TY - JOUR
T1 - Do sourcing networks make firms global? Microlevel evidence from firm-to-firm transaction networks
AU - Itoh, Ryo
AU - Nakajima, Kentaro
N1 - Funding Information:
The authors would like to thank RIETI for providing the TSR data that were used in the analysis. The authors gratefully acknowledge financial support from the JSPS (nos. 22330073, 24730216, 25380275, and 19H00598). We are also grateful to Kozo Kiyota, Daisuke Miyakawa, Yasusada Murata, Ryo Nakajima, Toshihiro Okubo, Toshimori Otazawa, and Kensuke Teshima, along with the participants of the JEA in Toyama, ARSC in Kyoto, NARSC in Atlanta, and seminars at Keio University, Kyoto University, Nihon University, Tohoku University, RIETI, and the Japan Productivity Center. The usual disclaimer applies.
Funding Information:
The authors would like to thank RIETI for providing the TSR data that were used in the analysis. The authors gratefully acknowledge financial support from the JSPS (nos. 22330073, 24730216, 25380275, and 19H00598). We are also grateful to Kozo Kiyota, Daisuke Miyakawa, Yasusada Murata, Ryo Nakajima, Toshihiro Okubo, Toshimori Otazawa, and Kensuke Teshima, along with the participants of the JEA in Toyama, ARSC in Kyoto, NARSC in Atlanta, and seminars at Keio University, Kyoto University, Nihon University, Tohoku University, RIETI, and the Japan Productivity Center. The usual disclaimer applies.
Publisher Copyright:
© 2020, The Author(s).
PY - 2021/1
Y1 - 2021/1
N2 - This study investigates how the structure of a domestic firm-to-firm transaction network influences the foreign direct investment (FDI) decisions of embedded firms in the network. We theoretically describe firms’ FDI decisions using an incomplete information game that considers the firm-to-firm transactions of intermediate inputs and in which firms have an incentive to collocate with their trading partners in foreign markets. We show that the probability of a firm engaging in FDI increases with its Katz–Bonacich centrality, which is defined as aggregated accessibility to all other firms and represents expected profit gained from colocation with its partners. We empirically show that this prediction is supported using disaggregated inter-firm transaction network data on Japanese firms. We also extended both theoretical and empirical frameworks to consider the dynamic aspect of FDI. When we consider existing foreign affiliates, accessibility to prior investors in the transaction network, named Katz–Bonacich accessibility, positively influences FDI as well as Katz–Bonacich centrality.
AB - This study investigates how the structure of a domestic firm-to-firm transaction network influences the foreign direct investment (FDI) decisions of embedded firms in the network. We theoretically describe firms’ FDI decisions using an incomplete information game that considers the firm-to-firm transactions of intermediate inputs and in which firms have an incentive to collocate with their trading partners in foreign markets. We show that the probability of a firm engaging in FDI increases with its Katz–Bonacich centrality, which is defined as aggregated accessibility to all other firms and represents expected profit gained from colocation with its partners. We empirically show that this prediction is supported using disaggregated inter-firm transaction network data on Japanese firms. We also extended both theoretical and empirical frameworks to consider the dynamic aspect of FDI. When we consider existing foreign affiliates, accessibility to prior investors in the transaction network, named Katz–Bonacich accessibility, positively influences FDI as well as Katz–Bonacich centrality.
KW - FDI
KW - Firm-to-firm transaction
KW - Katz–Bonacich centrality
KW - Network game
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UR - http://www.scopus.com/inward/citedby.url?scp=85096071509&partnerID=8YFLogxK
U2 - 10.1007/s42973-020-00061-9
DO - 10.1007/s42973-020-00061-9
M3 - Article
AN - SCOPUS:85096071509
SN - 1352-4739
VL - 72
SP - 65
EP - 96
JO - Japanese Economic Review
JF - Japanese Economic Review
IS - 1
ER -
