Japan identifies ‘top-level sales’ through overseas visits by political leaders as an important policy tool to help Japanese firms win more infrastructure contracts. However, overseas visits can be controversial, not least because of their cost. This column examines the net benefit of overseas visits by Japanese political leaders. The probability of contracts being awarded to Japanese firms in countries visited by political leaders was higher than where there were no visits. For 2001–2020, the net economic benefits owing to overseas visits by Japanese political leaders amounted to $53 billion.
According to the Global Infrastructure Outlook, an investment of $97 trillion will be required by 2040 to respond to rapid income growth and urbanisation, particularly in developing countries, and the investment gap is estimated at approximately $15 trillion. Securing the growing overseas infrastructure demand has become a pivotal policy issue in advanced countries, as overseas infrastructure projects are typically large scale and generate ripple effects on the domestic economy through exports and job creation. Additionally, the recent expansion of Chinese infrastructure investments under the Belt and Road Initiative has become a serious threat, not only as a loss of economic opportunities for firms from advanced countries but also as a factor contributing to geopolitical risks.
Economic diplomacy through overseas visits by political leaders from advanced countries is believed to play a significant role in promoting overseas infrastructure investments by those countries’ domestic firms. Face-to-face political meetings may enhance intergovernmental trust and mitigate transaction costs, political uncertainty, and issues with asymmetric information (van Bergeijk and Moons 2018). Political intervention may also accelerate the negotiation process for infrastructure projects by resolving pending issues such as financing conditions. The 2009 United Arab Emirates nuclear power deal, where Korean firms beat France and US-Japan consortiums to win a $40 billion deal, heightened awareness among political leaders of advanced countries of the significance of diplomatic leadership in overseas infrastructure business (McCarthy 2018).
However, overseas visits by political leaders have remained controversial. The cost of organising trade missions is high, particularly for a state visit, involving the usage of government planes, a large entourage, and detailed planning and preparation (van Bergeijk and Moons 2018). Additionally, empirical evidence on the effectiveness of overseas visits by political leaders is mixed. For example, Head and Ries (2010) concluded that Canada’s high-profile trade missions involving high-level government officials had no trade promotion effect, probably because most trade deals with visited countries would have occurred regardless of the missions.
We study the net benefit of overseas visits by political leaders in promoting international infrastructure investments by analysing the case of Japan (Nishitateno 2024). Examining Japanese cases is relevant and of interest because Japanese firms have been major players in global infrastructure markets, particularly in Asia. In addition, together with the utilisation of official development assistance (ODA), ‘top-level sales’ by political leaders has been placed as a crucial policy tool of the Infrastructure System Overseas Promotion Strategy, launched by the second Abe administration in May 2013.
Table 1 shows that Japanese political leaders made 1,234 overseas trips worldwide in 2013–2022 to promote Japanese infrastructure businesses. During such business trips, Japanese political leaders undertake economic diplomacy efforts that include promoting Japanese infrastructure businesses, exchanging opinions about current and future infrastructure projects, and concluding memoranda of cooperation to strengthen economic cooperation. They also participate in ceremonies, business seminars, and problem-solving about outstanding payments and issues such as financial shortages and regulatory obstacles.
Table 1 Overseas visits by Japanese political leaders for infrastructure business promotion
Notes: This table shows the number of overseas trips made by Japanese political leaders for the purpose of Japanese infrastructure promotion. “Other high-level political leaders” include deputy ministers, parliamentary secretaries for the selected ministries, and special advisers to the prime minister. Online meetings are not counted.
Sources: Data for 2013–2019 are from the Prime Minister of Japan and His Cabinet (2019, 2020). Data for 2021 and 2022 are provided by the Cabinet Secretariat through personal requests.
Figure 1 plots the trends in overseas visits by Japanese political leaders to 70 countries in the sample and the share of contracts awarded to Japanese firms in the Japanese yen loan procurement auction during 2001–2020. Overseas visits by Japanese political leaders grew from 2001 to 2007, whereas the share of successful bids by Japanese firms in that period substantially fluctuated, between 40–80%. In contrast, the share of winning bids by Japanese firms appears to be correlated with overseas visits by Japanese political leaders after 2009.
Figure 1 Overseas visits by Japanese political leaders and successful bids by Japanese firms
Notes: The bars represent overseas visits by Japanese political leaders to 70 countries in the sample, measured in number of visits. The dotted line shows the share of contracts awarded to Japanese firms in the Japanese yen loan procurement auction based on contract values.
Sources: ‘Bidding Results of Japanese-Government-Backed Yen Loan Credit’ compiled by the Japan International Cooperation Agency, and ‘Diplomatic Bluebook’ compiled by the Ministry of Foreign Affairs of Japan.
To formally estimate the effect of overseas visits by Japanese political leaders on auction outcomes, we first estimate the effect of overseas visits by Japanese political leaders on the probability that a contract will be awarded to Japanese firms. For this, we analyse 2,123 Japanese yen loan procurement auctions across 70 countries during 2001–2020. Political leaders in this study include prime ministers, ministers, and high-level government officials, such as deputy ministers, parliamentary secretaries, and special advisers to the prime ministers at the time. Subsequently, to analyse the ripple effect on Japanese merchandise exports, we estimate short- and long-run Japanese export-contract value elasticities. Finally, we calculate the incurred travel costs for overseas visits by Japanese political leaders.
We discover that the probability of contracts being awarded to Japanese firms in cases where Japanese political leaders undertook visits was 47 percentage points higher than in cases without visits. We also find evidence that successful bids by Japanese firms induced merchandise exports from Japan, with a long-run export-contract value elasticity of 0.03. On the cost side, we find that the aggregated cost associated with overseas visits by Japanese political leaders during 2001–2020 was approximately $90 million.
Taken together, the results suggest that during 2001–2020, the net economic benefits owing to overseas visits by Japanese political leaders amounted to $53 billion (in 2023 dollars), with an average annual figure of $2.6 billion. The estimated return on overseas visits by political leaders should be regarded as a lower bound because the scope of the current analysis has been limited to relatively large-scale aid-related infrastructure in developing countries.
It is relatively well understood that Japanese ODA is effective in promoting Japanese overseas infrastructure investments (Nishitateno 2023) as well as Japanese merchandise exports (Nishitateno and Umetani 2023) and outward FDI (Kimura and Todo 2010, Lee and Ries 2016). However, empirical analysis of economic diplomacy through overseas visits by Japanese political leaders is limited despite the growing intensity of travel activities by politicians in recent years. Our findings in this study, together with Nishitateno (2023), imply that Japan’s Infrastructure System Overseas Promotion Strategy is an effective policy framework in terms of its ability to counter China’s Belt and Road Initiative in overseas infrastructure investment competition.