Impact of Historical Conflict on FDI Location and Performance: Japanese Investment in China

Gerald Yong Gao, Danny Tan Wang, Yi Che*

*Corresponding author for this work

Research output: Chapter in book/report/conference proceedingChapterpeer-review


Historical relations between countries bring important explanatory power for foreign direct investment (FDI) decisions, yet little is known on whether a home–host country relation exhibits heterogeneous effects on FDI across the country’s subnational regions. In this study, we examine the long-term impact of historical conflict on FDI location choices and performance. Using a sample of 8646 Japanese FDI in China, we show that civilian casualties in different provinces of China during the Second Sino–Japanese War exert deterring effects on Japanese FDI location choices. Furthermore, we demonstrate that civilian casualties negatively affect Japanese FDI performance and political capital accumulation strategies, in the forms of excessive tax payment and local employment, can reduce this negative effect. This study contributes to the discussion on how within-country differences of historical factors affect FDI location decisions and performance. The findings on firms’ political capital accumulation strategies also provide important implications for FDI operation in an environment characterized by historical animosity.
Original languageEnglish
Title of host publicationCrises and Disruptions in International Business
Subtitle of host publicationHow Multinational Enterprises Respond to Crises
EditorsMurad A. Mithani, Rajneesh Narula, Irina Surdu, Alain Verbeke
Place of PublicationCham
PublisherPalgrave Macmillan
Number of pages44
ISBN (Electronic)9783030803834
ISBN (Print)9783030803827, 9783030803858
Publication statusPublished - 25 Apr 2022

Publication series

NameJIBS Special Collections
ISSN (Print)2397-8775
ISSN (Electronic)2397-8783

User-Defined Keywords

  • FDI
  • Historical conflict
  • Japanese firms
  • Location
  • Performance
  • Political capital
  • China


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