Globalization and Domestic Operations: - Ricerca sull'intelligenza artificiale specializzata al MIT

Globalization and Domestic Operations:
Applying the JC/JD Method to Japanese
Manufacturing Firms∗

Mitsuyo Ando+
Faculty of Business and Commerce, Keio University
2-15-45 Mita Minato-ku, Tokyo, 108-8345, Japan
m-ando@fbc.keio.ac.jp

Fukunari Kimura
Faculty of Economics, Keio University
2-15-45 Mita Minato-ku, Tokyo, 108-8345, Japan
fkimura@econ.keio.ac.jp

Astratto
Does outward foreign direct investment accelerate de-industrialization at home or generate domestic
jobs and operations? This paper applies the job creation (JC)/destruction (JD) method to micro data
of Japanese manufacturing ﬁrms and provides a bird’s eye view of the dynamism of globalizing ﬁrms
in terms of domestic employment, domestic establishments, domestic afﬁliates, exports, and imports.
It examines gross and net changes in domestic operations by multinational enterprises (MNEs) Quello
expand operations abroad (expanding MNEs), compared with non-expanding MNEs and local ﬁrms,
for the periods of 1998–2002, 2002–06, 2006–08, and 2008–10. It also conducts the Kolmogorov-
Smirnov test to investigate whether the changes in domestic operations and trade by expanding
MNEs are larger than those by other ﬁrm types. Major ﬁndings are the following: (1) gross changes
in domestic employment and domestic operations are much larger than net changes, showing restruc-
turing dynamism and ﬁrm heterogeneity; (2) de-industrialization or the shrinkage of the manufacturing
sector is not relevant except for the period 1998–2002, though a slight declining trend in manufactur-
ing activities is observed in recent years; (3) expanding multinational small- and medium-sized enter-
prises (SMEs) tends to enlarge domestic employment and domestic operations, compared with other
types of SMEs; (4) expanding MNEs intensify headquarters activities; E (5) expanding multinational
SMEs are likely to expand exports and imports more than other types of SMEs.

∗ The Ministry of Economy, Trade, and Industry (METI) database was analyzed under the Research
Institute of Economy, Trade, and Industry (RIETI) project, “East Asian Industrial Productivity.”
The authors would like to thank Deborah Swenson, Heli Simola, Wing Thye Woo, Kiyohiko
Nishimura, Zhiyuan Li, Katheryn Russ, and other participants at the Asian Economic Panel Meet-
ing and the 3rd Workshop of IAW Project on Europe and Global Challenges held in June 2014 for
helpful comments and suggestions.

+ Corresponding author.

Asian Economic Papers 14:2

C(cid:3) 2015 by the Earth Institute at Columbia University and the Massachusetts

Institute of Technology

doi:10.1162/ASEP_a_00342

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

1. introduzione

Does the globalization of ﬁrms’ activities reduce or enhance domestic employment and
operations? In the era of international production networks (Ando and Kimura 2005)
or the 2nd unbundling (Baldwin 2011), ﬁrms must globalize their activities to maintain
or strengthen their international competitiveness. A critical question in academic dis-
courses as well as for policy formulation is whether such moves are beneﬁcial for the
home country as a whole. People tend to believe that outward foreign direct investment
(FDI) immediately results in a reduction in domestic employment and operations. Such
anti-globalization sentiments are sometimes too emotional and possibly mislead the ap-
propriate direction for globalizing ﬁrms and policy formulation. Recent empirical litera-
ture that uses micro/panel data at the establishment or ﬁrm level has mostly claimed that
FDI does not necessarily cause job destruction at home and sometimes has positive effects
on domestic employment. Nevertheless, these studies do not yet seem to be convincing
enough for the general public.

One of the recent strands in the literature focuses on causality from FDI to domestic
employment.1 To rigorously verify causality in econometrics, existing studies often throw
away a large number of observations. To isolate the effect of FDI on domestic employ-
ment, the investigation tends to focus only on ﬁrms with the ﬁrst FDI in a certain period,
sometimes by destination to distinguish vertical FDI from horizontal FDI, and therefore
exclude a large number of ﬁrms that already have foreign afﬁliates. Applying a matching
technique reﬁnes the comparison, but the sample set is further reduced. Although such
steps are necessary to detect causality, the overall picture must be sacriﬁced as ﬁrms with
the ﬁrst FDI is just a small subset of the total sample of Japanese manufacturing ﬁrms.
There are many ﬁrms that already have FDI, and such ﬁrms will increase, maintain, O
decrease the number of foreign afﬁliates. Many MNEs have foreign afﬁliates both in East
Asia and developed countries, and new establishments of foreign afﬁliates occur mostly
in East Asia. Many ﬁrms without foreign afﬁliates also have various forms of globaliz-
ing activities such as exports, imports, and transactions with multinational enterprises
(MNEs). These facts suggest that sample sets used by logically rigorous empirical studies
may not accurately represent the whole sample.

Another strand in the literature studies MNEs only and estimates a labor demand func-
tion to quantify the effects of foreign operations on domestic employment.2 This is also

1 Per esempio, see Wagner (2011) for Germany and Hijzen, Jean, and Mayer (2011) for France. Simi-
lar attempts are found for the case of Japan in Hijzen, Inui, and Todo (2007), Edamura et al. (2011),
Hayakawa et al. (2013), and Tanaka (2012UN).

2 Harrison and McMillan (2011) is a representative paper in this literature. For Japanese data,

Yamashita and Fukao (2010) and Kambayashi and Kiyota (2014) explore this direction of research.

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

a meaningful direction of research to trace changes in the internal structure of MNEs.
A comparison with non-MNEs is not explicitly incorporated in this line of empirical
studies, Tuttavia.

To provide useful insights for constructive policy discussion, we believe that a compre-
hensive study of the complete data set even without rigorous econometric analysis is still
necessary. This paper thus does not focus on the causality issue for new MNEs or estimate
a labor demand function of a speciﬁc group of ﬁrms, but instead tries to provide a bird’s
eye view of the issue of globalizing corporate activities and domestic operations in Japan.
We try to keep the samples whole as far as possible based on our database. We present a
holistic view of the current status of de-industrialization in the Japanese manufacturing
sector, bearing in mind the quality of data. We examine not only domestic employment
but also other aspects of domestic corporate activities such as the number of domestic
establishments, the number of domestic afﬁliates, exports, and imports. Inoltre, we
investigate several sample periods, rather than a single speciﬁc period, to capture the
evolving features of globalizing corporate activities and domestic operations.

This paper applies the job creation (JC)/destruction (JD) method for the Japanese man-
ufacturing ﬁrms. The JC/JD method has several advantages for our purposes. Primo, IL
method can explicitly take into account the highly heterogeneous characteristics of in-
dividual ﬁrms and, at the same time, effectively bridge a gap between micro and macro
aspects. Based on a series of empirical studies with the U.S. establishment-level data, UN
seminal work by Davis, Haltiwanger, and Schuh (1996, 17) presents four key facts about
JC and JD: magnitude, persistence, concentration, and cyclicality. Magnitude means that
gross JC and JD are remarkably large, which are much larger than net changes (net JC/JD)
in employment, and present dynamism and ﬁrm heterogeneity. In the Japanese manufac-
turing sector, we ﬁnd large JC/JD rates, which seem to be much smaller than the case of
the United States, and de-industrialization is not relevant except for the period of 1998–
2002 though a slight declining trend in manufacturing activities is observed for the recent
period. Persistence means that plant-level employment changes are highly persistent and
do not easily turn around. Although this is not what our study directly checks, we should
not assume simple time sequencing between the expansion of foreign operations and the
adjustments in domestic employment and operations because such adjustments take time.
Concentration means that large JC/JD concentrate in a subset of plants. This is also what
we clearly observe when we draw a density function of JC/JD for subsets of ﬁrms, Quale
shows a high peak and narrow tails. Cyclicality means that JD rates exhibit greater cyclical
variation than JC rates. This is not clear in our data set, but at least we can see that some
manufacturing subsectors present high JD rates in recessions. Bearing in mind these facts,

Ito and Tanaka (2014) provide an interesting extension where the effects of transaction relationship
with MNEs expanding foreign operations on domestic suppliers’ employment are investigated
with a labor demand function.

Asian Economic Papers

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

the JC/JD method is appropriate to provide a bird’s eye view of the whole manufacturing
sector through describing the highly heterogeneous nature of corporate evolution with
micro and macro connections.

Secondo, the JC/JD method is also powerful in comparing different subsets of establish-
ments or ﬁrms. The existing literature using the JC/JD method is applied to various sub-
sets of establishments or ﬁrms in terms of sectors/subsectors, regions, establishment/ﬁrm
size, and others. In this context, one of the important ﬁndings in the literature is that small
ﬁrms present more dynamism with larger JC and JD than large ﬁrms.3 We will conduct a
comparative study in the following three dimensions: manufacturing subsectors, SMEs
versus large ﬁrms, and expanding MNEs (increasing the number of foreign afﬁliates)
versus non-expanding MNEs versus local ﬁrms (without foreign afﬁliates).4 To inves-
tigate differences in the distribution of ﬁrms, we also apply the Kolmogorov-Smirnov
(K-S) test besides the JC/JD method. We ﬁnd that multinational SMEs expanding for-
eign operations tend to enlarge domestic employment, domestic operations, and trade,
compared with other types of SMEs. Inoltre, we ﬁnd that expanding MNEs intensiﬁes
headquarter activities.

The paper is organized as follows: The next section introduces our data set for the
Japanese manufacturing ﬁrms, and basic statistics is presented in Section 3. Sezione 4
applies the JC/JD method to investigate gross and net changes in domestic operations
and trade. Empirical observations based on the full decomposition with entry and exit of
ﬁrms is ﬁrst presented, and then a detailed analysis based on the panel decomposition
without entry and exit is conducted for different subsets of ﬁrms in terms of the ﬁrm size
and the status of holding foreign afﬁliates. Sezione 5 conducts the K-S test for changes in
domestic operations and trade by different subsets of ﬁrms. The conclusion is presented
in Section 6.

