due to the unique conditions of Brazil, as a

Grande do Sul, the investments were related

bio combustibles producer. Also, it should be

to tobacco industry, due to the preferable

remarked the investments in gas distribution andDeterminants of Japanese Foreign Direct Investments̶ 57 ̶

the participation of Mitsui, in gas distribution

kind of strategy Japanese companies follow,

state-owned companies.

in Mexico. Considering that the Japanese

Other important motivation, in Japanese

investments, in Brazil, have follow both market-

investments, is the market-seeking strategy, inseeking and energy-seeking strategies, in theBrazil. The GDP growth, in the study period,

case of Mexico, how does Japanese companies

as well as the increasing of per capita income,invest? This is the discussion of the nextmade Japanese companies, as Sony, Panasonic,

chapter.

Hitachi and Toshiba, in the electro-electronics
market, and Honda, Toyota, Yamaha, in theautomobile market, increase investments, due toChapter III: Overview of Japanese
Investments, in Mexico

the rising demand of the domestic markets. This
type of investment has also been affected by
the slowdown of Brazilian economy, in 2016 and2017.

3.1 Introduction
This chapter aims to analyse Japanese
investments, in Mexico, from 2005 to 2017.

However, the fluctuations of the period

The first part of the chapter will be (1) one

have been considered, when the Japanese

brief analysis of the Mexican economy, during

companies, despite the economical insecurities,

the period, and, after the analysis of Japanesein the 1980s and in 1990s, have invested, ininvestments, this chapter is divided in (2)the country, not only looking for short-term

the sectors, (3) the geographical distribution

operations, but in order to increase production

and a specific analysis on the (4) Japanese

capacity.

manufacturer industry, in Mexico. The last partThe results from the sectoral analysis

will be the conclusion.

shows that the pattern of Japanese investment,

In Mexico, the investments are conditioned

in the country, from 2005 to 2017, has strong

to trade agreements, as NAFTA and the Japan-

correlation with GDP performances, which

Mexico trade. Due to these circumstances, theis possible to see, in Table 2.1 and Tableamount of investments is not as high as Brazil,

2.3. However, it was found that, in addition

but the fluctuation and the instability of theto the strong correlation with the economic

country are not so high, as the Brazilian case,performance, in specific sectors, as energy anddue to the less dependency of these investments

resource-seeking industries, the investmentson country’s economic performance. However,values should have more relation with theby adopting Dunning’s eclectic paradigm

specific commodity price than the economic

investments classification, the Japanese

performance, in the period. In chapter 5, atinvestments, in the country, could be classified

the econometrics analysis, these empiricalas efficiency-seeking, due to the fact that theassumptions will be tested.

production is not designated directly to the

In the next section of the thesis, the study

domestic market, since it is made, mostly, byaims to analyse the Japanese investments,

multinational companies and their affiliates,

in Mexico, to make both its sectoral andaiming to improve the producing network.

geographical analysis, in order to identify

However, Mexican economists points out

the pattern of investments and, according to

the fact that, even GDP was positive, duringDunning’s eclectic paradigm definition, what

the period, the performance of GDP per capita

̶ 58 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

indicators was not good, compared with otherinvestments. However, this agreement is called

developing countries of the region.

as “second generation trade agreement”, since
it includes development cooperation, as well as

3.2 Analysis of Japanese investments, from2005-2017

economic cooperation.
The second factor that explain it is theJapanese companies have a long tradition

large number of Japanese companies that hasof investments, in Mexico. In 1966, Nissanestablished, in Mexico, based on the stagnatedstarted their first plant, in Cuernavaca, Morelos

Japanese domestic economic situation, during

state. Despite the little number of Japanese

the last two decades. The slow economic

immigrants, in the country, compared to

growth and the high labour costs, especially inother countries, as Brazil or the United States,

the manufacturing sector, made the Japanesesince Mexico received Japanese immigration,companies less competitive. In order to maintainespecially, after the World War II. The factor that

their competitiveness, the Japanese companies

decided Japanese companies to be established,

had to expand their overseas productionin the country, especially increased, after the

networks, in countries as Vietnam and Mexico,

introduction of trade liberalization measures,in order to take advantages on labour costs

that led to the NAFTA agreement. In 1995,

and tariffs conditions. Due to these questions,

Honda started their operations, in Jalisco state,

the Japanese multinational companies had towith the building of an automobile factory, and,search for places with lower production costs,

after that, the number of Japanese companies, incompared to Japan.

the country, has been increasing, year by year.

The third factor, that is cited by Falck Reyes

In order to analyse the Japanese investments,(2016), is the technological development, in thein Mexico, during the period, it should be citedcommunications and IT sectors, which made17)

the work from Melba Falck Reyes (2016) ,possible the fragmentation of the productionthat analyses Japanese companies’ networks,

and affected how multinational companies’

in the country. According to the scholar, there

production networks and their third-party

were three main factors that contributed tocompanies are structured. The multinational

the increasing of the values of investments, incompanies have a large network of suppliers

Mexico, reaching the expressive number of 900

and their production impacts, not only to thecompanies, by the year 2016, almost duplicating

local market, but, also, to the interregional

the number, in the last 5 years.

connections of the receptor countries. Putting it

The first aspect that should be mentioned

in a concrete example, being a part of NAFTA,

is the Japan-Mexico trade agreement, which

Mexico became an attractive place for thestarted in 2005. In the Vicente Fox government,

multinational companies, since the country

Mexico had made efforts for internationalization

could export to the United States and develop

and, also, followed by the next presidents,

an integrated network of production. This is thethrough 12 trade agreements, with the total

same case of Vietnam, which is part of ASEAN,

number of 47 countries. Japan is the only

and Czech Republic, that is part of the European

country of Asia with an Economic Partnership

Union.

