This chapter focuses on foreign direct investment. While it begins with a comparative summary of the distributions of accumulated U.S. and Japanese FDI across economies and industries in the region, the main focus in this chapter is on the interactions among firms, and between firms and governments, to create production networks. Such networks increasingly characterize the behaviour of globalizing multinational enterprises, but some empirical analyses of firm behaviour in East Asia have observed that Japanese firms are creating de facto exclusive production networks, replicating keiretsu and other domestic structures abroad (Borrus 1992; UNCTC 1991a; Doner 1991).

Between 1980 and 1990, the stock of world FDI tripled to $1,500 billion from $524 billion. (UNCTC 1992c, p. v). Japan's share of this stock grew to 11 from 4 per cent in the same period (UNCTC 1991a, p. 32). The distribution of stocks of Japanese and U.S. investment among the major regions in 1990 was compared in Table 1. Europe and North America have been the main destinations for both Japanese and American investors. While the East Asian economies have small shares of the totals, the region's share of Japanese FDI was roughly twice that of U.S. FDI by 1990.

Charts 3 and 4, comparing the distributions of U.S. and Japanese stocks of FDI in East Asia in 1980 and 1990, show similar distributions among economies and industries. Chart 3 contains a comparison of distributions of FDI among host economies. Both Japanese and U.S. FDI was concentrated in both years in Indonesia, Hong Kong, and Singapore. Japanese FDI in 1980 was concentrated in Korea while U.S. FDI was concentrated in the Philippines, reflecting in both cases the density of contacts, knowledge and commitments each had built up in these economies during and after World War II. Between 1980 and 1990 Japanese stocks built up rapidly, with a focus on Hong Kong, Singapore and Thailand, and to a lesser extent Taiwan, while in Korea, the Philippines and Indonesia, shares had dropped.