2. The Kikatsu data: Its strengths and limitations

Our empirical analysis is based on ﬁrm-level statistics, which are compiled by the Min-
istry of Economy, Trade, and Industry, Government of Japan (the former name was the
Ministry of International Trade and Industry): The Basic Survey of Business Structure and
Activity (Kikatsu hereafter). This database provides detailed information on (parent) ﬁrms
located in Japan as well as the number, industry, and regional location of their foreign

3 Vedere, Per esempio, Faggio and Konings (2003) for transition countries, Fuchs and Weyh (2010) for

Eastern and Western Germany, and Hijzen, Upward, and Wright (2010) for the UK.

4 Because of data limitations, we do not take inter-ﬁrm relationship into consideration when we
compare the performance across different groups of ﬁrms. Per esempio, when a ﬁrm conducts
FDI, transactions with its business partners may increase or decrease; we do not take care of such
derived effects in this paper.

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

afﬁliates with no less than 20 percent Japanese ownership. Note that the location of for-
eign afﬁliates is not identiﬁed on a country basis; instead, the questionnaires have East
Asia, North America, and Europe as regional categories.5 Moreover, although the infor-
mation on trade is available, the destination/origin of exports/imports is not identiﬁed
on a country basis; only trade data for some major regions are available besides trade
as a whole.

The sample in the survey covers ﬁrms with more than 50 workers, capital of more than 30
million yen, and having establishments in mining, manufacturing, wholesale/retail trade,
and restaurants. Our study uses this survey data from 1997 A 2011, which is the latest
available year for us.6

Because the Kikatsu incorporates ﬁrm-level statistics, rather than plant-level, some use-
ful information on the internal structure of a ﬁrm for our study is available. For instance,
it provides information on the allocation of workers in headquarters (HQ) services and
manufacturing activities, the number of domestic/foreign establishments, and the num-
ber of domestic/foreign afﬁliates. By making use of the strength of the Kikatsu data, we
investigate not only domestic employment but also employment engaged in HQ services,
employment involved in manufacturing activities, and other aspects of domestic corpo-
rative operations such as the number of domestic establishments, the number of domestic
afﬁliates, exports, and imports.

Another advantage of the Kitatsu data is that the coverage of the manufacturing sector
is claimed to be at the “census” level (see manufacturing subsectors in the next section).
D'altra parte, the coverage of the services sector is incomplete, though it has been
expanded over time. Therefore, this study concentrates on manufacturing ﬁrms in inves-
tigating globalizing corporate activities and domestic operations by Japanese ﬁrms. IL
overall trend of the coverage for Japanese manufacturing ﬁrms by Kikatsu data is pre-
sented in Table A.1 and it is brieﬂy discussed in Appendix A.

While the Kitatsu data have several advantages, they also have limitations related to the
“census” coverage, which is particularly serious for our study. One issue is the size trun-
catione. As mentioned earlier, the survey covers ﬁrms with 50 or more workers. Così,
ﬁrms with fewer than 50 workers are not included in the survey. If a ﬁrm has workers
close to 50 and lowers employment below 50, it is dropped from the survey even if it con-
tinues to exist. If this ﬁrm increases workers and this exceeds 50, it may re-appear in the

5 “East Asia” includes all Asian countries east of Pakistan. The questionnaires for the last few years

have additional regional categories.

6 The data for 1997 are used to identify entry ﬁrms in the analysis in the period of 1998–2002, E

the data for 2011 are used to identify exiting ﬁrms in the analysis in the period of 2008–10.

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

survey. Inoltre, although the percentage of collecting an effective questionnaire is rel-
atively high, some ﬁrms that continue to exist may not return the questionnaires in some
years. Although the establishment year of a ﬁrm is available, a specialized survey for exit
does not exist. Inoltre, information on mergers and acquisitions is not available.

Our empirical results based on the Kitatsu data must thus be carefully interpreted, con-
sidering these limitations. Our analysis, Tuttavia, tries to provide valuable information,
which has not yet been sufﬁciently studied, by utilizing the strengths of the database as
mentioned previously.

3. Basic statistics

This section presents the basis statistics of Japanese manufacturing ﬁrms in our database.
We ﬁrst discuss subsectoral features of Japanese manufacturing ﬁrms, based on
Tables 1 E 2. Tavolo 1 shows subsectoral shares of domestic operations and trade in 2010,
and Table 2 presents shares of SMEs in each subsector for each variable.7 In terms of the
number of ﬁrms, domestic employment, domestic establishments, and domestic afﬁli-
ates, major subsectors are food processing (sector 1), chemicals (sector 9), and machineries
(sectors 18–21)—particularly general machinery, electric machinery, and transport equip-
ment (18–20). Major subsectors in terms of exports are general machinery, electric machin-
ery, and transport equipment, and major subsectors in terms of imports are petroleum
and coal products (sector 10) and iron and steel (sector 15) in addition to machineries
(sectors 18–21, mainly 18–20).

The majority of manufacturing ﬁrms in Japan are SMEs in terms of the number—close
A 80 percent are SMEs (Tavolo 2). SMEs’ portion becomes lower from the perspective of
domestic operations; shares of SMEs are around a quarter for domestic employment (non
only domestic employment in total but also employment engaged in HQ services and
manufacturing activities), close to a half for domestic establishments, and a quarter for
domestic afﬁliates. D'altra parte, trade is dominated by large ﬁrms—the portion of
SMEs is only ﬁve percent for exports and 10 percent for imports.

To capture the overall pattern of Japanese manufacturing MNEs, let us look at the compo-
sition of Japanese manufacturing MNEs in 2010 (Tavolo 3). Around 90 percent of Japanese
manufacturing MNEs go at least to East Asia, regardless of whether they are SMEs or
large ﬁrms, indicating Japanese active investment in East Asia. Although some MNEs go
to North America and/or Europe in addition to East Asia, SMEs are relatively active in
East Asia (51 percent of MNEs with afﬁliates in East Asia) and large ﬁrms are relatively
active in North America and Europe (70 percent of MNEs with afﬁliates in North America

7 SMEs are deﬁned as ﬁrms with no more than 300 workers.

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Tavolo 2. By-sector share of SMEs in basic data for manufacturing ﬁrms: 2010 (%)

# Di
ﬁrms

Dom employment
Total

Mfg

Dom
establishment

Dom
afﬁliates

Exports

Imports

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

72.4
71.6
91.5
90.9
88.0
86.5
83.3
84.8
69.5
68.5
81.4
76.5
93.3
84.6
78.7
77.1
85.7
79.9
70.1
66.2
72.4
77.5

76.7

26.0
22.4
65.8
59.0
58.7
41.4
39.2
42.2
18.3
18.6
41.0
21.6
78.5
47.8
25.4
26.8
47.0
29.0
16.9
12.5
23.0
31.9

24.8

35.1
27.3
65.3
64.0
62.2
45.3
52.0
44.7
23.5
25.0
45.4
26.2
86.6
52.8
36.7
35.0
47.1
32.6
21.5
9.0
24.7
30.8

26.0

26.3
34.8
69.6
69.5
61.4
55.1
39.5
44.4
23.9
18.6
46.3
21.0
88.7
48.8
25.5
31.5
53.7
32.7
18.4
13.7
24.2
37.6

27.2

34.7
29.6
74.1
66.9
61.8
43.7
59.2
65.3
35.4
49.6
60.3
57.4
82.6
64.2
58.5
49.7
49.9
49.1
40.4
44.7
40.3
45.3

46.1

Fonte: Authors’ calculation, based on METI database.

Note: Data are only for 2010. See Table 1 for industry classiﬁcation.

Tavolo 3. Composition of manufacturing MNEs: 2010

33.7
26.8
51.1
45.3
59.6
40.8
28.1
45.1
16.7
8.2
26.8
9.8
88.9
41.1
19.5
15.2
37.8
26.7
15.0
9.5
18.8
28.7

23.3

18.5
32.3
45.5
29.0
89.5
25.2
15.5
6.3
10.7
7.9
13.4
2.5
100.0
11.7
1.9
7.3
34.3
8.0
4.2
1.4
5.5
11.1

4.7

47.8
24.8
39.0
56.3
48.5
45.5
17.4
64.3
22.4
3.1
39.2
5.2
95.0
29.5
1.3
16.0
38.0
9.0
10.6
6.0
11.8
12.8

9.9

All size

Tutto

E.
Asia America Europe All

E.
Asia America Europe

io) SMEs

ii) large ﬁrms

Number of ﬁrms with afﬁliates in each region: ratio to the total number of MNEs (%)

100.0

90.8

37.6

22.5

100.0

88.8

21.7

8.3

100.0

52.4

By-size share of ﬁrms with afﬁliates in each region (%)

100.0

2.2
0.8
0.5
0.4

3.8
1.2
1.0
0.5
0.2
0.2
1.0
0.7
11.2
0.6
4.4
1.5

100.0
By-sector share of ﬁrms with afﬁliates in each region (%)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

4.1
0.7
1.5
2.0
0.5
0.8
1.6
1.1
8.9
0.4
7.3
1.7
0.3
2.5
2.3
3.7
7.4
16.7
17.1
13.0
3.0
3.3

3.1
0.6
1.8
3.0
0.7
0.8
1.3
1.1
6.8
0.4
8.5
1.6
0.5
2.7
1.9
3.5
9.2
18.8
16.9
10.2
2.9
3.6

4.3
1.0
1.3
1.9
0.5
0.8
1.7
1.1
9.2
0.5
6.9
1.6
0.2
2.5
2.4
3.5
7.3
16.9
16.6
13.2
3.2
3.3

1.5
1.6
2.8
5.3
19.3
17.4
16.7
5.0
3.9

1.9
1.0
3.3
2.3
20.4
21.2
13.6
6.1
4.3

0.3
0.8
1.0
13.9
0.7
3.7
1.8

51.2

3.0
0.5
2.0
3.3
0.7
0.9
1.3
1.1
6.5
0.3
9.1
1.8
0.5
2.8
1.8
3.8
9.2
18.1
17.3
9.9
2.6
3.6

30.2

19.2

2.4
0.5
1.4
0.8
0.3
0.3
0.8
0.5
7.0
0.5
4.1

0.5
1.1
1.1
2.4
8.1
27.0
19.7
10.0
6.2
5.1

0.7
0.7
1.4

0.7

0.7
9.9

1.4
0.7

2.8

3.5
5.0
27.7
24.8
5.7
7.8
6.4

47.6

5.7
1.4
0.9
0.6
0.3
0.7
2.1
1.2
11.8
0.6
5.1
1.5
0.0
2.2
2.9
3.5
5.3
14.9
16.4
16.5
3.4
3.0

Fonte: Authors’ calculation, based on METI database.

