EFFECTS OF POLITICAL RISKS ON JAPANESE OUTWARD FOREIGN DIRECT INVESTMENTS: A PANEL DATA ANALYSIS

This paper empirically examines the effects of political risks on the Japanese outward Foreign Direct Investment (FDI) with a panel data of 30 countries for the period of 1995-2004. The estimation model is constructed on the basis of the OLI (ownership, location and internalization advantages) and Knowledge-Capital Models. Political risk variables are included as additional explanatory variables with market potential, wages, skilled workforce endowments, investment cost, trade cost and distance. We found that the model with interaction terms of these political risk factors with some traditional explanatory variables reasonably explains Japanese outward FDI flows.