The role of market potential in location choice: Evidence from Japanese investment

Introduction In the present global era in which frms choose the location of their plants beyond national borders, the existence of agglomeration becomes one of the most important location elements. In addition to low business risks, proximity to large markets of final consumption and formation of agglomeration are essential for developed countries in which labour costs are expensive. In the USA, for example, large demand for automobiles has attracted many multinational automobile fims. In Japan, the Ministry of Economy, Trade and Industry has facilitated the formation of industrial clusters through its ‘Industrial Cluster Project’ since 2001. Also, in developing countries which experience a gradual rise in wages, their formation is crucial to deter the drain of multinational enterprises (MNEs) to developing countries with lower wage rates. Indeed, there are a large number of clusters such as Hsinchu in Taiwan, Jurong industrial park in Singapore, Samut Prakan and the Eastern Seaboard in Thailand, and Penang and Shah Alam in Malaysia, which seem to contribute to deterring this drain to some extent.