How much of a threat is “hollowing out”?

The conventional wisdom is that Japan’s firms have increasingly shifted production facilities abroad in recent years, resulting in a “hollowing out” of the country’s domestic manufacturing sector. But the recent acceleration in outward FDI mostly reflects investment in the nonmanufacturing sector, while outward investment in manufacturing has risen only marginally. Returns on overseas investment are high, and repatriated profits provide sizeable support for the current account. The upshot is that “hollowing out” is neither as pervasive nor as damaging as often believed.