Note: Data are only for 2010. SeeTable 1 for industry classiﬁcation.

Asian Economic Papers

93.0

48.8

5.4
1.0
1.0
0.7
0.3
0.7
1.9
1.2
11.5
0.6
5.3
1.7
0.0
2.3
2.8
3.6
5.4
15.2
16.8
16.1
3.5
3.0

55.1

69.8

4.4
1.5
0.8
0.4
0.2
0.2
1.1
0.8
13.0
0.6
4.6
2.2
−0.2
1.8
1.9
2.9
4.1
16.0
16.5
19.6
4.4
3.4

38.3

80.8

2.5
0.8
0.3
0.5

0.2
1.0
1.0
14.8
0.8
4.2
2.0
0.0
1.7
1.2
3.2
1.7
18.7
20.3
15.5
5.7
3.9

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

E 81 percent of MNEs with afﬁliates in Europe). In terms of subsectoral composition,
around half of manufacturing MNEs are machineries, rispettivamente. These subsectors are
one of the major subsectors of Japanese manufacturing ﬁrms in general, but subsectoral
shares among manufacturing MNEs are larger, compared with those in Table 1. It sug-
gests that these subsectors are more than proportionally active abroad.

In our sample based on the panel data set for each period, the number of manufacturing
MNEs slightly increases from 2,621 in 1998–2002, 2,863 in 2002–06, 2,999 in 2006–08, A
3,185 in 2008–10 in the sample, which are the sum of the number for MNE1 and MNE2
(Tavolo 4).8, 9 MNE1 and MNE2 refer to manufacturing MNEs that increase the number
of foreign afﬁliates in each period (expanding MNEs) and manufacturing MNEs that do
not increase the number of foreign afﬁliates (non-expanding MNEs), rispettivamente, E
manufacturing ﬁrms other than MNEs in our data set are regarded as local ﬁrms (“Local”
hereafter). As one can see in Table 4, not only large ﬁrms but SMEs are also aggressively
expanding their operations abroad until the ﬁrst half of the 2000s, and they are still ac-
tive even in the latter half of the 2000s with the 2008–09 global ﬁnancial crisis (GFC) In
shorter periods (two-year-span). The shares of MNE1 in total MNEs are 45 percent in
1998–2002, 50 percent in 2002–06, 28 percent in 2006–08, E 27 percent in 2008–10. In
particular, the electric machinery and transport equipment sectors are vigorous in ex-
panding operations abroad; subsectoral shares for MNE1 in Table 4 tend to be larger than
those for all-sizes of manufacturing ﬁrms in Table 3. Inoltre, most of the expanding
MNEs are expanding their operations at least in East Asia, except for the period 2006–08
(Tavolo 5). In the period of 2002–06, 95 percent of expanding MNEs increase in the number
of afﬁliates in East Asia, suggesting active expansion of operations in East Asia. On the
other hand, during the same period, corresponding shares for North America and Europe
in Table 5 are smaller than those in Table 3. This indicates that the share of expanding
MNEs is relatively small for these regions, unlike the case of East Asia.

4. The decomposition of changes in domestic operations and trade

This section applies the JC/JD method to Japanese manufacturing ﬁrms and investigates
gross and net changes in their domestic operations and trade. In particular, we shed light
on changes in domestic operations and trade by MNE1, comparing with those by MNE2

8 We deﬁne manufacturing ﬁrms in our panel data as those categorized into manufacturing sectors
at the beginning and/or the end of each period. Inoltre, subsectors of manufacturing ﬁrms in
our panel data are based on those at the beginning of each period except in the case that the ﬁrm
is categorized as non-manufacturing at the beginning but as manufacturing at the end of period.
In that case, though such cases are not often observed, subsectors are based on those at the end
of period.

9 Similar to the identiﬁcation of manufacturing sectors, we deﬁne MNEs as those having at least one

foreign afﬁliate at the beginning and/or the end of each period.

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Tavolo 4. The number of manufacturing ﬁrms by the type and their sectoral shares

1998–2002
MNE1 MNE2 Local MNE1 MNE2 Local MNE1 MNE2 Local MNE1 MNE2 Local

2006–2008

2002–2006

2008–2010

Number of ﬁrms

1453
(47.2)

1168
(44.0)
(SME %)
506
1st FDI
(SME %)
(68.8)
By-sector shares (%): all size
4.0
1.1
2.0
1.5
0.4
0.7
1.5
1.5
11.6
0.3
5.7
2.0
0.1
2.4
1.6
3.8
5.1
14.8
18.9
13.6
4.5
2.8

5.7
1.1
2.5
2.6
0.8
1.4
1.4
2.9
9.7
0.6
5.1
1.1
0.3
2.7
2.4
2.8
7.0
14.5
18.6
9.8
3.7
3.2

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

8507
(83.6)

1433
(40.3)
503
(65.0)

1430
(57.3)

8004
(85.3)

12.6
1.9
2.6
2.8
1.3
1.4
3.9
7.1
6.3
0.5
4.7
1.0
0.3
4.5
3.3
2.4
7.7
11.0
12.8
7.6
2.4
2.0

4.2
1.1
1.8
1.3
0.4
1.0
2.4
1.5
9.9
0.6
5.3
2.0
0.3
2.6
2.4
3.0
5.4
18.4
18.1
12.9
3.5
2.0

5.6
1.3
2.2
1.8
0.8
1.0
1.3
1.5
9.9
0.6
6.8
1.0
0.3
2.5
2.4
2.4
6.9
15.1
19.4
10.3
3.7
3.1

13.6
2.0
2.1
2.2
1.2
1.3
3.7
5.7
6.2
0.4
5.0
1.0
0.2
4.4
3.5
2.4
7.8
11.3
13.7
7.4
2.6
2.1

838
(37.0)
208
(66.3)

4.4
1.6
1.6
0.6
0.2
0.1
1.8
1.3
12.4
0.2
6.4
2.1
0.1
2.1
1.9
3.5
5.8
16.0
17.9
13.1
3.8
2.9

2161
(55.3)

8628
(85.0)

5.0
1.0
2.1
1.9
0.7
1.1
1.9
1.3
8.7
0.6
5.9
1.2
0.2
2.4
2.7
2.7
7.5
15.5
18.5
13.2
3.1
2.9

13.6
1.7
2.2
1.9
1.2
1.0
3.3
5.6
6.6
0.4
5.1
1.0
0.3
4.0
3.8
2.4
7.7
11.6
13.6
8.0
2.5
2.5

865
(41.0)
260
(71.2)

4.5
0.9
1.4
1.7
0.1
0.7
1.3
0.7
11.0
0.7
5.3
1.7
0.2
1.6
2.8
3.5
7.6
18.2
16.4
12.0
4.4
3.2

2320
(56.2)

8640
(84.4)

4.7
1.1
1.6
1.8
0.5
0.9
1.9
1.5
8.9
0.5
6.5
1.5
0.2
2.6
2.5
3.1
7.6
15.9
17.4
13.6
2.6
3.2

13.6
1.8
1.9
2.0
1.3
1.0
3.5
5.6
6.5
0.4
5.4
0.9
0.3
3.9
3.7
2.4
7.8
11.6
13.3
8.1
2.3
2.7

Fonte: Authors’ calculation, based on METI database.

Note: Data are based on balanced panel data for each period. See Table 1 for industry classiﬁcation.

and Local. In addition to gross and net changes in domestic employment, the paper also
analyzes gross and net changes in employment engaged in HQ services, employment en-
gaged in manufacturing activities, domestic establishments, domestic afﬁliates, exports,
and imports. Inoltre, to capture the evolving features of globalizing corporate activ-
ities and domestic operations, we examine these for several sample periods, piuttosto che
focusing on only one period.

4.1 The JC/JD method

The relationship between net and gross changes of a concerned variable is as follows:

Net change rate (Net G) = gross job creation rate (C) − gross job destruction rate (D).

