Somkiat Tangkitvanich: This paper by Toshiyuki Matsuura addresses the important issue of the impact of outward FDI on domestic firm performance, which has been a concern among policymakers because of the fear of the “hollowing out” effect. There has been debate on the desirability of a government's policy to promote outward FDI of domestic firms, not only in developed countries but also in some middle-income countries where firms are starting to invest overseas.
Using a combination of four sets of firm-level data of Japanese auto-part suppliers, the paper finds that outward FDI by the part suppliers has positive impacts on sales and total factor productivity (TFP) of the related domestic firms. It also finds no negative impacts of FDI on domestic firms. The author notes, however, that the positive impacts are found only in the case of the extensive margin of FDI—that is, the first foreign investment. In the case...