Agreement (EPA) with Mexico. The agreement

The main characteristic of Japanese

has the goal of promoting trade and attract

investments, in Mexico, is the concentration

Determinants of Japanese Foreign Direct Investments̶ 59 ̶

of investments in the Manufacturer sector,

high number of multinationals companies andespecially, in the Automobile sector, assemblingproduction networks made the transactions

cars, motorbikes and trucks. For example,

being inside the company or between their

Nissan, Mazda, Toyota and Honda haveaffiliates and companies that directly works withproduction plants, in the country, and thesethem.

multinational companies also attracted other

Values from 2016 and 2017 could becompanies, which produce auto parts andexplained, partially, due to the uncertainties

components to them. The production network

about the NAFTA agreement and the role ofof the auto parts created a production cluster,

Mexico, as a manufacturer producer, especially,

not only by the Japanese car manufacturer

after Donald Trump became the United Statescompanies, but, also, included other foreign

president, at the beginning of 2017.

companies, as the Korean Hyundai and theGerman Volkswagen.

Despite the influence of the external
conditions, in Japanese investments, inAnalysing the total amounts of Japanese

the country, it was possible to be statedinvestments, in Mexico, as it is possible to see,that the production networks were alreadyin Table 3.1, the values have been increasing,established and, in recent years, and had more

gradually, with special emphasis to the values,

diversification, apart from the automobile sector.

after the global crises, with a small slowdown, in

For example, the Mizuho bank’s operations,the years of 2016 and 2017.

in Mexico, started at the year 2017, and the

The high values for reinvestments andcooperation, in the energy sector, with thetransactions between companies could be

photovoltaic projects and wind energy, has theunderstood, due to the characteristics of

JBIC economic support.

these companies, acting in the country. The
Table 3.1. Japanese FDI, in Mexico, by type of investments, from 2005 to 2017

Source: Ministry of Trade of Mexico
Notes: Values in million dollars

̶ 60 ̶人文・社会科学研究

東京国際大学大学院

3.3 Sector distribution

第4号

2019 年 9 月

were active, but, if compared to Brazil and Chile

The sector that concentrate Japaneseor, even, Mexico, which had large reserves ofinvestments, in the country, was the Manufacturer.

different kind of minerals, Japanese companies,

Analysing the Table 3.2, it is possible to see

as Sumitomo, have reduced amounts of projects,

that the division between the total value ofin Mexico. The Japanese companies haveJapanese investments and the manufacturer

been investing in the areas of commerce andsector values still represent the largest amount.

food, in recent years, although the amountIn the total value of 21,867 million dollars, theof investments is not in a large-scale. For

manufacturer sector represents the total amountexample, the export of Japanese Sake andof 18,083 million dollars, that corresponds tofashion products are part of the different kind of

82.5% of the total volume of investments.

investments portfolio that Japanese companies

Other sectors, as mining and banking, were

have, in the country.

growing, in the country, in recent years. Mizuho

By the specific analysis of the manufacturerbank started the operations, in Mexico, in 2017,sector, it is possible to see, in Table 3.3, thatfor instance. However, the main investments,

the Automobile industry denotes the mostrelated to the beginning of its operations,significant sum, representing 60.6% of the total

in the country, happened in previous years.

values. The other relevant industries, in the

The operations related to the bank sector, inmanufacturer sector, are electronics, plastic,

Mexico, were in the hands of North American

chemical and metallurgy. It happens because of

and Spanish enterprises, as Citibank and BBVA,

the Automobile industry, so, this manufacture

and they are making the entrance of Japanese

will be approached more specifically, in the nextcompanies, in local market, to be difficult.

part of the study, due to that.

In the mining sector, Japanese companies

In the electronics sector, companies, as

Table 3.2. Japanese FDI, in Mexico, by Sector, from 2005 to 2017

Source: Ministry of Trade of Mexico
Notes: Values in million dollars

Determinants of Japanese Foreign Direct Investments̶ 61 ̶

Table 3.3. Japanese FDI, in Mexico, by Manufacturer Sector, from 2005 to 2017

Source: Ministry of Trade of Mexico
Notes: Values in million dollars

Panasonic, with a factory in Ixtapaluca, near

Mexico. In the period from 2005 to 2017, theMexico City, Sharp and Sony, had a large

Japanese automobile companies invested, in

history of presence, in the country. However,the country, 10,956.9 million dollars, from an

the trajectories of these companies have been

investment budget of 21,867.8 million dollars,

irregular, due to the production factors. For

that represents 50.15% of the total amount of

example, Sony sold its plant18) to the Taiwanese

investments.

company Hon Hai Precision, in 2009, and Sharp

Even in the domestic market, Japanesesold their operations, in Mexico, to the Chinesecompanies had large market shares, as iscompany Hisense, leader in the production of

possible to see, in Figure 3.1, but just part of the

LCD and smart televisions, in 2015.

production remains in the country, even though

In the plastic sector, different Japanesethe factories mainly export their products tocompanies act, in the plastic injection moulding

other markets, such as United States, Canada

machine, in the country, being the sector

and South America.

responsible for investments related to theAnalysing each company, in the top ten

automobile industry and part of the industrial

list of car sellers, in Mexico (in which are notcluster, that was created by the companies.

included some companies, as Suzuki, or the
motorbike sector), Nissan have two factories,

3.3.1 Japanese Automobile industry, in Mexico

in Aguascalientes and Morelos, that exports to

As seen, in the precedent fragment of thedifferent countries, Toyota have also two plants,

chapter, the automobile sector and, especially,in Baja California and Guanajuato, and Honda

the car making industry, concentrates thehave three plants, being one in Jalisco and twolargest part of Japanese investments, inin Guanajuato.

̶ 62 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

Source: Soloautos.mx. [online] Retrieved from: https://soloautos.mx/noticias/detalle/analisis-de-ventas-todos-losnumeros-los-que-suben-y-los-que-bajan/ED-LATAM-8090/

Figure 3.1. Number of Cars Units Sold, in Mexico, in 2017
As it is possible to see, in this brief analysis

graphical condition, between the Unitedof the automobile manufactures, most of theStates and South American countries, and thecompanies are located in regions, as Bajagovernment efforts for trade liberalization,

California, Guanajuato, Aguascalientes andsupported the automobile manufacturers toMorelos, in which the cluster of companies cancreate the clusters, especially, in borderline andproduces the components and, also, assembly

central states.

the hole product, inside the same production

In the Figure 3.2, extracted from thechain. The car manufacturer production, in

paper of Melba Falck Reyes (2016), it is possible

Mexico, started in the border states of Nueva

to perceive the Japanese companies that are

Leon and Baja California and in the central

established, in Mexico, relatively to the big

states of Aguascalientes and Morelos. However,companies of the automobile sector. In addition

in recent years, plant locations have been

to the plant and the production of cars, it isexpanding to other regions, such as San Luis

possible to see how the components and thePotosi and Queretaro.

cluster of companies, related to the sector, can

It is noteworthy that the manufacturer

impact the final product.

