December 2003

Kenji Kondoh (Chukyo University)

"Trans-boundary Pollution and International Migration"
Review of International Economics
We analyse the welfare effects of international migration in the presence of
trans-boundary pollution. We use a simplified Copeland and Taylor (1999)
model, where the (developed) home countryfs pollution abatement technology
is superior to that of the (less developed) foreign country. If there is no
trade, workers will migrate from the foreign country to the home country.
The foreign country gains from migration, but whether the home country gains
or not depends on the abatement-technology gap and the magnitude of the
coefficient of trans-boundary pollution.  World welfare will increase under
migration. If there is free trade in goods, international migration occurs
when the home country specializes in the production of the environmentally
sensitive good. In this case, migration will result in increased production
of the manufactured good and  increase the level of world pollution.

Noriko Ashiya (Meikai University)
"The robustness of cartels facilitated by anti-dumping regulations"
Australian Economic Papers
This study formulates Prusa's theory that anti-dumping regulations
facilitate the formation of cartels between an exporter and
import-competing firms.  It demonstrates that interest rates and product
differentiation are two key factors that may determine the robustness of
the cartels.
October 2003

Naoto Jinji (Hitotsubashi University)
"Strategic Mandatory Labelling of Biotechnology Products in the Absence
of Quality Difference"
International Trade Journal
This paper examines the strategic use of mandatory labelling of
biotechnology products, such as genetically modified food. A foreign
dominant firm produces a biotechnology product and foreign competitive
firms produce a conventional one. It is shown that if other trade
measures such as tariffs are also available, the government of an
importing country may impose mandatory labelling even in the case where
there is no quality difference between biotechnology and conventional
products. A combination of a discriminatory tariff on the biotechnology
product and mandatory labelling shifts rents from the foreign dominant
firm to the domestic economy.
September 2003

Hiroshi Mukunoki (Gakushuin University)
"On the Optimal External Tariffs of a Free Trade Area with Internal
 Market Integration"
Japan and the World Economy
Previous analyses of free trade areas suggest that member countries
reduce external tariffs to the level that improves welfare of non-member
countries.  Using an oligopoly model with product differentiation, this
paper shows that when a free trade area entails endogenous change from
segmented to integrated markets for internally produced goods, external
tariffs become strategic complements and their equilibrium level is higher
than in the market segmentation case. In this case, the non-member may
lose from the formation of free trade area whereas each member gains

Fumiko Takeda
"A twin crisis model with incomeplete information"
Journal of the Japanese and International Economies
This paper presents a model that highlights the connection between domestic
bank runs and currency crises in a framework in which small depositors and a
large trader engage in a simultaneous game. A long-term return on domestic
technology affects the prospects of the bank and those of the domestic
currency in the same direction. The presence of a large trader makes small
depositors more likely to withdraw their money from the bank. The large
trader's influence on the small traders is much larger, when he has more
precise information than the small depositors.
Fumiko Takeda and Katsumi Matsuura
"Exchange rate pass-through and strategic pricing: Evidence from Japanese
imports of DRAMs"
Economics Bulletin
This paper analyzes oligopolistic rivalry among source countries to evaluate
the degree of exchange-rate pass-through. The analysis of Japanese imports
of DRAMs also contributes to the study of the pass-through of relatively
homogenous goods produced in emerging countries, which has been analyzed in
very few papers. Comparison between traditional OLS estimates, which take
competitors' pricing behavior as exogenously given, and GMM estimates, which
fully endogenize the rivals' pricing behavior, indicates the
misspecification in the OLS estimates and the need to endogenize pricing
behavior. The results also show that the degree of pass-through estimated by
GMM is lower than that estimated by OLS, and that prices are strategic
complements between the following pairs of countries; Korea and Taiwan,
Taiwan and Singapore, and Singapore and the US.
August 2003

