Essay Example on Evolution of Trade, Tourism, Migration, and Remittances in the Region

Abstract

The main thrust of this paper is to the evolution of these 4 features individually and the effect of MNCs and FDI on them. Mainly, the paper focuses on the history of the region's international trade and tourism, international migration and remittances. Other issues include the major developments within the region, the policies put forward to govern their relation, mutual benefits of this relation, the increasing role of the government and the research challenges associated with each feature. Secondary data was used to examine the effect of FDI and MNCs by use of gravity models. Additionally, panel data analysis was conducted on the gravity models. The analysis looks at the perspectives of international trade, FDI, MNCs, remittances and tourism. This analysis was conducted as it was considered effective and efficient. The results of the analysis were presented in tabular.

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Keywords: FDI, International trade, migration, tourism and remittances.

1. Introduction

Japan has had a very good relation with majority of the Asian countries which is been characterized by inflows of foreign capital. This coalition between Japan and the ASEAN member states was first initiated in the year 1973.Intially, this coalition was started to settle business disputes arising from the production of synthetic rubber. However, the first significant coalition was the Fukuda Doctrine in 1977 which laid emphasis on the significance of the economic cooperation between Japan and Asia. Since then, Japan has had cooperative relationship with Asia as a whole both economically and politically which has deepened their economic interdependence over time. It is this gradual relationship that motivated this research.

Traditionally, Japan relied on Asian countries for natural resources and food in exchange for manufactured goods. In the late 1980s, multinational enterprises (MNCs) of Japan developed international production networks all around Asia making Asia their production base. Baldwin (2006) refers to Asia as the" factory base" of the Japanese enterprises. For instance, in the year 2011, Malaysia, Brunei and Indonesia was said to supply Japan with almost 60% of the Japan's total natural gas. In 2000s, it was estimated that approximately 30% of the transport equipment in Asia are imported from Japan.

In 2015, the ASC (ASEAN Economic Community) was developed with the aim of enhancing economic integration and the performance of the production network in general. Further, ASC seeks to reduce trade costs hence creating a larger integrated market. In return, this larger and unified market has opened better business opportunities which is likely to attract foreign direct investments (FDI). However, despite its imminent success, like any other organization, ASC has its weaknesses such as insufficient labor movement freedom, poor trade liberalization and unavailability of rules governing the procurement. Studies conducted previously, have suggested that FDI increase the productivity of the host countries by creating better business opportunities.

The Japan-Asia relationship has been strengthened by international trade, migration, tourism, remittances and government support. These have been said to be the prominent boosters of external source of finance for this coalition. This has resulted to a close relationship between private enterprises and official development assistance (ODA). This relationship is a reflection of the classical comparative advantage which plays a very paramount role in economic integration between Japan and Asian countries.

In relevance to the viewpoint, this paper empirically investigates the conceptualization of effects of FDI on the economic integration in terms of international trade, migration, tourism and remittances. The research question was: What is the effect of FDI on international trade, migration, tourism and remittances from Asian counties to Japan? This paper tends to utilize the variables population, distance and GDP, FDI and MNCs to estimate the gravity models. In general, this paper tends to furnish the concept of FDI, MNCs, international trade and remittances in the context of Japan-Asia relationship.

The relationship between FDI and MNCS and other explanatory variables were trying to attempt parameters of effect on international trade, migration, tourism and remittances. The relationship between these variables were investigated by use of OLS using gravity models. The strength of effect was investigated using panel data analysis.

2. Literature Review

Despite the fact that FDI is one of the most significant indicators of growth in international production, it accounts for less than 20% of the total investment in any foreign investment (Balasubramanyam, Salisu & Sapsford, 1996). However, the volume and efficiency of FDI is usually dependent on whether a country is keen on export promotion or import substitution policies. According to Lall and Narula (2004), the quality of FDI differs due to cross-border operations, leeway in the proficiency and scope of FCFs, strategies and scope of MNE operations and nature of firm-specific assets accessed/possessed by the FCFs.

Since time in memorial, FDI has been considered to propel economic growth of countries facing huge gaps of resources such as Japan and Asia countries. This is because they lead to productivity, market competition and innovation through exchange of skills, expertise, resources and technology.

