In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this paper examines the impact of the changes in the real exchange rate and its volatility on FDI. Examining Japan's FDI by industries, we found that the depreciation of the currency of the host country attracted FDI, while the high volatility of the exchange rate discouraged FDI. Our results suggest the need to avoid over‐valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract FDI.

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The paper examines the use of free trade agreements (FTAs) by Japanese firms. The FTAs analyzed include Japan's FTAs with Mexico, Malaysia and Chile. Based on 1,688 responses to a questionnaire survey conducted in 2008, the study finds that the utilization rate of FTAs ranges between 32.9% (Japan-Mexico FTA) and 12.2% (Japan-Malaysia FTA). The survey results and the statistical analysis of the determinants of the use of FTAs reveal obstacles to using FTAs that include difficulty in obtaining the certificate of origin that is required to use the FTA, lack of knowledge of FTAs, and the small FTA tariff preference that is the difference between the mostfavored-nation (MFN) and FTA tariff rates.

1 See WTO webpage, http://www.wto.org/english/tratop_e/region_e/rta_pta_e.htm 2 Baier and Bergstrand (2007) pointed out 'fragility' of estimated treatment effects of RTAs. 3 For example, see Egger (2004) and Carrere (2006) for the application of IV method, Baier and Bergstrand (2007) for fixed effect model, and Egger et al. (2008) for difference-in-difference matching techniques.

What is the role of domestic politics in facilitating or constraining a government's decision to participate in free trade agreements (FTAs)? This paper seeks to answer this question by focusing on the domestic politics in Japan over the Trans-Pacific Partnership Agreement (TPP). In particular, we ask why the opposition to the TPP encompasses a much broader segment of society than is predicted by trade theorems. We show that a broader protectionist coalition can emerge through persuasion and policy campaigns by the elites, in particular, powerful protectionist interests expending resources to persuade the uncertain public.