Keisaku Higashida

"Pollution Control and the Restriction of Trade in the Presence of Lobbying
for the Environment"
Hitotsubashi Journal of Economics

This paper examines how lobbying activity for protection of the environment
affects the pollution and trade tax rates adopted by the government of a
large importing country. We demonstrate that, under certain conditions on
the structure of demand and supply, both the tax rates under lobbying are
unambiguously higher than they would be in the absence of lobbying when the
domestic government determines them simultaneously. In addition, we consider
the effects of lobbying activity on the terms of trade and domestic prices.
Taiji Furusawa, Keisaku Higashida and Jota Ishikawa
"Tariffs Versus Quotas in the Presence of Imperfect Competition and
Cross-Border Externalities"
Canadian Journal of Economics
We consider trade policies intended to affect the production of a foreign
monopolist that generates negative externalities. We derive the optimal
tariff and optimal import quota, and examine which policy measure should be
used to maximize domestic welfare. We find that if the domestic government
does not have full information on the foreign firm's production method and
if cross-border externalities exist, import quotas are in some cases
preferable to tariffs. Otherwise, however, tariffs are preferable to quotas.
July 2003

Taichi Maki (Kyoto Gakuen University), Koichi Yotsuya (Doshisha University),
    and Tadashi Yagi (Doshisha University)
"Economic Growth and the Riskiness of Investment in Firm-specific Skills"
European Economic Review
This paper develops a simple growth model in which workers face risks to
their firm specific skills, such as far-reaching changes in business and
transaction styles or drastic technological innovations, and invest in
general skills to prepare for these risks. This model demonstrates that, in
the presence of the economy-wide positive externality of general skills,
workersf investment in general skills exhibits a strategic complement, and
thus, a low-growth trap may arise. Since a lower risk to firm-specific
skills decreases workersf incentive to invest in general skills, multiple
equilibria possibilities and the amount of government subsidies for general
skill investment that are required to remove the bad equilibrium increase.
Yasuhiro Takarada (Shobi-Gakuen University)
"Foreign Aid, Tariff Revenue, and Factor Adjustment Costs"
Japan and the World Economy
Using a two-country two-good model, we examine the welfare effects of foreign
aid that facilitates factor movement between industries in the recipient
country. The government of the donor country produces a public input, which the
recipient's government is forced to purchase by spending aid as well as tariff
revenue. The recipient uses the public input to convert one specific factor to
another. We show that tied aid can benefit the recipient if the factor movement
is beneficial. Tied aid can make the donor better off when the recipient

imposes the import tariff.

June 2003

Masao Yamada (Yamaguchi University)
"Industrialization and substitutability: A note"
Journal of Economic Dynamics and Control
This paper analyzes the relationship between industrialization and
technology in detail. Three main conclusions are obtained:
(i) the crucial factor for the existence of a poverty trap is the
degree of substitutability among intermediate inputs;
(ii) the effects of technological progress in the manufactured good
sector and the intermediate goods sector on industrialization differ
with the degree of substitutability among intermediate inputs;
(iii) technological progress in the manufactured good sector and
the intermediate goods sector weakens the lock-in effect of historical
events while strengthening the role of expectations.
These suggest that the degree of substitutability among intermediate inputs
should be an important factor when we plan a development strategy.
Naoto Jinji (Hitotsubashi University)
"Strategic Policy for Product R&D with Symmetric Costs"
Canadian Journal of Economics
This paper examines strategic policy for product R&D in an international
duopoly where domestic and foreign firms are identical.  It is shown
that strategic R&D policy is described by a menu of subsidy schedule
contingent on firms' quality choices.  Unilateral policy enables its
domestic firm to produce a high quality product, making equilibrium
outcome unique.  With two active governments, in equilibrium they
implement different subsidy schedules.  Two equilibrium outcomes exist,
which are identical except for the identity of the countries.  Thus,
both countries have an equal chance to become the high quality exporter.
Bertrand and Cournot cases are both examined.
May 2003

