Impact of Extensive and Intensive Margins of Foreign Direct Investment on Domestic Corporate Performance: Evidence from Japanese Automobile Parts Suppliers^*

This study uses firm-level data on Japanese automobile parts suppliers to investigate the impact of foreign direct investment (FDI) on domestic corporate performance. We use the automobile makers’ FDI as an instrumental variable for suppliers’ FDI and estimate the impact of both the extensive and intensive margins of FDI. We find that whereas the intensive margin of FDI does not significantly impact corporate performance, the extensive margin positively influences sales and total factor productivity. Furthermore, the impact of the initial FDI entry brings stronger effects than that of subsequent FDI flows.