ABSTRACT
This chapter explores how differences in technology levels have affected the pattern of foreign direct investment (FDI) in Japan. It examines first the composition of FDI in Japan by industry and royalties paid by Japanese firms on foreign technology. It is expected that the larger the share of royalties paid by an industry, the larger its share of FDI will be. The chapter also examines whether technological advantage helps foreign firms penetrate the Japanese market. It describes that a foreign firm produces goods and services in Japan using capital and labour, and a stock of specific managerial resources. Compared with international levels, FDI in Japan remains low. In the new regulations, the principle of access to Japanese markets through FDI was finally accepted. The banking, insurance and distribution industries have to comply with detailed regulations on their business operations in the domestic market which, although not directly discriminatory, make it difficult and expensive for foreign firms to enter these markets.
