Firm Size and Determinants of Foreign Direct Investment

This paper studies the locational determinants of foreign direct investment (FDI) by Japanese manufacturing firms in seven Asian countries by utilizing the 1993 survey data. I show that different size- groups of firms react to different factors in the host country in making the foreign investment decisions. Low labor cost and sufficient infrastructure encourage small firms to invest in a certain country while, for large firms, market size of the host country and strategic considerations (e.g. whether competitors invested in the country or not) are most important for their locational decisions. Overall, availability of cheap labor is not necessarily an important factor for Japanese FDI in Asia.