The rate of changes git in a concerned variable for ﬁrm i between the beginning (t0) E
the end (T) of the period is given by:

git

= (xit
(xit

− xit0 )
+ xit0 )/2

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Because the rate of changes is calculated by dividing by the average of a concerned vari-
able, it takes a value between −2 and 2 (−2/2 are in the presence of entry and exit).10

The rate of gross job creation (Cjt) and the rate of gross job destruction (Djt) in a “group” j
in period T are calculated by:

C jt

(cid:2)

it git

i∈Sjt (git

>0)

(cid:2)

Djt

w
Esso

|git

i∈Sjt (git

<0) where Sjt is the set of ﬁrms in group j in period T, and w T, which is calculated as it is a weight for ﬁrm i in period w it = (cid:3) xit i∈Sjt + xit0 (xit + xit0 ) . Thus, in the analysis of domestic employment, for instance, the rate of net/gross changes in a “group” j in period T is the ﬁrm-size-weighted (employment-weighted) rate of changes. Note that “group” j is a subset of the whole manufacturing sector. This JC/JD method is usually for the analysis of employment, but we apply it to other variables representing domestic operations and trade, in addition to domes- tic employment. Note that we apply the JC/JD method to the ﬁrm-level data, not the establishment/plant-level data, and thus we do not capture the JC/JD within a ﬁrm. 4.2 General trends of domestic employment This subsection analyzes general trends of gross and net changes in domestic employment.11 Our empirical approach is basically the “panel” decomposition, using a panel database for each period. To grasp the aggregate picture of domestic employment, however, let us ﬁrst show the results of the “full” decomposition, taking entry/exit of ﬁrms into consideration. Figure 1a shows the decomposition of net change rates of domes- tic employment in 22 manufacturing subsectors as well as the whole manufacturing sector (shown as “total”) into four categories of gross changes, together with net changes for 10 See Davis, Haltiwanger, and Schuh (1996) and Hijzen, Upward, and Wright (2010) for examples of this method. By using this change rate, positive change and negative change can be treated in parallel. 11 See Appendix A for the brief discussion on trends of corporate structure of Japanese manufactur- ing ﬁrms, based on the aggregated data of the Kikatsu and other databases. 12 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 1. “Full” decomposition of changes in domestic employment by Japanese manufacturing ﬁrms l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. Note: Data are based on unbalanced panel data with some treatment. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. 13 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms each subsector. Four categories for the “full” decomposition are gross job creation (C) by ﬁrms that exist at the beginning and the end of each period, gross job creation (C) by en- try ﬁrms that do not appear at the beginning but exist at the end, gross job destruction (D) by existing ﬁrms, and gross job destruction (D) by exiting ﬁrms that exist at the beginning but do not appear at the end.12 On the other hand, Figure 1b presents the contribution of each subsector to the net change rates of the whole manufacturing sector, with a distinc- tion of four categories. The results of “full” decomposition for domestic employment provide several interesting insights. First, domestic employment is dynamic, and the heterogeneity across ﬁrms in the adjustment of domestic employment is huge (Figure 1a). Both gross changes (C and D) are large (much larger than the net changes) not only in the whole manufacturing sector but also at subsectoral levels. For instance, C/D (−) for the whole sector are 12 percent/ −25 percent in four years (1998–2002), 19 percent/−15 percent in four years (2002–06), and around ±10 percent in two years (2006–08; 2008–10).13 Although we need to consider possible over-counting of entry and exit, large gross changes suggest the dynamism of domestic employment. Note that whereas a number of subsectors present active gross changes, aggregate changes (at the whole manufacturing sector level) are dominated by large subsectors, namely, food processing, chemical, and machineries (general machinery, electric machinery, transport equipment, and precision machinery) (Figure 1b). Second, the Net G extensively changes over time, reﬂecting changes in internal and exter- nal economic conditions. The net changes for the whole manufacturing sector in the “full” decomposition are net job destruction (−12.6 percent) for the period 1998–2002 (after the 1997–98 Asian ﬁnancial crisis), net job creation (4.8 percent) for 2002–06, net job cre- ation (2.3 percent) for 2006–08 (almost before the GFC), and even slightly net job creation (0.8 percent) for 2008–10.14 This suggests that although de-industrialization advanced in 1998–2002, it is not relevant after 2002. It also conﬁrms that, as discussed in Section 1, it is important to investigate not only a speciﬁc sample period but also several sample periods. 12 In our database, it is difﬁcult to identify explicitly entries and exits of ﬁrms. Thus, our deﬁnition of entries and exits of ﬁrms is as follows: If there are no data at the beginning of the sample period as well as one year before that year and there are data at the end of the sample period, the ﬁrm is regarded as an entry ﬁrm. If there are data at the beginning of the sample period and there are no data at the end of the sample period as well as one year after that year, the ﬁrm is regarded as an exiting ﬁrm. Thus, some data are dropped from the original database even in the analysis of the “full” decomposition. 13 Gross job creation and destruction are not directly comparable but probably smaller in proportion in the case of Japan than the case of the United States, where JC/JD amounts to ±10 percent per year at the establishment level (see Davis, Haltiwanger, and Schuh 1996). 14 The corresponding ﬁgures in the “panel” decomposition without considering entry/exit of ﬁrms are smaller in absolute terms than those in the full” decomposition; −10.1 percent in 1998–2002, 3.4 percent in 2002–06, 1.6 percent in 2006–08, and 0.3 percent in 2008–10. 14 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Third, as Davis, Haltiwanger, and Schuh (1996) claim in the word “cyclicality,” business cycles or boom and bust in the economy affect D more than C. This is particularly notice- able at the subsectoral level; we observe extremely high D in some subsectors in down- turn periods such as 1998–2002 and 2008–10. Rising industries are built up step by step whereas the scrapping of declining industries is abrupt in a recession.15 Since gross changes induced by entry/exit of ﬁrms seem to be too big in Figure 1, we focus only on the results of “panel” decomposition in the rest of the paper.16 Figure 2 shows the results of “panel” decomposition for domestic employment by distinguishing (1) SMEs from (2) large ﬁrms. Regardless of whether we look at SMEs or large ﬁrms, net changes vary across subsectors, and gross job creation and destruction (C, D) are much larger than net changes not only at the whole sector level but also at subsectoral level, which conﬁrms huge heterogeneity across ﬁrms again. Nevertheless, the general trend seems to differ to some extent between SMEs and large ﬁrms. In the period of 1998–2002, net changes are net job destruction for both SMEs and large ﬁrms, but net job destruction is much larger for large ﬁrms than SMEs not only for the whole manufacturing sector (C, D (−), and Net G are 5.8 percent, –13.3 percent, –7.6 percent for SMEs; and 4.7 percent, –15.6 percent, and –10.9 percent for large ﬁrms) but also for most subsectors. In the period of 2002–06, net changes are net job creation for SMEs and large ﬁrms, but both gross and net job creation are larger for large ﬁrms than SMEs (C, D (−), and Net G for the whole sector are 9.4 percent, –7.1 per- cent, and 2.2 percent for SMEs; and 11.1 percent, –7.4 percent, and 3.7 percent for larger ﬁrms).17 Even in the latter two periods, net changes are greater for large ﬁrms than SMEs. Although large ﬁrms have large net job creation in 2006–08 (2.2 percent for the whole manufacturing sector) and slight net job creation (0.8 percent) in 2008–10, SMEs have no l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 15 The increase in non-regular workers becomes a serious concern in the 2000s, and whether it is linked with globalizing corporate activities is an important research topic (see Matsuura 2013). As presented in Appendix B, however, the macro signiﬁcance of non-regular workers in the manufac- turing sector is not as large as the impression obtained from the media exposure. 16 There should be problems in our data for too big gross changes. As mentioned before, we can- not perfectly identify the entry and exit of ﬁrms in our database. Although the returned ratios of the survey are relatively high in the case of Kikatsu data, some ﬁrms that continue to exist may not return the questionnaires in some years. Although we checked data for two years to iden- tify entry ﬁrms and exiting ﬁrms, some of them may not actually be entry/exiting ﬁrms. The size cutoff point of Kikatsu data is another source of false entry and exit. Also, if mergers and acqui- sitions is active, it may induce exits of ﬁrms in our database. Moreover, the rate of changes for entry/exiting ﬁrms is 2/–2, which is the largest change rate in an absolute term, based on our cal- culation method. Therefore, we focus on existing ﬁrms in the panel data at the beginning and the end of period hereafter. 17 Interestingly, net changes in machinery, in particular general machinery and electric machinery subsectors, are larger for SMEs than large ﬁrms even in 2002–06. 15 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 2. “Panel” decomposition of changes in domestic employment by Japanese manufacturing SMEs and large ﬁrms l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. Note: Data are based on balanced panel data for each period. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. 16 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Table 6. Changes in domestic operations and trade: Dom employment MNE1 C D (−) Net G C MNE2 D (−) Net G C Local D (−) Net G (i) SMEs Dom employment 1998–2002 2002–2006 2006–2008 2008–2010 HQ employment 1998–2002 2002–2006 2006–2008 2008–2010 mfg employment 1998–2002 2002–2006 2006–2008 2008–2010 (ii) large ﬁrms Dom employment 1998–2002 2002–2006 2006–2008 2008–2010 HQ employment 1998–2002 2002–2006 2006–2008 2008–2010 mfg employment 1998–2002 2002–2006 2006–2008 2008–2010 0.072 −0.126 −0.054 0.129 −0.052 0.077 0.072 −0.046 0.026 0.051 −0.058 −0.007 0.046 −0.168 −0.123 0.085 −0.084 0.001 0.049 −0.060 −0.010 0.046 −0.072 −0.026 0.058 −0.130 −0.061 0.092 −0.072 0.020 0.054 −0.054 −0.001 0.051 −0.058 −0.007 0.183 −0.269 −0.087 0.249 −0.137 0.112 0.177 −0.124 0.053 0.140 −0.146 −0.006 0.140 −0.293 −0.154 0.180 −0.187 −0.007 0.138 −0.123 0.015 0.095 −0.142 −0.047 0.143 −0.295 −0.152 0.188 −0.171 0.017 0.131 −0.130 0.001 0.123 −0.132 −0.009 0.114 −0.183 −0.069 0.145 −0.147 −0.002 0.124 −0.126 −0.003 0.106 −0.129 −0.023 0.075 −0.231 −0.156 0.119 −0.152 −0.033 0.094 −0.120 −0.026 0.104 −0.104 0.000 0.102 −0.165 −0.063 0.113 −0.150 −0.038 0.099 −0.110 −0.011 0.104 −0.095 0.009 0.045 −0.164 −0.119 0.113 −0.064 0.049 0.057 −0.030 0.027 0.051 −0.035 0.016 0.043 −0.166 −0.123 0.077 −0.097 −0.020 0.050 −0.046 0.005 0.045 −0.051 −0.006 0.076 −0.126 −0.061 0.135 −0.076 0.060 0.079 −0.041 0.037 0.073 −0.054 0.019 0.106 −0.332 −0.227 0.172 −0.124 0.048 0.107 −0.060 0.047 0.115 −0.053 0.062 0.098 −0.294 −0.196 0.143 −0.190 −0.048 0.131 −0.084 0.048 0.144 −0.088 0.057 0.124 −0.286 −0.162 0.190 −0.174 0.016 0.148 −0.116 0.032 0.136 −0.131 0.005 0.050 −0.225 −0.175 0.100 −0.144 −0.043 0.089 −0.069 0.020 0.067 −0.064 0.004 0.035 −0.270 −0.235 0.098 −0.194 −0.097 0.090 −0.082 0.007 0.081 −0.082 0.000 0.107 −0.188 −0.082 0.168 −0.158 0.010 0.123 −0.107 0.016 0.127 −0.079 0.047 Source: Authors’ calculation, based on METI database. Note: Data are based on balanced panel data for each period. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. The largest ﬁgures among 3 types of ﬁrms for C/D (−)/Net G are highlighted. net change in 2006–08 (almost zero percent) and slight net job destruction (−1.0 percent) in 2008–10. Considering such differences in trends between SMEs and large ﬁrms, the following anal- ysis focusing on the differences among the ﬁrm type, that is, MNE1, MNE2, and Local, is conducted separately for SMEs and large ﬁrms. 4.3 Changes in domestic operations and trade by MNE1, MNE2, and Local This subsection analyzes gross and net changes in domestic employment, other domestic operations, and trade by three types of ﬁrms (i.e., MNE1, MNE2, and Local) to capture distinct features of MNE1. Table 6 summarizes gross and net changes in domestic em- ployment by the type of ﬁrm and the size of ﬁrm. Table 6 also presents those changes in employment engaged in HQ services and manufacturing activities. Figures 3a to 6a show subsectoral gross and net changes in domestic employment by the type of ﬁrm and the 17 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms size of ﬁrm, and Figure 3b to 6b show the contribution of each subsector to the net change rates of the whole manufacturing sector, with a distinction of two categories, C and D. The most interesting insight for MNE1/SMEs is that net changes for the whole manu- facturing sector are larger than MNE2/SMEs or Local/SMEs in all periods, though net changes are net job destruction in 1998–2002 (−5.4 percent) and slight net job destruc- tion in 2008–10 (−0.7 percent), and large net job creation in 2002–06 (7.7 percent) and in 2006–08 (2.6 percent). C is larger and D is smaller for MNE1/SMEs than MNE2/SMEs or Local/SMEs in all periods as well. It suggests that compared with MNE2/SMEs or Local/ SMEs, MNE1/SMEs tend to expand domestic employment. In addition, net change rates for employment engaged in HQ services are larger in all periods except the ﬁrst period (1998–2002) than those for domestic employment. It indicates that MNE1/SMEs inten- sify HQ services more than proportionally. Furthermore, although net changes (Net G) for employment engaged in manufacturing activities are net job destruction in all pe- riods, Net G for MNE1/SMEs are larger than or almost at the same level as those for MNE2/SMEs or Local/SMEs except the last period; Net G in 2002–06 and 2006–08 are almost zero and larger for MNE1/SMEs, and Net G in period 1998–2002 (−6.9 percent) is almost at the same level of Local/SMEs. Furthermore, gross job creation (C) for em- ployment engaged in manufacturing activities is the largest for MNE1/SMEs among three types of ﬁrms in all periods. Therefore, the size of manufacturing activities tends to slightly shrink only in the recent period. Overall, MNE1/SMEs tend to increase domes- tic employment in total, compared with MNE2/SMEs or Local/SMEs, and intensify HQ services, while they do not signiﬁcantly decrease manufacturing employment except the period after the GFC. On the other hand, large ﬁrms present a different picture. Whereas net job destruction in 1998–2002 for MNE1/large ﬁrms is huge (−11.9 percent), they present net job creation in the other periods, 2002–06 (4.9 percent), 2006–08 (2.7 percent), and 2008–10 (1.6 percent) even after the GFC. Net G for the whole manufacturing sector for MNE1/large ﬁrms are smaller than Local/large ﬁrms but larger than MNE2/large ﬁrms in all periods. How- ever, except the ﬁrst period (1998–2002), gross job destruction (D) for MNE1/large ﬁrms is the smallest among three types of ﬁrms not only for domestic employment but also for employment engaged in HQ services and employment involved in manufacturing ac- tivities. These suggest that the period 1998–2002 seems to be a restructuring period for MNE1/large ﬁrms, but after that, the smaller gross job destruction (D) contributes to net job creation. Similar to the case of MNE1/SMEs, HQ services by MNE1/large ﬁrms seem to be strengthened in both absolute and relative terms, particularly recently. Manufac- turing activities in terms of employment signiﬁcantly shrink in 1998–2002 (huge net job destruction or –17.5 percent), but they tend to expand in the absolute term in 2006–08 and 2008–10 even after the GFC, though they are likely to shrink relatively. 18 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 3. The decomposition of changes in domestic employment by the type of ﬁrms: 1998–2002 l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. Note: Data are based on balanced panel data for each period. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. 19 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 4. The decomposition of changes in domestic employment by the type of ﬁrms: 2002–2006 l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. Note: Data are based on balanced panel data for each period. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. 20 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 5. The decomposition of changes in domestic employment by the type of ﬁrms: 2006–2008 l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. Note: Data are based on balanced panel data for each period. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. 21 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 6. The decomposition of changes in domestic employment by the type of ﬁrms: 2008–2010 l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. Note: Data are based on balanced panel data for each period. C = gross (job) creation; D (−) = gross (job) destruction; Net G = net change. 22 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Before moving to the results of other domestic operations and trade, let us discuss some subsectoral features of changes in domestic employment. In 1998–2002, net change for the whole sector is net job destruction for SMEs (Figure 2) and for MNE1/SMEs (Figure 3a–i). However, 9 out of 22 subsectors have net job creation for MNE1/SMEs, which is completely different from MNE2/SMEs or Local/SMEs with net job destruction in all subsectors. In 2002–06, MNE1/SMEs have net job creation not only in the whole sec- tor but also in most subsectors (17 out of 22 subsectors). Moreover, although net job cre- ation for the whole sector is smaller for MNE1/large ﬁrms (4.9 percent) than Local/large ﬁrms (6.0 percent), MNE1/large ﬁrms have many subsectors with net job creation (14 out of 22 subsectors), which is slightly more than 13 subsectors for Local/large ﬁrms. Sub- sectoral variation seems to be quite large in both periods, 2006–08 and 2008–10, except the case of MNE1/large ﬁrms in 2008–10, which may be partly inﬂuenced by the smaller number of ﬁrms due to a shorter period. If we look at subsectoral contribution of MNE1 (Figures 3b to 6b), the general machin- ery and electric machinery sectors signiﬁcantly induce net job destruction and trans- port equipment partially compensate for it for SMEs in 1998–2002. Electric machinery and transport equipment signiﬁcantly induce huge net job destruction for large ﬁrms. In 2002–06, machineries, particularly general machinery, electric machinery, and trans- port equipment, contribute to large net job creation by SMEs, while transport equipment signiﬁcantly contributes to huge net job creation by large ﬁrms. The electric machinery contributes signiﬁcantly and positively to the net change in the whole sector for SMEs in 2006–08 and 2008–10, while electric machinery and transport equipment contributes to net job creation positively and negatively, respectively, in 2006–08 and vice versa in 2008–10 for large ﬁrms. Table 7 summarizes gross and net changes in other domestic operations and trade for the whole manufacturing sector by the type and size of ﬁrms. The major ﬁndings are as fol- lows: First, the heterogeneity across ﬁrms is huge in terms of domestic establishments, domestic afﬁliates, exports, and imports, and these domestic operations and trade are also dynamic, similar to domestic employment. Both gross changes (C and D) are much larger than net changes for MNE1/SMEs. In particular, large gross creation (C) con- tributes to net creation for all of other domestic operations and trade in all periods, unlike MNE2/SMEs and Local/SMEs. Second, net changes in the number of domestic establishments and domestic afﬁliates are net creation for MNE1/SMEs, which are greater for MNE2/SMEs or Local/SMEs, in all periods. It suggests that MNE1/SMEs tend to increase in the number of domestic estab- lishments and domestic afﬁliates more signiﬁcantly than other SMEs. There is a difference between domestic establishments and domestic afﬁliates, however; gross destruction (D) for domestic afﬁliates is the smallest for MNE1/SMEs among the three types of ﬁrms, 23 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Table 7. Changes in domestic operations and trade: Dom establishment, afﬁliates, and trade MNE1 C D (−) Net G MNE2 C D (−) Net G Local C D (−) Net G (i) SMEs Dom establishments 1998–2002 2002–2006 2006–2008 2008–2010 Dom afﬁliates 1998–2002 2002–2006 2006–2008 2008–2010 Exports 1998–2002 2002–2006 2006–2008 2008–2010 Imports 1998–2002 2002–2006 2006–2008 2008–2010 (ii) large ﬁrms Dom establishments 1998–2002 2002–2006 2006–2008 2008–2010 Dom afﬁliates 1998–2002 2002–2006 2006–2008 2008–2010 Exports 1998–2002 2002–2006 2006–2008 2008–2010 Imports 1998–2002 2002–2006 2006–2008 2008–2010 0.140 0.124 0.103 0.080 0.291 0.304 0.886 0.218 0.465 0.605 0.323 0.376 0.577 0.747 0.264 0.374 0.120 0.121 0.066 0.062 0.129 0.206 0.125 0.115 0.207 0.457 0.062 0.158 0.705 0.602 0.145 0.255 −0.126 −0.099 −0.062 −0.062 −0.225 −0.232 −0.098 −0.139 −0.245 −0.089 −0.161 −0.234 −0.190 −0.180 −0.224 −0.141 −0.174 −0.126 −0.072 −0.081 −0.162 −0.082 −0.072 −0.090 −0.073 −0.069 −0.152 −0.182 −0.119 −0.344 −0.263 −0.306 0.014 0.025 0.041 0.019 0.066 0.072 0.788 0.079 0.220 0.516 0.162 0.142 0.387 0.567 0.040 0.233 −0.054 −0.005 −0.006 −0.018 −0.033 0.125 0.052 0.025 0.133 0.388 −0.089 −0.024 0.586 0.258 −0.118 −0.051 0.103 0.092 0.058 0.041 0.190 0.140 0.089 0.082 0.312 0.520 0.165 0.267 0.335 0.561 0.137 0.291 0.127 −0.009 0.071 0.064 0.041 0.072 0.040 0.027 0.151 0.365 0.109 0.164 0.469 0.605 0.235 0.289 −0.141 −0.120 −0.061 −0.080 −0.265 −0.301 −0.131 −0.235 −0.362 −0.179 −0.194 −0.199 −0.281 −0.176 −0.330 −0.255 −0.151 −0.178 −0.109 −0.080 −0.246 −0.242 −0.188 −0.151 −0.111 −0.115 −0.199 −0.162 −0.219 −0.150 −0.242 −0.255 −0.038 −0.028 −0.003 −0.039 −0.074 −0.161 −0.042 −0.152 −0.050 0.341 −0.029 0.067 0.054 0.385 −0.194 0.036 −0.024 −0.187 −0.038 −0.016 −0.205 −0.170 −0.148 −0.124 0.040 0.251 −0.089 0.002 0.250 0.455 −0.006 0.034 0.110 0.106 0.070 0.049 0.212 0.215 0.119 0.132 0.468 0.687 0.582 0.404 0.485 0.786 0.213 0.238 0.153 0.128 0.071 0.115 0.147 0.187 0.085 0.094 0.399 0.514 0.200 0.397 0.852 0.579 0.192 0.131 −0.125 −0.096 −0.066 −0.060 −0.353 −0.272 −0.168 −0.111 −0.399 −0.156 −0.188 −0.258 −0.335 −0.091 −0.244 −0.259 −0.123 −0.114 −0.052 −0.066 −0.165 −0.202 −0.107 −0.096 −0.372 −0.165 −0.423 −0.217 −0.068 −0.162 −0.128 −0.324 −0.015 0.011 0.004 −0.011 −0.141 −0.057 −0.049 0.021 0.069 0.530 0.394 0.146 0.150 0.694 −0.031 −0.021 0.030 0.014 0.019 0.049 −0.018 −0.015 −0.022 −0.001 0.027 0.349 −0.223 0.181 0.784 0.417 0.064 −0.192 Source: Authors’ calculation, based on METI database. Note: Same as for Table 6. whereas D for domestic establishment is not the smallest for MNE1/SMEs though they are close to the smallest types of ﬁrms. Third, net changes for domestic establishments are net destruction in all periods for both MNE1/large ﬁrms and MNE2/large ﬁrms, although they are net creation in all periods for Local/large ﬁrms. It suggests that multinational large ﬁrms are likely to re- structure (shrink) domestic operations in terms of domestic establishments while con- ducting activities abroad. In contrast, Local/large ﬁrms tend to increase the number of domestic establishments. 24 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Fourth, net changes for domestic afﬁliates are net creation in all periods except 1998–2002 for MNE1/large ﬁrms, whereas they are net destruction in all periods for MNE2/large ﬁrms and Local/large ﬁrms. It indicates that MNE1/large ﬁrms tend to be active in ex- panding domestic operations in terms of domestic afﬁliates while expanding activities abroad, though other large ﬁrms tend to decrease the number of domestic afﬁliates. This might be because of the necessity of complimentary operations abroad in the case of MNE1/large ﬁrms. Fifth, exports and imports, particularly in 1998–2002 and 2002–06, expand not only for MNEs but also local ﬁrms. Although trade expansion slows down in 2006–08 and 2008– 10, both exports and imports by MNE1/SMEs still grow unlike other ﬁrms. In the case of MNE1/SMEs, gross creation (C) per se is large and close to that for Local/SMEs with the largest C. Moreover, gross destruction (D) is the smallest for both exports and imports in most of the cases. This suggests expanding export and import activities or back-and-forth transactions within the production networks by MNE1/SMEs. Note that in the case of large ﬁrms, changes in imports in some sectors, particularly the petroleum and coal prod- ucts, signiﬁcantly inﬂuence net change rate at the aggregate level. Also, note that data for trade in 2006–08 may already partially reﬂect the negative impacts of the GFC since the ﬁscal year for around a half of the ﬁrms is from April to March. That is, the data in 2008 for these ﬁrms is based on activities from April 2008 to March 2009. Indeed, trade changed rapidly just after the GFC, unlike other variables such as other domestic oper- ations, though the recovery of trade was also rapid particularly in machinery sectors.18 Thus, trade data in 2006–08 may already partially reﬂect the negative impacts. 5. The K-S test for changes in domestic operations and trade Figure 7 shows kernel density estimates of net change rates of domestic employment by the type of ﬁrms, separately for SMEs and large ﬁrms, in all periods. MNE1/SMEs’ den- sity is lower at the peak around a zero change rate and seems to be biased toward the right compared with densities of other SMEs. On the other hand, MNE1/large ﬁrms’ den- sity in 2002–06 in particular seems to be biased toward the right compared with densities of other large ﬁrms, although such a bias is not clear in other periods. To compare net changes in domestic operations and trade for MNE1 with those for MNE2 and Local, this section applies the K-S test to their net change rates. Let F and f denote the cumulative distribution functions (CDFs) of net change rates (g) that correspond to two 18 See Ando and Kimura (2012) for the movement of Japanese monthly exports, the impacts of the GFC, and the response of production networks in East Asia facing the GFC (and the Great East Japan Earthquake). 25 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms Figure 7. Kernel density estimates of changes in domestic employment l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e - p d / l f / / / / / 1 4 2 1 1 6 8 3 8 4 5 a s e p _ a _ 0 0 3 4 2 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Source: Authors’ calculation, based on METI database. 26 Asian Economic Papers Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms groups of ﬁrms to be compared. Stochastic dominance can be tested by evaluating two null hypotheses as follows:19 (i) Two-sided test H0 : F (g) − f (g) = 0 all g ∈ R(H1 : F (g) − f (g) (cid:5)= 0 some g ∈ R), (ii) One-sided test H0 : F (g) − f (g) ≤ 0 all g ∈ R(H1 : F (g) − f (g) > 0 some g ∈ R).

