| Abstract: |
We analyze the impacts of a sharp fall Japanese of foreign direct investment
(FDI) to China that occurred after the worldwide financial crisis in 2009. The
study is conducted by means of a three-region (Japan, China, and the rest of
the world (ROW)) recursive dynamic computable general equilibrium (CGE) model
with multinational enterprises (MNEs) driven by FDI. Our simulation experiment
showed that the FDI fall would cause price rises of Japanese affiliates’ goods
and a depreciation of the renminbi. These two forces with the FDI fall would
heavily reduce exports and production of Japanese MNE affiliates, while
increasing those in Chinese manufacturing. This, however, does not mean that
China would be a gainer, because it would experience a contraction in its
service sector. Its losses in its service sector would exceed the gains in the
manufacturing sectors. Therefore, overall China would lose due to the FDI fall. |