Foreign Direct Investment and Keiretsu: Rethinking U.S. and Japanese Policy

This paper focuses on two issues. First, a reexamination of the data on the level of foreign direct investment (FDI) in Japan suggests that foreign firms sell five to six times more in Japan than is commonly believed. Previous studies severely underestimated the stock of FDI in Japan due to poor data. Second, after finding that even after adjusting for various factors the level of FDI in Japan is still low, the paper explores explanations for this phenomenon. A second main conclusion is that government tax and financial policy continues to inhibit foreign takeovers through the promotion of stable shareholding.