19)

clusters definition came from Porter (1998) ,Due to the high value of investments,that defines a cluster as “a group geographicallyJapanese companies have been one of the mainclosed of firms and institutions, with similarities”.

investors, in Mexico, at the sector. According to

The proximity of the firms will generate

Melba Falck Reyes (2012)20), the trade agreementtransactions under a competition environment,

was the key factor to establish these automobile

leading to specialization and operation

clusters and the good relationship between both

excellence. The role of the government andcountries, helping Japan to be the Automobile

institutions, in this process, can be a facilitator.

leader, in the country.

A cluster has a regional characteristic and its
location and tariffs can be a definitive advantage.

3.4 Geographical distribution

In Mexico, the tariff conditions for the

The geographical distribution of thecompanies called “maquiladoras”, the geo-

companies can be divided by the production

Determinants of Japanese Foreign Direct Investments̶ 63 ̶

Notes: Directly retrieved from Falck Reyes, Melba E. 2016. “Red de inversion japonesa en Mexico”. “Japanese
Network of investments” Mex.cuencapac [online]. vol. 5, n. 14, pp. 13‑17.

Figure 3.2. Number of Japanese Companies of Car Manufacturing Industry, in Mexico
Table 3.4. Japanese investments value, in the period 2005-2012, by state federation

Source: Ministry of Trade of Mexico
Notes: Values in million dollars

̶ 64 ̶人文・社会科学研究

東京国際大学大学院

clusters, especially, in the automobile sector.

第4号

2019 年 9 月

concentrate Japanese investments.

Besides that, the predominance of Japanese
investments concentrates the volume of

3.5 Conclusion

investments, in eight states: Aguascalientes,

The pattern of Japanese investments, inBaja California, Ciudad de Mexico, Guanajuato,

Mexico, has been changing, through the years,

Jalisco, Morelos, Nueva Leon and Tamaulipas.

due to economic agreements and international

It should be remarked that the eight states

economic situation. The NAFTA agreement andthat received the largest values of Japanese

the consolidation of the manufacturer sector, ininvestments are manufacturer clusters

special, at the maquiladora companies, whichthat concentrates industries related to theattract the Japanese companies to increaseautomobile sector and other types of industries,

investments, especially, in the border regions

as chemicals and glass.

of Baja California and Tamaulipas. However,By analysing by state, in order to explain

the evolution of Japan-Mexico relations andthe reasons of the investments, it is possible to

the NAFTA agreement, signed in 2005, helped

say that Estado de Mexico and Ciudad de Mexico

the Japanese companies to be more present, in(which includes Mexico City and the near cities)

Mexico market, especially at some sectors, asconcentrate investments, in the service sector,

the automobile.

and various Japanese companies have their

On one hand, the new patterns of production

headquarters, in the city, due to the central

networks and the improvements, in supply

economic importance of the state. In the case ofchain systems, made Mexico attractive for

Tamaulipas, the geographical situation (a borderinvestments, due to its geographical location,state with Texas) made the maquiladorasthat could reduce costs and improving tariff

expansion, despite the insecurity problems, thatconditions, making easier to the cluster ofare related to the drug cartels, and its correlated

specialized companies to export to mainquestions, in the control of the state.

markets, such as the United States.

Baja California has its geographical location

On the other hand, the extreme dependency

near California and it also hosts manufacturerof FDI and foreign capital, made the Mexican

company’s clusters, such as Toyota, as well as

domestic economy vulnerable to the fluctuations

the reduction of costs to export to the Unitedof the global markets. As it was possible to see,States, because of the NAFTA trade agreement.

in the 2009 economic performance, sectors

This has resulted in the concentration and thethat depends on the global sales, such asincreasing of Japanese companies. However,

the automobile one, can affect directly thethe geographical region with the highest levels

Mexican economy and the lack of autonomy ofof Japanese investments is the central part of

the Mexican central government on domestic

Mexico, such as Aguascalientes and Guanajuato.

economy made the situation more difficult

There are clusters not only for automobile

to companies and citizens. Other aspect thatcompanies, but also for Japanese companies.

should be pointed is the concentration of foreign

As it is possible to analyse, from Table 3.5,

direct investments, in the Manufacturer sector.

the number of both Japanese companies andDespite the difficulties of Japanese companies

Japanese residents concentrate in these states,

to enter, in some Mexican markets, as banks orwhich shows the reason why these places

services, the lack of a mixture of investments

Determinants of Japanese Foreign Direct Investments̶ 65 ̶

Table 3.5. Number of Japanese Companies (upper line) and Residents (lower line), in 10
states of Mexico, from 2005 to 2017

Source: Adapted from a table of the cited article 21).

made the Japanese investments dependent on

the agreements, are also a key to keep Japanesethe specific conditions of the sectors, as well.

investments, as well as the TPP (Trans-Pacific

The 2005 trade agreement had a positive

agreement) could also improve the position of

impact, both on the Japan and Mexico bilateral

Mexico, as main target of Japanese investments.

relations, but, according to Melba Falck Reyes

After identifying, in the sectoral analysis,(2012), two factors are important to thethat the Japanese investments pattern, in

consolidation of the Japanese interests, in

Mexico, follows Dunning’s eclectic paradigm of

the country, in the long-term: the increase of

efficiency-seeking strategy, in order to export

competitiveness, in the Mexican economy, andto other countries, the chapter tried to analyse

the Mexican position, in global FDI, in orderthe conditions that make the manufacturing

to compete with other emerging countries

sector and, in special, the automobile industry,

and keep attractive to companies, that will

predominant, regarding Japanese investments, in

not migrate to other countries with more

Mexico. As it was possible to see, from Table 3.3

comparative advantages. In my point of view,

and Table 3.5, the concentration of Japanese

I would like to include, in addition, that theinvestments, in the industrial clusters, are in the

Mexico-United States relation and the position

centre of the country and in the states near theof President Donald Trump against Mexico, inborder with United States. From the empirical̶ 66 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

analysis, the factors that affect the investments

adaptation, due to the difficulties to find thedecision, in Mexico, are more related to its tariffs

database that was applied to the studies.

and product’s destination.

