Munich Personal RePEc Archive

U.S. Bilateral Trade Deficits with China and Japan: The Role of Japanese Direct Investment

Lim, Sokchea and Khun, Channary (2010): U.S. Bilateral Trade Deficits with China and Japan: The Role of Japanese Direct Investment. Published in: The Empirical Economics Letters , Vol. 10, No. 6 (June 2011): pp. 527-534.

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Abstract

This paper argues that Japanese Foreign Direct Investment (FDI) in China plays a critical role in home and host country’s bilateral trade imbalances with the U.S. Using six cross-sectional panel data from 1981 to 2007, we find strong evidence in support of the role of Japanese FDI in mounting U.S.-China trade imbalance and in reducing deficit of U.S. trade with Japan. The devaluation of Chinese Yuan does not affect its bilateral trade balance with the U.S. and there are mixed evidence in terms of the relationship between the Japanese Yen exchange rate and the U.S.-Japan trade deficit.

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