The ﬁrst step (two-sided test) is to determine whether both CDFs are identical or not, E
we are interested in rejecting the equality of distributions. The second step (one-sided
test) is to determine whether one CDF dominates the other CDF or not. When the null hy-
pothesis in the two-sided test can be rejected and, at the same time, the null hypothesis
in the one-sided test cannot be rejected, it indicates that F(G) is to the right of f(G) and that
F(G) stochastically dominates f(G). We conduct this test for a comparison between MNE1
[F(G)] and MNE2 [F(G)] and for a comparison between MNE1 [F(G)] and Local [F(G)], sepa-
rately for SMEs and large ﬁrms.

Tables 8 E 9 present the results of the K-S test. Similar to the analysis in the previous
section based on the JC/JD method, MNE1/SMEs tend to have higher growth rates of
domestic employment, compared with other SMEs, except the last period. Inoltre,
net change rates of employment engaged in HQ services and manufacturing activities are
larger for MNE1/SMEs than other SMEs until the mid 2000s. In the latter 2000s, Tuttavia,
it no longer holds.

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As for large ﬁrms, MNE1/large ﬁrms tend to expand HQ services, compared with other
large ﬁrms, except the ﬁrst period. Inoltre, though Local/large ﬁrms have the largest
net change rates at the aggregate level in the JC/JD analysis in all periods, growth rates
of MNE1/large ﬁrms tend to be higher than those of other large ﬁrms during the mid
2000S. Regarding manufacturing activities, MNE1/large ﬁrms have large change rates
than other large ﬁrms only in the ﬁrst period. Since the mid 2000s, we could not identify
any differences in CDF between MNE1/large ﬁrms and other large ﬁrms.

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As for other domestic operations and trade, net change rates are higher for MNE1/SMEs
than MNE2/SMEs or Local/SMEs for domestic afﬁliates and exports in all periods ex-
cept the last period and for imports in 1998–2002 and 2002–06. D'altra parte, In

19 Vedere, for instance, Delgado, Fari ˜nas, and Ruano (2002), Arnold and Hussinger (2010), and Tanaka
(2012B) for a detailed explanation and the application of the K-S test to examine stochastic domi-
nance between two groups.

Asian Economic Papers

Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Tavolo 8. K-S test for expanding MNEs: Dom employment

MNE1 v.s. MNE2
Two-sided
Coef.

P value Coef.

One-sided

MNE1 v.s. Local
Two-sided

One-sided

P value Coef.