The different factors that could affect the

The next section of the thesis presents anJapanese FDI decisions leaded to the formation

econometric analysis for Brazil and Mexico, fromof different datasets, in order to explain the1990 to 2017, in order to identify the factors

factors that could elucidate the determinants

that determinate Japanese investments, in bothof Japanese investments, in both countries.

countries.

Other paper that contributed, as methodologicalreference, by using the Vector Error Correction

Chapter IV: Econometrics analysis
from Brazil and Mexico

Model, was the paper of Helis Cristina Zanuto,
Andrade Santos, Claudeci da Silva and Thais
Andreia Araujo de Souza (2016), about the

4.1 Introduction

determinants of Foreign Direct Investments, inThis chapter aims to analyse the deter-

Brazil, from the year 1990 to 2017. In addition

minants of Japanese foreign direct investments,

to empirical evidences, from FDI determinants,

in Brazil and Mexico. However, due to the lackin the country, the factors and the correlationof quarterly data for Japanese investments,

between the variables have been approached, inin Brazil, the study divides the structure

this chapter.

of the chapter in two different parts, theanalysis of yearly Japanese investments, inBrazil and Mexico, from 1990 to 2017, and the

4.2 Methodological procedure and definitionof variables

econometrics analysis about this data, aiming to

From both theoretical framework andidentify common aspects and divergent points

literature revision, it was possible to selectthat affect Japanese FDI decisions, in bothvariables that could influence significantly,

countries, and test the correlation between

in the behaviour of Japanese investments, ineconomic variables and the amount of Japaneseboth countries. In order to test the correlation

investments.

between the variables and the value of Japanese

For the purpose of this study, it wasinvestments, the selection of the variables wasconstructed an estimated analytical model,

the following: Japanese FDI can be explainedby using the Vector Error Correction Modelby the logarithm of GDP, the logarithm of(VECM) methodology. It should be observed

commodities price, the inflation annual tax, thethat the econometrics methodology was

logarithm of currency nominal exchange rate

adapted from the previous work of Priscila

and the investment as a GDP percentage.

Gomes de Castro, Elaine Aparecida Fernandes

In this study, we use the Vector Error

and Antônio Carvalho Campos (2012)22), that

Correction Model to investigate the correlation

analysed the determinants of FDI, in Brazil andbetween the factors, listed above, and the

Mexico, from the period 1990-2010, and theJapanese FDI, in Brazil and Mexico. According

empirical analysis of the determinants of FDI,

to Jenkin Graham (2014) 24), the VEC models

in Brazil, after 199023). The present thesis used

help to trace corrections, if there is the co-a similar approach (the VECM model), evenintegration relationship between variables,

though limited to Japanese investments, withwhich makes the VEC model a VAR model with

Determinants of Japanese Foreign Direct Investments̶ 67 ̶

co-integration constraints. Due to this, theBrazilian Central bank annual report for overseas

VEC model can restrict long-term behaviour ofinvestments, by country, the GDP values wereendogenous variables and be convergent withcollected from the World Bank database, in

their co-integration relation.

current US$ dollars, the currency data, from the

In order to apply the VECM methodology,

World bank dataset, as nominal exchange rate,

we develop the following formula, considering

the commodities prices, from the World Bank

both independent and dependent variables,

commodities price data (the data is monthly,in order to analyse the pattern of Japanese

but it was converted to annual, by using theinvestments, in both countries.

monthly values and making an average number
for the annual prices, for different commodities,

ljfdi = α + lgdpt β 1 + lcurrt β 2 + lcommt β 3 +inflt β 4 + invgdpt β 5 + ε t(1)

as oil, coal and iron ore), the inflation data,from the IPEA (Brazilian Institute of Applied
Economic Research) and the investments as

In which:
ljfdi: Logarithm of Japanese investments

GDP percentage, from the World Bank dataset.
For Mexico, the data sources were inter-lgdpt: Logarithm of GDP

national entities, as the World Bank, in the caselcurrt: Logarithm of currency exchangeof commodities price, GDP and exchange rate,

nominal ratelcommt: Logarithm of commodities prices
index
inflt: Inflation annual tax, divided by theinterest rate
invgdpt: Percentage of the GDP from Foreign
Direct Investments

though both inflation and GDP’s percentage of
Foreign Direct investment data were from thenational statistics bureau of Mexico (INEGI).
It was difficult to include other variables tothe model for different reasons. First, the aimof the thesis was to develop a model that weresimilar for both countries, but it was not possible

α : The intercept term

to find quarterly data that could compare

β 1, β 2, β 3, β 4, β 5: The slope of each coefficientJapanese investments, in both countries, on

ε t: Error term

available statistics. Second, the absence of alarger sample has limited the annual analysis for

For t, it refers to the specific year of analysis.

the period 1990-2017, as well as the inclusion of

To be able to investigate the correlation between

more variables could hamper the operation, on

the factors and the Japanese FDI, in the country,

both VAR and VEC consume models, regarding

the final equation came as a result of a modified

their freedom degrees.

linear panel model, in which the Japanese FDI,

On variables relationship, it is expected thatin the country, is the independent variable andJapanese FDI and lagged GDP (as market size)

GDP Log, currency Log, commodities prices Log,

have a positive relationship, as having access to

inflation Log and GDP’s FDI percentage Log arelarge markets means access to large domestic

the dependent variables.

demand and it is related to market-seeking
strategy, according to the Dunning’s eclectic

4.2.1 Dataset

paradigm, as well. For GDP’s investments

In the Brazilian case, the annual data forpercentage, the higher values of investments, inJapanese investments was collected in thethe country, shows the openness of economic̶ 68 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

Notes: The illustration reports the logarithm results for each variable used, in the case of Brazil, to analyse theJapanese Investment, GDP, Currency, Investment as part of GDP, Commodities price and Inflation values. For
both IFL and Invgdp variables, it was not necessary to use the Logarithm form. The diagrams refer to Brazil, in the
period from 1990 to 2017.