Japan is among the most densely populated countries in the world. In fact, it is the 10th populous nation in the world covering an approximate area of 377,973 kilometer square (GSI, 2018). Recently, Japan has risen to be one of the major economic powers in the world. This has been attributed to the large working labor force, supportive government, highly skilled and educated labor force and advanced technology. Due to the rising economic growth, the living standards of the Japanese citizens has increased to almost the same level as those of the United States of America.

The Japanese FDI in Asia started to increase rapidly in the late 1960s.This could perhaps be explained by both internal factors in Japan such as a reduction in the marketability of Japanese products and external factors in Asia. In 1970, Japan shifted their concentration to Asia newly industrializing economies (NIEs) to secure an export base following the NIEs export promotion policies. In 1981, a number of direct investments related to natural resources were assumed in the developing countries in Asia resulting to a significant increase in the Japanese economy. The portion of manufacturing of Japanese FDI in Asia has been diminishing over time but it is still larger than the corresponding shares for Japanese FDI in other parts of the world as it can be seen in the table 1 below.

The geographical location of Japan does not allow them to practice agriculture. However, the amount of farmland that is available is too small to feed its large and growing population. Additionally, Japan lacks a significant amount of raw materials with are important for its industries and energy. It is for this reason that Japan is less competitive in energy intensive industries and agricultural products. To solve this problem of insufficiency, Japan has been importing most of its food products as well as food products from Asia an effect of the FDI and MNCs. Japan then uses its trade surpluses obtained from the import of manufactured goods such as electronic equipment and automobiles to pay for its trade deficits with Asia (Paul, James &Fortmann, 2005). It is for this reason that Japan upholds international trade with Asian countries.

According to Fontagne (1999), globalization has proven to be an important trend in the global economy. The connection between FDI (and MNCs) and trade are said to be the main significant characteristic of globalization. This relationship between FDI (& MNCS) and international trade can be analyzed at microeconomic, macroeconomic and industry levels. For Japan and Asia, the effect of trade and FDI on economy is more significant. Japan's rapid economic growth is characterized by high degree of dependence on international trade and high flows of inward FDI. According to World Bank (2018), Japan is considered the world's 4th largest exporter and importer.

According to Glass A.J. (2008), multinational activities are divided into two: Horizontal and vertical FDI. Horizontal FDI is when a firm invests in the same business in a overseas that it operates in its home country. Vertical FDI on the other hand, is when a company in a totally different business abroad as compared to its operations at home. This two types of FDI have distinctive impact on international trade. It is important to note that japan has been classified as one of the nations with equal income among its citizens as a result of FDI.

Other than effects such as employment, transfer of skilled labor and exports, the most significant effect of FDI on the international trade between Japan and Asia is that FDI have helped maintain or capture local and regional markets. Additionally, Japanese FDI in Asia is the leading cause of regionalization of foreign trade in Asia which has resulted to economic development of Asian countries.

Migration is the movement of people from one region to another, in this case from Asia to Japan (Thapan, 2008). However, in the case of Asia and Japan, international labor migration (ILM) is of economic origin. In that, it was as a result of the "push" and "pull" forces trying to create a balance between capital and labor. Often, scholars suggest that this movement from Asia to Japan ("flock of flying geese") is a world economic development pattern (Freeman and Mo, 1996). The ILM from Asia to Japan began in the 1960s and 1970s.The first wave of the Japanese FDI hit majority of the Asian NIEs in the early 1980s. Japan was experiencing a shortage of labor and hence a large number of illegal workers moved in to meet the needs of firms as well as fill the vacancies of the tangent workers. Majority of these workers were uneducated and unskilled. In the years 1992, Japan started importing contract workers from Southeast Asia. According to Vernon (1966), developed countries tend to be the source of FDI in third world countries. This could perhaps explain the ILM effect of Japanese FDI in Asia.

FDI has direct or indirect impact on ILM. The direct impact is creation of job opportunities while the indirect/long term effect is economic development (Sauvant et al., 1993; UN, 1996).Main reason behind the short term effect of the FDI on ILM is the fact that, it reduces financial constraints by providing better employment opportunities thus prompting poverty driven workers to move abroad(To Japan).According to Dunning and Narula(1996),the relationship between FDI,ILM and economic development can be explained by the investment-migration-development path (IMDP) which is shown in figure 1 below where the NOI is the FDI and NOM is the ILM

Travel and tourism industry is one of the world's largest sectors...