P value

(io) SMEs
Dom employment

1998–2002
2002–2006
2006–2008
2008–2010
HQ employment
1998–2002
2002–2006
2006–2008
2008–2010
Mfg employment
1998–2002
2002–2006
2006–2008
2008–2010
(ii) large ﬁrms
Dom employment

1998–2002
2002–2006
2006–2008
2008–2010
HQ employment
1998–2002
2002–2006
2006–2008
2008–2010
Mfg employment
1998–2002
2002–2006
2006–2008
2008–2010

0.117
0.127
0.081
0.059

0.083
0.121
0.076
0.085

0.104
0.083
0.062
0.053

0.080
0.144
0.098
0.087

0.041
0.113
0.087
0.094

0.093
0.081
0.057
0.045

0.001
0.000
0.066
0.256

0.030
0.000
0.100
0.030

0.003
0.017
0.300
0.423

0.019
0.000
0.002
0.009

0.580
0.000
0.010
0.004

0.004
0.017
0.218
0.490

0.001
0.002
0.007
0.010

0.013
0.006
0.013
0.028

0.007
0.000
0.044
0.039

0.000
0.003
0.007
0.000

0.016
0.008
0.018
0.013

0.000
0.012
0.005
0.008

1.000
0.998
0.975
0.947

0.909
0.980
0.919
0.638

0.976
1.000
0.410
0.459

1.000
0.993
0.971
1.000

0.831
0.956
0.798
0.890

1.000
0.898
0.983
0.962

0.090
0.157
0.080
0.038

0.067
0.113
0.098
0.062

0.057
0.106
0.058
0.051

0.073
0.145
0.091
0.060

0.027
0.086
0.091
0.118

0.093
0.054
0.056
0.053

0.001
0.000
0.038
0.698

0.024
0.000
0.005
0.136

0.089
0.000
0.274
0.346

0.015
0.000
0.003
0.127

0.883
0.001
0.003
0.000

0.001
0.106
0.192
0.252

0.020
0.006
0.018
0.017

0.015
0.005
0.013
0.035

0.043
0.034
0.057
0.051

0.073
0.016
0.023
0.027

0.020
0.017
0.027
0.020

0.093
0.018
0.021
0.053

0.684
0.962
0.827
0.816

0.812
0.969
0.910
0.433

0.181
0.304
0.163
0.188

0.009
0.769
0.665
0.575

0.692
0.753
0.571
0.735

0.001
0.720
0.734
0.138

Fonte: Authors’ calculation, based on METI database.

Note: Data are based on balanced panel data for each period. The cases are highlighed if the results suggest

stochastic dominance.

the case of large ﬁrms, net changes are in most cases higher for MNE1/large ﬁrms than
MNE2/large ﬁrms, but we could not ﬁnd CDF for MNE1/large ﬁrms on the right side of
CDF for Local/large ﬁrms.

6. Conclusione

This paper applies the JC/JD method and the K-S test to the micro data of Japanese man-
ufacturing ﬁrms and provides a bird’s eye view of the dynamism of domestic employ-
ment and domestic operations with globalizing corporate activities. Firms are classiﬁed
into subsets in three dimensions: subsectors, small or large size, and multinationals ex-
panding foreign operations/multinationals not expanding/local ﬁrms. Major ﬁndings
are the following: (1) gross changes in domestic employment and domestic operations are
much larger than net changes, showing restructuring dynamism and ﬁrm heterogeneity;
(2) de-industrialization or the shrinkage of manufacturing sector is not relevant except
for the period 1998–2002 though a slight declining trend in manufacturing activities is

Asian Economic Papers

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Tavolo 9. K-S test for expanding MNEs: Dom establishment, afﬁliates, and trade

MNE1 v.s. MNE2
Two-sided
Coef.

P value Coef.

One-sided

MNE1 v.s. Local
Two-sided

One-sided

P value Coef.

P value

(io) SMEs
Dom establishments

1998–2002
2002–2006
2006–2008
2008–2010
Dom afﬁliates
1998–2002
2002–2006
2006–2008
2008–2010

Exports

1998–2002
2002–2006
2006–2008
2008–2010

Imports

1998–2002
2002–2006
2006–2008
2008–2010
(ii) large ﬁrms
Dom establishments

1998–2002
2002–2006
2006–2008
2008–2010
Dom afﬁliates
1998–2002
2002–2006
2006–2008
2008–2010

Exports

1998–2002
2002–2006
2006–2008
2008–2010

Imports

1998–2002
2002–2006
2006–2008
2008–2010

0.052
0.053
0.080
0.050

0.177
0.131
0.135
0.165

0.225
0.179
0.131
0.112

0.231
0.209
0.062
0.106

0.048
0.077
0.067
0.032

0.125
0.177
0.184
0.130

0.161
0.173
0.091
0.111

0.138
0.095
0.049
0.085

0.371
0.270
0.077
0.470

0.000
0.001
0.010
0.000

0.000
0.000
0.003
0.011

0.000
0.000
0.539
0.029

0.376
0.026
0.082
0.864

0.000
0.000
0.000
0.000

0.000
0.000
0.014
0.001

0.000
0.012
0.546
0.049

0.002
0.013
0.002
0.002

0.000
0.000
0.064
0.003

0.000
0.000
0.000
0.006

0.000
0.000
0.038
0.028

0.048
0.009
0.023
0.008

0.000
0.000
0.002
0.000

0.000
0.000
0.000
0.000

0.000
0.000
0.021
0.000

0.998
0.892
0.997
0.998

1.000
1.000
0.327
0.997

1.000
1.000
1.000
0.984

1.000
1.000
0.625
0.757

0.203
0.940
0.690
0.958

1.000
1.000
0.996
1.000

1.000
1.000
1.000
1.000

1.000
1.000
0.806
1.000

0.079
0.076
0.098
0.060

0.114
0.123
0.133
0.120

0.181
0.124
0.115
0.070

0.155
0.152
0.053
0.065

0.170
0.085
0.086
0.103

0.076
0.133
0.177
0.189

0.165
0.193
0.163
0.168

0.105
0.149
0.105
0.118

0.004
0.004
0.005
0.152

0.001
0.000
0.005
0.011

0.000
0.000
0.009
0.211

0.000
0.000
0.691
0.338

0.000
0.001
0.006
0.001

0.032
0.000
0.000
0.000

0.000
0.000
0.000
0.000

0.016
0.000
0.028
0.011

0.053
0.076
0.023
0.048

0.000
0.000
0.052
0.063

0.000
0.012
0.005
0.052

0.000
0.000
0.026
0.011

0.170
0.085
0.083
0.103

0.076
0.037
0.098
0.189

0.134
0.152
0.100
0.101

0.094
0.083
0.061
0.072

0.067
0.002
0.735
0.209

1.000
1.000
0.415
0.254

1.000
0.906
0.992
0.315

1.000
1.000
0.796
0.952

0.000
0.001
0.006
0.000

0.019
0.386
0.005
0.000

0.000
0.000
0.017
0.017

0.024
0.050
0.255
0.154

Fonte: Authors’ calculation, based on METI database.

Note: Data are based on balanced panel data for each period. The cases are highlighed if the results suggest

stochastic dominance.

recently observed; (3) multinational SMEs expanding foreign operations tend to enlarge
domestic employment and domestic operations, compared with other types of SMEs;
(4) multinationals expanding foreign operations are likely to intensify headquarters ac-
tivities within production networks; E (5) multinational SMEs expanding foreign op-
erations tend to expand exports and imports more than other types of SMEs, suggesting
that they extend active operations in international production networks, particularly in
East Asia.

These results carry profound policy implications. Primo, in principle, de-industrialization
can be stopped or at least delayed if ﬁrms are in a favorable environment for effectively

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

utilizing the mechanics of production networks. In Japan, there exists strong public sup-
port for the globalization of corporate activities. Infatti, outward FDI, particularly for
extending production networks in East Asia, is pursued not only by large ﬁrms but also
by SMEs. Both central and local governments aggressively promote such FDI, and even
labor unions do not oppose it. This is because people intuitively know that globalizing
ﬁrms have actually generated domestic employment and operations. This paper conﬁrms
the intuition that globalizing corporate activities are not necessarily destroying jobs but
can instead create domestic employment and operations.

In this regard, the improvement of location advantages is important. In an international
production network, a ﬁrm allocates production processes and tasks to multiple pro-
duction blocks located at home and abroad. To retain some of the domestic economic
activities, the home country must be a favorable place for them; otherwise, all economic
activities may move out of the country. It is the responsibility of central and local govern-
ments to investigate what sort of economic activities would be appropriate to be kept at
home and enhance location advantages for them. Economic activities suitable for locating
in developed countries are listed as follows: (1) headquarters functions, (2) research and
development activities and pilot/mother plants, (3) highly capital-intensive activities such
as system LSI (large scale integration) manufacturing plants, (4) activities utilizing ag-
glomeration effects such as automobiles, E (5) activities that use a number of patented
and black-boxed technologies such as original equipment manufacturing production of
laser printers. These are just general notions, Tuttavia, and we have to examine the com-
bination of ﬁrm-speciﬁc assets of leading ﬁrms and the niches of location advantages as
ﬁrms and location advantages are highly heterogeneous.

Secondo, the expansion of headquarters function and a sign of relative shrinkage of man-
ufacturing activities indicate a gradual shift in the nature of domestic activities. Whether
such a skill shift can be efﬁciently adjusted within a ﬁrm or a ﬁrm tends to replace labor
in the labor market is one of the issues that we must investigate. For this, we need a spe-
cialized study because our JC/JD approach at the ﬁrm level does not directly observe the
movements of individuals within a ﬁrm, either across different tasks or across establish-
ments located in different places, or possible ﬁring and new recruitment of labor. IL
accommodation of skill shift may become an important policy issue.