Figure 4.1. Graphs in Logarithm, with results for Brazil

Determinants of Japanese Foreign Direct Investments

̶ 69 ̶

Notes: The illustration reports the logarithm results for each variable used, in the case of Mexico, to analyse theJapanese Investment, GDP, Currency, Investment as part of GDP, Commodities price and Inflation values. For
both IFL and Invgdp variables, it was not necessary to use the Logarithm form. The diagrams refer to Mexico, inthe period from 1990 to 2017.

Figure 4.2. Graphs in Logarithm, with results for Mexico̶ 70 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

policies. In the case of commodities price, if theAugmented Dickey-Fuller (ADF), for the 1%,

prices increase the investments, in resource-

5% and 10% levels of significance. This test

seeking actives, as oil, coal and iron, it has aanalyses the stationarity of the series. According

positive relation with the FDI. In the case of

to the results, that can be seen, in Table 4.3,

inflation, the presence of outliers, especially inthe test was conducted in two time series data,

Brazilian situation, can make it difficult to find

one for Brazil, for the yearly data from 1990 tothe correlation with the Japanese investments.

2017, and one for Mexico, for the yearly data

From the selection of the data for thefrom 1990 to 2017.

econometric model, the series received

The presence of a unit root was tested, fortreatments, to run and avoid outliers. The series

all levels, as well as the first differences of theinflation was seasonally adjusted. In the year

variables. The ADF test regression equation can

1990 graphic, for example, the values showed

be expressed as:strong seasonal movements. All the series were(2)transformed in log and the inflation series for
Mexico and Brazil started in the year 1996.
The graphs can be seen, in the Figure 4.3 andIn which:

Figure 4.4.

Δ: the first difference operator

4.3 Econometrics tests

θ : the white-noise disturbanceay: the dependent variable
After the verification of tendency andconstant, the following step was to make theΔyt - 1: the lagged first difference
The Table 4.1 shows the results and, inTable 4.1. Augmented Dickey Fuller Test

Source: Researcher’s results, using Stata.
Note: *** 1% significant; ** 5% significant; * 10% significant.

Determinants of Japanese Foreign Direct Investments

̶ 71 ̶

the case of Brazil, the ADF test, using the first

For the Johansen test, the variables weredifference, GDP, Currency, GDP’s FDI percent

selected, according to the econometric model,

and Commodities showed stationary on level

presented before, and the lag test criteria wereof probability of 5%. Japanese investments andmade by using Final Prediction Error (FPE),

Inflation were stationary, in first difference. In

Akaike’s Information Criteria (AIC), Schwarz’s

the case of Mexico, it was found, without theBayesian Information Criteria and Hannan andfirst difference, no series that rejected the null

Quinn Information Criteria (HQIC).

hypothesis of presence of unitary root. However,

The results found that, for the number ofwhen it was differentiated, both series inflation

lags necessary to use, in the Johansen test, wasand commodities were significant, at 5%, but thelag (1), due to the annual form of data.

other ones were significant on the probability

The results for Johansen’s co-integration,of 1%. According to the results, once moston the other tests, indicated the existence ofseries have unitary root, it should be tested thethe co-integration of the variables, since theexistence of long-term relation between them.

null hypothesis were rejected. Only for Brazil,

The existence of co-integration, in the series,

when r=0, the maximum eigen value test is not

implicates the occurrence of a combination, in

significant. The existence of co-integration, on

the linear stationary of the series. This relation

the series, implies the stationary value, on linear

and the residuals, in the long-term, can be

combination, and the variables integrated, in thestationeries, in levels, despite the tendency of afirst order.

common behaviour, in the long-term.

After the Johansen’s test, the VEC was

Table 4.2. Johansen co-integration test

Source: Researcher’s results, using Stata.
Note: * significant value

Table 4.3. Co-integration Vector, normalized on the FDI variable

Source: Researcher’s results, using Stata.
Note: * 5% significant

̶ 72 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

estimated, in the long-term relationship, to see

investments. In the Mexican model, the negative

the Japanese FDI and its determinants, whichrate for GDP showed that Japanese FDI had

results can be found, in the Table 4.3. Analysing

fewer sensitive changes, in the variables, when

the results, for the sensitivity of Japanese

GDP changes. The expected results for currency

FDI, considering the variables of the model,

and GDP’s FDI Percent show that the Mexican

it is possible to attest that the co-integration

economic liberalization exerts great influence,coefficients that affects the Brazilian model,

in the Japanese FDI, in the country, thoughshow GDP as the variable that exerts the greater

the positive results for Commodities price. The

influence, on Japanese FDI, together with

unexpected results, according to the empiricalcurrency exchange. However, the unexpected

findings, for the commodities prices, in Brazil

result was the negative coefficient for theand Mexico, suggests that the model should becommodities prices, showing that the increasing

refined, but, due to the fact that the analysis is

in commodities makes decrease the Japaneseextended from the year 1990, the results caninvestments, in Brazil, although the results

be explained because of the commodities prices

showed that the commodities price indicator dofrom 1990 to 2005.

not specify the values by commodities prices,

In order to analyse the historical forecast

denotating that the empirical finding of theerror variance decomposition, we draw the Table

price of the commodities, regarding Japanese

4.4, for the Japanese FDI, in the period 1990-

Investments, in Brazil, should be revised.

2017. Since it comprises 27 years, it would be

In the case of Mexico, the model showeddifficult to summarize the information, then westrong correlation between currency, GDP’s FDI

decided to divide this 27-year period by 9, whichpercentage and commodities, for the Japanese

makes easier the visualization of the analysis.

Table 4.4. Forecast Error Variance Decomposition

Cholewsky Ordering: LJFDI, LGDP, Lcurr, invgdp, Lcommod, Inflation,
Source: Researcher’s results, using Stata.
Notes: The nine periods represent periods of three years, for Brazil and Mexico, in the period from 1990 to 2017.
The table reports, using the Forecast Error Variance Decomposition, for the lag values, in the first difference.

