Direct Investment Abroad and the "Hollowing Out" of R&D Activities

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1. Using micro-data of Japanese firms, I investigated how R & D activities by Japan's affiliates abroad affect R & D activities by their parents. It is found that home and foreign R & D activities are complements.2. Using cross section data of Japan's manufacturing industry in three digit level, I empirically tested whether industries which increased employment abroad have reduced their net export and diminished their production within Japan from 1985 to 1995. I found that Japan's direct investment which is directed to Asian countries and planned to take advantage of lower production cost in host countries or to jump trade barriers has a significant negative effect on manufacturing activities in Japan.