Date of Graduation

5-2025

Document Type

Thesis

Degree Name

Bachelor of Arts

Degree Level

Undergraduate

Department

Economics

Advisor/Mentor

Gu, Jingping

Committee Member

Geng, Difei

Second Committee Member

Scurry, Samuel

Abstract

This thesis investigates the relationship between inward Foreign Direct Investment (FDI) and Total Factor Productivity (TFP) across Japanese industries to evaluate FDI’s potential for economic revitalization in Japan. Despite policy efforts under Abenomics to attract more FDI, Japan continues to lag behind other developed economies in foreign investment levels, hindered by structural barriers such as keiretsu networks and limited absorptive capacity. Using industry-level panel data from 1994 to 2018, this study applies Granger causality tests and panel regression models to examine the direction and magnitude of FDI spillovers on productivity. The results indicate a one-way causal effect from FDI to TFP, though the panel regression suggests that FDI’s contribution to productivity growth is conditional and often statistically insignificant when controlling for lagged TFP. These findings emphasizes the importance of institutional context, vertical linkages, and industry characteristics in shaping FDI’s effectiveness.

Keywords

FDI; TFP; vertical linkage

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