Determinants of Japanese Foreign Direct Investments

̶ 73 ̶

Analysing the results, it is possible to see

then, a growth, but, in the last terms, shows

the dynamic behaviour, over time, using thea decreasing trend, which suggests that theexogenous shocks, in the variables. The results,

Japanese investments, in the country, will keep

in both models, show that the forecast error

decreasing, unless there are changes, in bothvariance of Japanese FDI can be explained byeconomic and political scenes.

the stock of Japanese FDI, in Brazil, by 84.06%,

The graphs show that, despite inflation

after the first shock, and, in Mexico, 81.01%.

and GDP investment’s percentage, the values

For the 9 periods, it is possible to see thedecreased, for the correlation between GDP,decreasing of the results, in the Brazilian model,

Currency and commodities price, during theto 54.03%, and, in Mexican, to 76.07%. Also,

first two periods (from 1990 to 1996), due to thefor the 9 periods, 11.87% of the forecast error

high inflation and the economic uncertainties,

variance can be explained by GDP, 12.50%, byin Brazil. Nonetheless, after the economic

commodities price, 11.54%, by the inflation

stabilization and the Real currency, introduced

and 1.25%, by currency, in the Brazilian model.

in the country, it remained stable, with an

It means that, in short-term period, variables,

increasing trajectory, until the periods 6 andas commodities price, inflation and GDP, had

7. It is possible, also, to analyse the decreasing

influence, in the Japanese investments, invalues of Japanese investments, related to GDP

the country. In the case of Mexico, GDP, withand commodities price, in the last two terms.

9.49%, and inflation, exerts the lower influence,In the case of Mexico, it is possible to seein the Japanese investments, in the 9 periods.

the influence of Japanese investments and theCommodities price, with 17.06%, GDP’s FDI

GDP’s FDI percentage, in the first three terms

percentage, with 14.77%, and currency, were(1990 to 1999), and the posterior stabilization,

the other factors that have great influence, inafter the trade agreement of 2005. This could

the Japanese FDI, in Mexico, during the same

be explained by the initial euphoria, for theperiod.

Mexican trade policies, and the NAFTA signing,

From the results, it is possible to analysein 1994. As it is possible to observe, the Japanese

that, in the long-term, the changes, in GDP,

investments and the GDP have initial negative

inflation and commodity price, had impact, in

trend, in the first terms, but a stable trend,

the Japanese companies’ investments decisionespecially after the trade agreement. Considering

trends, in Brazil, as it is also possible to see, inthe commodities price, the increasing in values

Figure 4.3. This illustration uses the Impulseof commodities also supported the increasing,Response Function (IRF) methodology, thatin the relation, although due to the unexpected

can be used to determine the response of an

results, from the empirical findings, the next

endogenous variable, toward a shock from othermodels should be revised, and a new researchvariables. The IRF representation also supports

should be conducted.

the research, in order to identify the length of
the impact of the shock from one variable to the

4.4 Conclusion

others. Also, in the case of Brazil, it was possible

Different theories have explanatory power

to analyse that the trend, in the IRF shocks

to analyse the determinants of the FDI, in one

with Japanese Investments, although GDP,country or region. However, the difficulties

during the first two periods, showed a decline,

increased, when explaining both flow and̶ 74 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

Notes: The illustration reports the shocks of Lag of Japanese Investments to the endogenous variables, in nine
periods, making possible to analyse the investments trends, in short-term periods.

Figure 4.3. Orthogonalized IRF graphs, for Brazil, for 9 periods25)

Determinants of Japanese Foreign Direct Investments

̶ 75 ̶

Notes: The illustrations report the shocks of Lag of Japanese Investments to the endogenous variables, in nine
periods, making possible to analyse the investments trends, in short-term period.

Figure 4.4. Orthogonalized IRF graphs, for Mexico, for 9 periods26)

̶ 76 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

causalities of the investments, from one country,

market-seeking strategy, due to the strong

in a specific period. Between the theories that

correlation with GDP performance.

aggregates aspects of microeconomics andIn the case of Mexico, the results showedcompanies’ business perspective and locationthat both currency and commodities prices

aspects and macroeconomics points of view,are the main determinants. Inflation andthere is the Dunning’s eclectic paradigm. The

economic openness were key determinants,

results from the analysis of the Japanese FDI

in the beginning of 1990s, but, in opposite toflow to both Brazil and Mexico show that thesethe Brazilian results, both GDP performancecountries have been increasing their efforts,

and dependency for Japanese investments isin order to attract Japanese investments andlower than Brazil’s. Using the eclectic paradigm

it indicate, also, that both countries havetheory, it is possible to attest that Japanesecommon factors to attract FDI, as market size,

companies, in Mexico, follow the efficiency-

economic partnerships and natural resources.

seeking strategy. However, it should be pointed

In addition, their efforts, during the 1990-2017that the commodity prices also had impact, inperiod, to control the economy and support FDI

the investments. These results show a different

had positive impact. However, the econometrictendency, than the empirical studies, and themodel and the empirical studies have a different

model for this variable, should be changed.

length of time: the econometric model measures

In addition to the trends and resultsfrom 1990 to 2017 and the empirical, from 2005

showed, in this part of the analysis, the next

to 2017, what could show important points, until

section will show the conclusion, approaching

2005, and the nuances, in the investments, after

the main findings of the research, in a context

2005.

that could be possible to analyse the results ofRegarding the econometric model, thethe study from the perspectives of Japanese

results attested that the domestic market

investments, in the period, in Brazil and Mexico.

(expressed by GDP) and the trade openness

The possibility of analysis about the relations(expressed by GDP’s FDI percentage), as

between the countries and the further paradigm,

factors that helped, in the decision of Japanesein the relation of both countries, could support

investments. For the Brazilian model, the results

the empirical findings to be transformed, inshowed that domestic market (especially,

policy analysis.

after 1996), economic openness and currency,
were determinants for Japanese investments.

