T h e p r o c e s s o f i n d u s t r y r e l o c a t i o n a n d f r a m e w o r k f o r a n a l y s i s

Increase of trade and investment interdependence in East Asia

D u r i n g the last decade , a massive outf low o f foreign direct investment (FDI), especially in industries like transport equipment and electronics, has fostered the integration o f Japan with other e conomies in the East Asian region. T h e c o n - tinuous appreciation o f the yen and increased product ion costs in Japan have altered the country 's comparat ive advantage and pressured manufacturers to shift labour-intensive operations to lower-cost locations in Asia. Beyond simple fac tor - cos t motives, however, several other reasons have caused major Japanese multinational corporat ions ( M N C s ) to adopt a strategy o f product ion internationalization: (i) to interact m o r e closely with customers in international mar - kets; (ii) to build strategic advantages in oligopolistic global competit ion; and (iii) to respond to political pressure to reduce Japan's huge trade surplus.