Market Access, Supplier Access, Agglomerations, and Location of Final and Intermediate Goods Production Sites for Japanese Electrical and Electronics MNFs in East Asia

In this chapter, we conduct an empirical analysis using the new economic geography (NEG) model to examine the relationship between market access (MA, Krugman market potential), supplier access (SA), industrial agglomeration, and overseas location of final and intermediate goods production sites for Japanese electrical and electronics multinational firms (MNFs) in the processing and assembly industry in East Asia from 1995 through 2009. We conducted the conditional logit estimation of location choice of Japanese electrical and electronics firms in East Asian countries after calculating the MA and SA data using bilateral trade data from 1995 to 2009. From the estimated results, we found that wage rate, infrastructure, market access as a demand factor, and supplier access as a supply factor, and vertical and horizontal agglomerations affected foreign direct investment (FDI) flows in the Japanese electrical and electronics MNFs’ final and intermediate goods production sites in East Asia during 1995–2009. Furthermore, a comparison of two periods (1995–2000 and 2001–2009) for final goods production sites shows a negative sign condition for domestic SA during 1995–2000. However, the sign condition for domestic SA was positive during 2001–2009 because the supplier access of intermediate goods increased in East Asia during this period. Sign conditions for neighboring countries’ SA during both periods were positive and the results statistically significant.