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Foreign direct investment and economic ethnocentrism in Japan Uchiyama, Hiroyuki


This study has a twofold purpose. The first is to investigate the background and development of Japan's policy on the liberalization of international capital movements and the second is to explore the characteristics of Japanese economic nationalism. By the late 1960's Japan had succeeded in expanding her economy to the level of the economies in the European countries. Rapid increases in U.S. imports from Japan, which reflected Japanese economic expansion made U.S. enterprises realize that Japanese industry had become strong enough to decontrol foreign investment in Japan to a further extent than she had until then. But the Japanese thought that their industry was not developed enough to compete with multinational corporations because of the inherent vulnerability of Japanese enterprises and industries arising from the financial incapability of firms and excessive competition in major industries. Thus Japan has maintained a restrictive policy on foreign inward investment, with the principle that every Japanese industry should be controlled by nationals. In the course of her economic development, Japan proceeded with a five-year capital liberalization program from 1967 to 1971. Nevertheless, Japan's economic policy on foreign investment remains more restrictive than those of Western developed countries. Japanese policy is significantly affected by feelings of economic nationalism rather than considerations of economic welfare. In this paper a model of economic ethnocentrism is formulated with the purpose of explaining the characteristics of economic nationalism in Japan. Japan possesses unique social, cultural and political conditions which have lasted for a long time. These unique traditional traits of Japanese society remain influential enough that Japan's industrial organization, formal and informal, is able to be distinguished from that of Western countries. The basic attitudes of the Japanese towards foreign investment are derived from complex economic, socio-cultural and political conditions. This study attempts to synthesize several major factors which affect the Japanese attitudes which influence policies on foreign investment in Japan.

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