Market Access, Supplier Access and Final Processed Food Location for Japanese Food Industry FDI in East Asia

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Based on the new economic geography (NEG) theory and field surveys on Japanese food companies in Thailand, we analyzed the determinants of final processed food location choice for Japanese food industry investments in East Asia. According to a survey in Thailand, we found that Japanese food companies emphasize the following three points for foreign direct investments (FDI) in East Asia, local and neighboring markets, possible cost reduction due to lower wages and measures to attract FDI, and procurement of raw materials and intermediates. A location choice model of Japanese food companies with regional market access, vertical and horizontal supplier access in each country, agglomeration of Japanese food intermediate producers and traditional factors such as wages, infrastructure and policy incentives as the explanatory variables was estimated. Particularly, accesses based on the estimated trade equation of Redding and Venables (2004) were separately computed. Compared to existing analyses on market and supplier access, more realistic data was used as variables for the characteristics of importer and exporter, distance between two countries and relationships between them. Therefore, market access of a country is defined by the real GDP of both domestic and trade partners including the following two effects, trade costs subjected to time distance between the biggest export ports in each country and existence or non-existence of free trade agreements (FTA/EPA) with other countries. Supplier access of a country is also defined by relative export food price including the foregoing two effects. As a result of the logit model, we found that market access, vertical supplier access and agglomeration of Japanese food intermediate producers, similar to traditional cost reduction factors such as wages and policy incentives, are determinants of processed food location choice for Japanese food industry investments in East Asia. Especially, we clearly showed that the estimated marginal effects of market access and vertical supplier access are stronger effects than wages on the final processed food location choice for Japanese food companies in East Asia. Therefore, we conclude policy implications in which FTA/EPA let the final processed food location choice of Japanese food industry investments in East Asia should increase, because both accesses affect the existence or non-existence of free trade agreements in other countries.JEL Classification: F23, R11, R30

Market Access, Supplier Access and Final Processed Food Location for Japanese Food Industry FDI in East Asia

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