Jota Ishikawa (Hitotsubashi University)
"From Segmented Markets to Integrated Markets:
An Analysis of Economic Integration and Antidumping Legislation"
Review of International Economics

This paper examines how a movement from segmented markets to integrated markets
affects the volume of trade, consumer prices, profits and welfare in a monopoly model.
The monopolist can initially discriminate consumer prices among markets with trade costs
but has to take arbitrage into account as economic integration proceeds. The analysis provides
interesting insights into economic integration and antidumping law. It is shown that the extent of
arbitrage and the shape of marginal cost curve play crucial roles. Surprisingly, it is possible that
neither consumers nor the monopolist gains from economic integration, and that antidumping
legislation benefits consumers at the expense of producers.
Tsuyoshi Toshimitsu (Kwansei Gakuin University)
"Optimal R&D policy and endogenous quality choice"
International Journal of Industrial Organization
In a quality-differentiated duopoly where (i) quality is endogenously
chosen before production, (ii) fixed costs are increasing and convex in
quality, and (iii) variable production costs are insubstantial, an R&D
subsidy for the firm producing a high-quality product improves social
welfare, irrespective of whether the ensuing product-market competition
is Bertrand or Cournot, while an R&D subsidy for the firm producing a
low-quality product improves social welfare only if Bertrand, and not if
April 2003

Yin-Wong Cheung (University of California, Santa Cruz), Menzie D. Chinn
(University of California, Santa Cruz and NBER) and Eiji Fujii (University of Tsukuba)
"China, Hong Kong, and Taiwan: A Quantitative Assessment of Real and
Financial Integration"
China Economic Review
The status of real and financial integration of China, Hong Kong, and
Taiwan is investigated using monthly data on one-month interbank rates,
exchange rates, and prices. Specifically, the degree of integration is
assessed based on the empirical validity of real interest parity,
uncovered interest parity, and relative purchasing power parity. There
is evidence these parity conditions tend to hold over longer periods,
although they do not hold instantaneously. Overall, the magnitude of
deviations from the parity conditions is shrinking over time. In
particular, China and Hong Kong appear to have experienced significant
increases in integration during the sample period. It is also found that
exchange rate variability plays a major role in determining the
variability of deviations from these parity conditions.

March 2003

Takumi Naito (Tokyo Institute of Technology)
"Pareto-improving untied aid with environmental externalities"
Journal of Economics
This paper shows that even untied aid is Pareto-improving if and only if the
marginal propensity to consume the polluting good in the donor country is
sufficiently larger than that in the recipient country.
January 2003

Jota Ishikawa, Yongmin Chen and Zhihao Yu
"Trade Liberalization and Strategic Outsourcing"
Journal of International Economics
This paper develops a model of strategic outsourcing. With trade
liberalization in the intermediate-product market, a domestic firm may
choose to purchase a key intermediate good from a more efficient foreign
producer, who also competes with the domestic firm for a final good. This
has a strategic effect on competition. Unlike the outsourcing motivated by
cost saving, the strategic outsourcing has a collusive effect that could
raise the prices of both intermediate and final goods. Trade liberalization
in the intermediate-good market could have a very different effect compared
with trade liberalization in the final-good market.
Jota Ishikawa, Taiji Furusawa and Keisaku Higashida
"What Information is Needed for Welfare-Enhancing Policies under
International Oligopoly?"

Japan and the World Economy
In the framework of international Cournot oligopoly, we analyze
welfare-enhancing policies when policymakers have only limited information
on demand and cost structures. We show that even if policymakers have no
idea about costs and demand, they can raise welfare by introducing a small
production subsidy. If the government knows that demand is not very convex,
a small tariff can  be used to enhance welfare. With strategic complements, a small
import reduction by an import quota deteriorates welfare while a small
increase in the number of domestic firms improves welfare. In other cases,
some more information is required to determine right policies.