Chapter V: Summary of main findings

Inflation was a key determinant, until 1996,
and commodities showed not as relevant as

The present chapter presents the summary

expected, from the empirical studies, but, asof the main points of the research and how thealready pointed, the different length of time (theanalysis can contribute to the understanding ofcommodities price increased and impacted, inthe pattern of Japanese investments, in Brazil

the period from 2004 to 2011) could affect theand Mexico.

results.

The long tradition, in cultural exchange,

Similarly, using the Dunning’s eclectic

and the Japanese immigration to both countries,

paradigm classification, the determinants forcompared with other regions of the world, theJapanese investments, in Brazil, followed theeconomic cooperation were not as strong as

Determinants of Japanese Foreign Direct Investments

̶ 77 ̶

other regions. However, in the recent trend,

2005, increased the attention of the Japanese

it is possible to see a change, in the patterncompanies to both countries, as it was possibleof Japanese investments, with both countries

to see, from the empirical studies. However, inattracting higher amounts of FDI.

the 1990s, the initial euphoria for the sign ofIn spite of the expansion of Japanese

NAFTA and the economic stabilization of both

multinational company’s investments, incountries, passed to a state of uncertainty,

the world markets, especially in the 1980s,

because, for example, the Asian Financial Crisis,

Brazil and Mexico were not seen as target

the sudden devaluation of the Brazilian Real andmarkets for the company’s strategy and could

the 1995’s crises, in Mexico. From 2005, when

not increase the FDI values, in comparison

Mexico signed the trade agreement with Japan,

with other countries, as the United States or

the Brazilian economy started to present better

China. In the 1990s, the efforts for economic

economic performance.

stabilization, from both countries, as well as

Nevertheless, it is difficult to define a similar

Mexico trade policies of economic liberalization,

pattern of investments for both economies,

entering NAFTA, started to increase the values

because they belong to different trade areas andfor investments, in Mexico, specially, at thethe motivations of the companies, in establishing

Manufacturing sector, as part of the production

in both countries, are different. As it is possible

network, in order to export to the United States

to see, from Figure 5.1, the Japanese FDI

market.

strategy, in Brazil, follow the market-seeking

The consolidation of the change and theapproach, with dependency of the economic

increasing values of Japanese FDI, after the year

performance, although, in Mexico, it follows

Source: Researcher’s illustration, from reports on Japanese FDI, by Ministry of Trade and Commerce ofBrazil and Ministry of Trade of Mexico)

Figure 5.1. Compared total Japanese FDI, in Brazil and Mexico, from 2005 to 2017,
in million-dollar value̶ 78 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

the efficiency-seeking strategy, due to theand the shift for the entrance of small andtrade agreements the country is participant.

medium Japanese companies, in areas, such as

The analysis of the graph shows that, during

robotics or electronics components, are trends

the studied period, despite Brazil had higherthat are possible to be observed, in recent years,

investments values, during most of the years,

establishing in industrial clusters, as Nueva

the oscillation and the difficulties to keep

Leon. This will be the trend to be observed, inhigh values of investments should be the mostfuture studies, although it did not reflect, in theimportant subject and not be put aside.

results of this thesis.

The market-seeking strategy can attract
higher values of investments, in the short-term,

5.1 Policy Implications

but the lack of trade agreements and cooperation

In the preceding section, the main findings

tools, in the economic field, can make theof this study have been summarized, which

multinational companies migrate to other

could have implications, in Brazilian, Mexican

countries, when the market is not economicallyand Japanese governments’ policies purposes.

rewarding. One example of the volatility of theFirst, this study has identified, using a sectoral

capital, in the market-seeking investments. wasanalysis, the pattern of Japanese investments, inthe investment made by Kirin group, in Brazil,

Brazil and Mexico. The results showed that thebuying the shares of Schincariol group (at thatinvestments, in the case of Brazil, are accordingtime, the second beer brewery, in the country),

to the Dunning’s eclectic paradigm of market-

in 2011. As it reflects, in Figure 5.1, that year

seeking and energy-seeking strategies and,

was a period of positive market perspectives forin the case of Mexico, the efficiency-seeking

Brazilian domestic market growth. However,strategy.

especially after 2014, the perspectives changed

From the empirical results and the econo-

and, in 2017, Kirin sold their shares to Heineken,

metrics analysis, it was possible to identify

after continuous 6 years of economic loss.

the pattern of Japanese investments, in bothIn the case of Mexico, instead having

countries, and it could be possible to makethe economic trade agreement with Japanan individual analysis, as well, in order to giveand economic cooperation partnership, thepolicy recommendations.

efficiency-seeking strategy and the dependency

In the case of Brazil, the correlation between

of foreign capital, as well as the industry

GDP growth and Japanese investments makes

concentration, can have also undesired

the volume of investments dependent on theconsequences. The concentration, in theeconomic performance. In order to diversify

Manufacturer industry, specially, the car makerinvestments sources, the Brazilian government

segment, made external crises, as the Lehman

should increase efforts, in establish economic

Brothers shock, and the situation, during that

trade alliances and trade partnerships.

period, for the automobile industry, with fusions

Compared with Mexico situation, the lack ofand acquisitions, between the main companies ofa direct trade agreement makes the values

the sector, made the value of investments stable,

fluctuation increases, according to the economic

but not as higher as compared with the potential

situation. The econometrics analysis also shows,of the country, which will be confirmed. The

in Figure 4.3, with the shocks, in nine economic

need for diversification of the industrial park

periods, that the relation between JapaneseDeterminants of Japanese Foreign Direct Investments

Investments and GDP performance presented

̶ 79 ̶

both countries.

growth, in the first shocks, after stability, but, inthe last years, they are presenting a decreasing

5.2 Limitation and Future Research Needs

trend. This confirms that, unless Brazil, Japan

Despite the empirical findings and thegovernment and private actors make efforts toanalysis made, in this study, there are someestablish partnerships, in order to change thelimitations, on this thesis, considering thesituation, the trend. Soon, is for the decreasing

understanding of the whole situation of Japaneseof investments.

investments.