Another concern is the implication of the shrinkage of manufacturing activities. Can man-
ufacturing ﬁrms survive without manufacturing activities at home? According to the the-
ory of production fragmentation, fragmented production blocks cannot be purely capital-
intensive or purely labor-intensive; to make fragmentation efﬁcient, each production
block must carry the combination of various inputs. In this regard, retained production
blocks in Japan may need some manufacturing activities with factory workers. This can be
a policy concern because whether a ﬁrm can keep some manufacturing activities depends

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Table A.1. Trend of corporate structure of Japanese manufacturing ﬁrms (based on Kikatsu data)

No. Di
ﬁrms

No. Di
establishments

Regular
employees

No. of afﬁliates
Total

Domestic

Straniero

No. of employees

1991
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

13,688
13,731
14,383
14,251
14,104
14,075
13,629
13,265
13,247
12,946
12,450
13,235
12,990
12,777
13,354
13,394
13,105
13,104
13,345
13,203

80,224
80,910
84,368
86,357
83,231
82,981
80,276
78,116
77,499
76,149
74,455
78,997
77,781
76,169
79,579
79,556
77,168
77,079
78,239
77,660

6,161,482
6,008,534
6,042,617
5,996,283
5,793,449
5,627,161
5,457,326
5,295,679
5,094,091
4,875,238
4,891,054
5,129,647
5,027,600
5,092,717
5,338,843
5,360,175
5,230,416
5,293,161
5,301,182
5,335,937

6,033,863
5,934,049
5,971,077
5,913,947
5,723,008
5,579,050
5,401,494
5,238,724
5,037,918
4,823,057
4,846,593
5,086,312
4,987,700
5,050,065
5,292,956
5,326,038
5,195,144
5,243,457
5,260,999
5,295,291

39,125
41,680
43,498
43,892
42,389
42,484
41,334
40,700
40,440
38,953
42,902
46,262
45,842
46,599
48,315
50,208
49,469
49,061
50,017
51,394

31,954
33,203
33,845
33,567
31,881
31,494
30,307
29,583
28,793
26,839
27,216
28,308
27,205
26,698
27,239
27,441
26,542
25,495
24,814
24,623

7,171
8,477
9,653
10,325
10,508
10,790
11,027
11,117
11,647
12,114
15,686
17,954
18,637
19,901
21,076
22,767
22,927
23,566
25,203
26,771

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Fonte: The Kikatsu data, available from the METI website:

http://www.meti.go.jp/statistics/tyo/kikatu/result-2.html.

on location advantages at home that include the supply of factory workers. The recent
debate on possible introduction of unskilled labor from abroad may be interpreted in this
context, pure.

Third, our study based on the Kikatsu data for more than a decade provides some opti-
mism over the possible de-industrialization of the Japanese economy. Nevertheless, Rif-
cent policy debates after the GFC, the Great East Japan Earthquake, and formidable yen
appreciation raise great concern over the poor performance of small domestic ﬁrms, par-
ticularly located in rural areas. The Kikatsu data covering ﬁrms with 50 or more workers
do not show any shrinkage of workers (and regular workers as well) in the manufactur-
ing sector as shown in Table A.1, even in 2011 E 2012. Another data source, the Eco-
nomic Census, that also covers small manufacturing ﬁrms, presents quite different ﬁgures
(Figure A.1), Tuttavia; employment peaked in 2007, and a drastic decrease is observed up
A 2011. We cannot tell what happens, but one possibility is the poor performance of small
manufacturing ﬁrms after the GFC. Although this is beyond the scope of our study, more
investigation is needed beyond the Kikatsu data for an assessment of recent economic per-
formance of manufacturing ﬁrms in Japan.

Appendix A. Trend of corporate structure of Japanese manufacturing ﬁrms

Table A.1 presents the trend of corporate structure of Japanese manufacturing ﬁrms,
based on the aggregated data of the Kikatsu. According to the Kikatsu data, the number

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Figure A.1. Number of manufacturing establishments and employees (based on Economic
Census)

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Fonte: 2012 Economic Census (Overview of the results) (available from Statistics Bureau’s website http://www.stat.go.jp/data

/e-census/2012/pdf/gaiyos.pdf.

Note: Targeted establishments in this ﬁgure are those with no fewer than four employees.

of manufacturing ﬁrms gradually decreased in the latter half of the 1990s and reached a
trough around 2003. After that, Tuttavia, the number of ﬁrms slightly increased in the
latter half of the 2000s before the GFC and slightly decreased in 2009 E 2010, and then
In 2011 E 2012 the number seems to return to the level before the GFC. The number of
establishments also shows a similar trend. Employment also bottomed out around 2002–
03, but what is interesting is that employment tends to increase after that (even after the
GFC), though it dropped in 2009. Regarding afﬁliates, the number of domestic afﬁliates
seems to have a decreasing trend, whereas the number of foreign afﬁliates apparently
tends to increase; the increase seems to have accelerated after the GFC. All of these facts
suggest that, at least based on the Kikatsu data, the manufacturing sector experienced a
restructuring period after the 1997–98 Asian ﬁnancial crisis until 2002–03, but after that,
the shrinking of the sector, including employment, does not seem to continue.

As mentioned in Section 2, Tuttavia, the Kitatsu has a size cutoff; the survey covers ﬁrms
with more than 50 workers. Firms with fewer than 50 workers are not included in the
survey. Figure A.1 shows a rapid declining trend of hiring by manufacturing establish-
ments with no fewer than four employees after the GFC, based on the Economic Census
(note that this ﬁgure is based on the industrial classiﬁcation of an establishment, not on
the industrial classiﬁcation of a ﬁrm). Such a large difference in trend of employment in

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Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms

Table B.1. Part-time and temporary workers: Ratio to the total number of employments

2002
Type1 Type2 Type3 Type1 Type2 Type3 Type1 Type2 Type3 Type1 Type2 Type3

2008

2006

2010

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Tutto

34.5
8.1
6.7
14.6
5.9
6.6
7.5
7.1
3.5
0.7
10.4
5.4
13.2
4.1
1.2
4.6
6.6
3.5
4.3
2.3
8.5
11.1

7.7

4.3
1.7
0.3
1.0
0.5
1.9
0.4
1.0
0.4
0.0
0.7
4.7
1.2
0.6
0.3
0.9
0.6
0.3
0.5
1.3
0.1
0.6

1.1

3.1
2.1
2.5
1.3
2.8
3.8
1.8
2.1
2.7
1.2
7.5
8.2
3.4
4.9
1.9
3.4
4.3
3.4
4.6
6.7
5.2
3.3

4.2

39.7
8.7
9.0
17.8
5.1
7.4
8.1
8.2
4.6
0.8
11.6
10.4
19.4
5.5
1.7
6.2
7.7
5.5
5.0
3.4
9.7
9.6

9.1

2.5
0.5
1.2
0.6
0.7
0.4
0.5
1.3
0.3
0.0
0.7
0.3
2.0
0.5
0.3
0.7
0.4
0.8
0.6
0.9
0.4
0.3

0.8

6.5
5.4
4.8
1.3
6.3
9.2
2.8
4.3
5.0
3.9
10.7
6.8
0.4
9.7
3.9
9.1
9.6
10.2
13.1
14.0
10.8
6.7

9.7

40.9
9.5
7.0
18.6
5.4
7.1
8.6
11.2
4.8
2.7
11.4
8.3
22.7
5.6
2.0
5.6
8.6
5.8
4.3
2.7
7.9
9.5

9.1

2.3
0.4
0.7
0.5
0.8
0.6
0.3
1.5
0.3
0.0
0.4
0.4
1.0
0.7
0.3
0.8
0.4
0.3
0.5
0.4
0.2
0.5

0.6

5.7
5.5
3.6
2.3
5.8
4.6
2.7
3.4
5.5
2.7
6.6
4.8
1.2
7.4
3.1
5.5
5.7
8.2
7.7
6.4
9.7
6.0

6.3

42.6
12.0
8.7
17.4
6.6
8.7
9.7
9.8
7.1
1.3
10.4
7.6
20.0
5.6
2.2
5.8
8.4
6.0
4.8
3.1
7.2
9.9

10.0

2.3
0.7
1.2
19.2
0.7
0.3
0.6
1.0
0.2
0.0
0.7
0.8
1.1
0.5
0.3
0.4
0.3
0.4
0.6
1.0
0.3
0.4

0.9

3.3
3.2
2.3
1.8
3.3
3.5
1.9
2.3
4.1
3.6
5.9
3.5
0.9
9.4
2.9
4.9
4.5
6.4
6.5
5.3
5.3
4.7

5.0

Fonte: Authors’ calculation, based on METI database.
Note: Data are for each year. Type 1 = part-time employments; Type 2 = day laborers; Type 3 = temporary laborers.

Part-time workers are included in the total number of employments, but temporary workers are not.

See Table 1 for industry classiﬁcation.

Table A.1 and Figure A.1 may be partly explained by the decline in employment by ﬁrms
with fewer than 50 workers. Because our analysis and discussion are based on the Kikatsu
dati, the possible trend by these small ﬁrms cannot be fully captured.

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Appendix B. Non-regular workers

Ratios of non-regular workers corresponding to our data set are presented in Table B.1.
Non-regular workers consist of part-time workers (Type 1), Hiyatoi or day workers
(Type 2), and Haken or temporary agency workers (Type 3). Part-time workers are
counted with regular workers in our data set whereas the latter two are not. Although
part-time workers occupy 7–10 percent of total workers, they are highly concentrated
in food processing. The number of Hiyatoi is limited. The signiﬁcance of Haken goes up
with the deregulation for the manufacturing activities in 2004 and gradually comes down
after the economic downturn due to the GFC. Overall, at least in manufacturing ﬁrms
covered by the Kikatsu data, non-regular workers have not been very signiﬁcant over
our sample period, not replacing a large portion of regular workers, except in the food
processing industry.

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