The Effects of the Single Market On the Pattern of Japanese Investment

The process of economic integration influences the patterns of foreign direct investment through the impact it exerts on the configuration of ownership, internalisation and locational advantages which in turn determine how a firm penetrates into foreign markets. The article specifies how the creation of a single European market alters the locational advantages of producing in Europe and strengthens the ownership specific advantages of European Community firms. It then examines the relative strength of Japanese firms in exploiting the locational advantages of European production by looking at their technological and organisational capacities. Finally, the paper examines recent trends of Japanese direct investment in Europe and finds evidence for the propositions advanced in the analysis reported in the first part of the article.