On the other hand, in the case of Mexico,

The first limitation is related to thethe sectoral analysis showed that the trade

selection of the countries, that could make theagreement established in 2005 supported thestudy a problem of selection bias, making its

Japanese companies to keep the investments,

assumptions applicable only for the two studied

in the country, despite 2009’s financial crises.

countries. However, the inclusion of more

However, the sectoral analysis also showedcountries and a longer length of time should bethat the concentration of Japanese companies,

applicable, for the next studies.

in the Manufacturing sector, especially in

The second limitation is related to thethe automobile industry, made the values of

econometrics analysis of the study. The lack ofinvestments slowed increased, in comparison

quarterly data made the simple size restrictedwith Brazil. The volume of investments, infrom the yearly analyses, that avoid a more

Mexico, are lower, comparing with Brazil, since

specific analysis of the period. Using the yearly

the companies follow the efficiency-seeking

analysis also impacted, in the results, because

strategy, in the country, because of the tariffs

the length of time of the study, from 2005 to

condition. The concentration of companies, in

2017, is just a part of a bigger analysis, fromone specific sector, in special if the companies

the years 1990 to 2017, making the results not

are focus on external markets, made theapplicable to the hole target length of study. For

economy vulnerable to the fluctuations of one

future studies, the inclusion of more countries

specific sector.

with similar characteristics (other Latin

From the econometrics analysis, it was

American countries, for example) could improve

possible to recommend that the dependence ofthe results of the research and, in the case of theone main variable (in the case of Brazil, GDP,econometrics analysis, the quarterly data from

and, in the case of Mexico, trade openness) make2005 to 2017 would improve the details of thethe value of Japanese investments vulnerable,

specific time studied.

in the case of the variable did not perform well.
The findings from the study suggest that the

5.3 Conclusion

efforts from the governments and private actors

The International Relations role, in trade

should be increased. The Figure 4.3 and theagreements, and countries’ bilateral relations

Figure 4.4 show that the descendent trend of

can contribute to understand the determinants

Japanese investments, in the case of Brazil, andof the investments from Japanese companies,

the stabilized trend, in the case of Mexico, stillin Brazil and Mexico. The first contribution ofcreates space to implementing measures andthis thesis is the analysis of the factors thatto increase bilateral relations, from Japan, with

influence, in investments decisions. However,̶ 80 ̶人文・社会科学研究

東京国際大学大学院第4号

2019 年 9 月

trade agreements do not ensure high amounts of

it should be led to more consolidated economic

FDI flow, do not give security to keep investing,relations.

in the country, and do not provide a long-

The second finding of the research is,lasting relation. It is all conditioned by market

despite the assumptions attested, in thefluctuations.

hypothesis to be tested, the study could

The direct trade agreements, which have an

explore that the Japanese company’s strategy,

important role and showed definitive impacts, inin developing countries, are related to boththese economies, still create doubts and debates,

efficiency-seeking and resource-seeking,in the field. From the past literature review,

changing to market-seeking objectives, as it

we attest that the trade agreements establish a

was possible to see, in the case of Brazil, and,long-term relationship between countries andgradually, we could see, in the case of Mexico.

the companies should have a surer environment,

From the empirical analysis of Japanesein order to invest. The empirical results ofinvestments, in the world, from 2005 to 2017, it

the study show, however, that, in Mexico,

was also possible to analyse the strategy shift,Japanese investments did not grow so much, asfrom the Japanese companies, to a more market-

compared with Brazil, in the study period, since

seeking strategy, in developing economies, due

the variance between years is not high. Even

to their growth potential.

with economic crises and uncertainties, as the

Although this result was already expected,

Lehman shock crisis, the values of investment

the third finding of the research is related to thewere not reduced drastically. The economic

dependency of one main variable. It should to beagreements are costly to withdraw and ensure,

avoided, in order to keep Japanese FDI growing.

in the long-term stability, for the investments.

In the case of Brazil, the dependency from theIn the Brazilian case, the absence of a direct

GDP performance and, in the case of Mexico,trade agreement with Japan makes possible tothe dependency from trade liberalization, makesee that the investments are related to economic

those variables to be the main factors, in theperformance and the amounts of investments

decisions of Japanese investments, in theseshould be reduced drastically, if the economic

countries. Despite the path to change theperformance did not reach the expected levels.

dependency of these variables is still far to be

In order to improve cooperation with Japan,

completed, the efforts of the governments andand to establish a long-term cooperation, it

private actor should be concentrated in changing

is recommended to Brazil to have a trade

the structure of investments and the aiming for

agreement with Japan. Recently, in the politicalmore diversification, in the case of Japanesefield, the importance of trade agreements has

trade relations.

been minor, from the economic perspective, but
Notes1) Caves, Richard E. 1971. “International
Corporations: The Industrial Economics ofForeign Investment.” Economica, New Series,
38, no. 149: 1‑27.
2) Dunning, J. H. 1973. “The determinants ofinternational production” Oxford Economic

Papers, 25: 289‑325.
3) Kojima, Kiyoshi. 1975. “International Tradeand Foreign Investment: Substitutes orComplements”. Hitotsubashi Journal of
Economics, 16, issue 1, p. 1‑12.
4) Farrell, Roger. 2008. “Japanese Investment inDeterminants of Japanese Foreign Direct Investments

5)

6)

7)

8)

9)

10)

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Tanaka, Kiyoyasu. 2009. “Re-estimating the
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Institute of Economic Research, Hitotsubashi
University.
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2000 e 2005 e de sua respectiva industria
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no Brasil”. “The economic development and theJapanese FDI, in Brazil”. Revista Eletronica
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ISSN: 1988‑7116.
Ruiz, Martha Elena Campos, Anaya, Leo
Guzman and Sanchez, Guadalupe Lugo. 2018.
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Mexico: the case of Japanese immigration
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The Institute for Economic Studies – Seijo
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“Relationship between Brazil and Japan:
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Paulo: Aduaneiras, p. 251‑276.
11) Dekaseguis is a terminology from the Japanese
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̶ 81 ̶

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東京国際大学大学院

on November 22th, retrieved from: http://www.
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第4号

2019 年 9 月

of the determinants of FDI in Brazil after theperiod of 1990” Encontro de Economia da
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comprising 27 years, the author decided todivide it in 9 periods and analyse the shocks
periods separately.

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̶ 83 ̶

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