VAR Model Analysis on Japan´s OFDI and Industrial Structural Upgrading

This paper employs the VAR model to analyzes Japan´s outward foreign direct investment and its domestic industrial structural upgrading. The Granger causality test results indicate that Japan´s outward FDI does help explain the changes of the proportion of Japan´s second industry and the tertiary industry, but couldn´t help explain the changes of the proportion of the first industry. The co integration test results indicate that there are long term equilibrium relationship existing between Japan´s outward investment and its first, second and tertiary industry respectively. Vector Error Correction estimates indicates that the short term correction will be conducted with a stable speed to draw back any diversion of the co integration equilibrium. This shows that there is a long term relationship between Japan´s outward FDI and its industrial structural upgrading, and there is a correction mechanism functioning well in the process. The impulse response analysis results show that the shocks of the Japan´s outward FDI will lead to positive effects on the first industry, and positive effects then negative to the second industry, negative then positive effects to the tertiary industry. From the analysis, we can see that Japan´s experience is good for China´s references. Chinese government should greatly encourage Chinese enterprises´ outward investment and thus upgrade the domestic industry.