To evaluate and apply the distinctions implied by the introductory discussion, it is important to be aware of certain characteristics of the post-war Japanese economy and to make some comparisons with those in the U.S. economy. For purposes of this study, the comparison is organized around Dunning's framework to address differences in ownership factors including country-and firm-specific characteristics and advantages; differences in internalization and locational advantages, such as the evolution of relative factor endowments, relative costs, barriers to trade and inducements to invest. The areas of contrast include differences in resource endowments and economic frameworks; policy goals and government and industrial responses to rapid economic change and to outward FDI.

Economic Environments

Japan

Japan is a small crowded island, poor in natural resources, and – until less than two decades ago – preoccupied with creating employment for a growing labour force and achieving rapid economic modernization and growth in per capita incomes. In the post-war period, in contrast, the United States has been the world's hegemonic leader, supported in no small measure by the power, dynamism and natural resource riches of its huge economy. Where Japan's economic development has involved protection of infant industries, economic planning and close business-government co-operation, economic development in the United States has, like in other Anglo-Saxon countries, emphasized laissez-faire behaviour in an independent private sector, and the private sector as the engine of growth. The public sector provides public goods, corrects market failure and fights concentration of economic power.

Japan's economic growth in the immediate post-war period was fuelled by procurement requirements for the Korean and Vietnam wars. Its industrial base was provided by labour-intensive light manufacturing and heavy and chemical industries that produced substitutes for imports. Heavy dependence on energy and natural resource imports changed rapidly after the first oil shock, world recession and collapse of the Bretton Woods system of fixed exchange rates in the 1973-74 period.