The Real Effects of Transnational Activity upon Investment and Labour Demand within Japan's Machinery Industries

This paper attempts to estimate the real effects of transnational activity upon both investment and labour demand, within each of the five industries that comprise Japan's domestic machinery sector. The study uses a standard model of investment and labour demand, which is augmented to include foreign wages. It is argued that this approach is the most suitable for capturing the real effects of transnational activity, since foreign wages indicate the attractiveness of alternative sites for investment, production and employment. A simultaneous equations estimator is employed and, for each industry, there is evidence that both the behaviour of investment and labour demand are sensitive to foreign wage conditions. The results indicate the extent to which transnational activity has had a real effect upon Japan's domestic machinery sector.