Do international flights promote FDI? : the role of face-to-face communication
External research report
- Publisher: Institute of Developing Economies (IDE-JETRO)
IDE Discussion Paper = IDE Discussion Paper,
JEL:F21 - International Investment; | JEL:F23 - Multinational Firms; International Business | JEL:L9 - Industry Studies: Transportation and Utilities | Japan | Air transport | Foreign investments | Direct Flight | FDI | Face-to-Face Contact
Air transportation facilitates face-to-face interactions across borders for the spatial expansion of manufacturing production. I investigate the impact of international flights on FDI entry by Japanese firms. I find that FDI entry significantly increases with the weekly frequency of flights from Japan, and the positive impact increases with a proxy for an intensity of face-to-face communication between the parent firm and foreign affiliate. The results are robust to estimation methods, additional control variables, and definitions of face-to-face communication. Thus, the results suggest that flights encourage FDI entry through a reduction in face-to-face communication costs.