December 2004

Yasunobu Tomoda and Hiroshi Kurata (Hokkaido University)
"Foreign Equity Caps for International Joint Ventures"
Economics Bulletin
We analyze foreign equity caps for international joint ventures. We develop
a partial equilibrium model in which foreign equity caps are determined endogenously
and find an interesting property, named a welfare indifference property; i.e.,
maximization of domestic welfare and that of world welfare are indifferent for
the host government. This property also implies that the government is
indifferent to the distribution of a JV's profit.
Yin-Wong Cheung (University of California, Santa Cruz), Menzie Chinn
(University of Wisconsin, Madison) and Eiji Fujii (University of Tsukuba)
"The Chinese Economies in Global Context: The Integration Process and Its
Journal of the Japanese and International Economies
The linkages between the Peoplefs Republic of China and the other Chinese
economies of Hong Kong and Taiwan are assessed, and compared against those
with Japan and the US. We first characterize the time series behavior of
three criteria of integration, namely real interest parity, uncovered
interest parity, and relative purchasing power parity. There is evidence
that these parity conditions tend to hold over longer periods between the
Peoplefs Republic of China and all other economies, although they do not
hold instantaneously. Overall, the magnitude of deviations from the parity
conditions is shrinking over time. Amongst all, however, Hong Kong exhibits
indications of a more advanced level of integration with the mainland. We
also find that evidence is surprisingly positive for integration with the
US. We then turn to examining the determinants of the degree of integration.
Regression results suggest that the degree of financial and real integration
depend upon the extent of capital controls, foreign direct investment
linkages as well as exchange rate volatility.

Tomohiro Kuroda (Hitotsubashi University)
"Local content protection reconsidered: the case of domestic monopsonist,"
Economics Bulletin
In this paper we examine how local content protection (LCP) affects the use of
the domestic intermediates, the use of total intermediates and the domestic welfare
when domestic intermediate-goods market is under monopsony. In the domestic
intermediate-goods market under monopsony, the marginal expenditure cost (MEC)
of using domestic intermediates has a discontinuous segment because the average
expenditure cost (AEC) is a kinked curve. It is shown that there exists a case where
because of the discontinuity of the marginal expenditure cost, LCP has no effect on
the use of domestic intermediates and has a negative impact on the domestic final-goods
producer. This paper provides a summary of the general effects of LCP on the domestic
intermediate-goods market under monopsony in terms of resource allocations and
the domestic welfare. Moreover, the effects of LCP under monopsony are compared with
the case under perfect competition and under free trade.

Toru Kikuchi (Kobe University) and Dao-Zhi Zeng (Kagawa University)
"On Chamberlinian-Ricardian Trade Patterns with Many Industries"
Economics Bulletin
This note explores the determinants of trade patterns by extending a
Chamberlinian-Ricardian monopolistic competition trade model to have a
larger number of industries as did Dornbush, Fischer and Samuelson (1977).
It will be shown that the degree of cross-country technical differences
among industries plays an important role as a determinant of trade within
each industry.

November 2004

Toru Kikuchi (Kobe University)
"On Gains from Interconnection of Networks"
International Trade Journal
Using a two-country, multi-region model of monopolistic competition with
country-specific networks, this note establishes a link between gains from
trade in differentiated services and gains from interconnection of networks.

Toru Kikuchi (Kobe University)
"Interconnected Communications Networks and Home Market Effects"
Canadian Journal of Economics
This study develops a model of trade that highlights the effects of the
interconnection of country-specific communications networks as a driving
force behind trade in high-tech products with positive transport costs. By
constructing a two-country model of monopolistic competition with two
production factors, it is shown that the locational decisions of firms may
magnify the influence of interconnected networks. In a reversal of the
standard home market effects, the abundance of unskilled labor in the
developing countries can attract high-tech firms from the developed

Laixun Zhao (Kobe University), Zhihao Yu (Carlton University)
and Yoshiko Onuma (Tsukuba University)
"A Theory of Mutual Migration of Polluting Firms"
Canadian Journal of Economics
Suppose that governments care about their tax revenue and local
firms have some say in environmental regulations. Then, the level of
employment and environmental compliance may be negotiated. We find that
firms located in different countries can improve their threat-point payoffs
by mutual migration. This in turn affects the negotiated output/employment
and environmental regulations, which causes profits to increase if the firmfs
threat-point payoff is higher than that of the local government. The model
predicts that pollution-intensive firms are more likely to move out.
Increases in the governmentfs valuation of the environment, or in the
degree of globalization also cause mutual migration of dirty firms. The
effect of a government caring about consumer surplus leads to a lower
pollution tax, reducing firmsf incentives to move out.

Kenzo Abe (Osaka University) and Laixun Zhao (Kobe University)
"Endogenous International Joint Ventures and the Environment"
Journal of International Economics
This paper examines the welfare effects of emission taxes under a choice
between an international joint venture (JV) and a full-ownership FDI
(Foreign Direct Investment) by parent firms from a developed country (the
North) and a developing country (the South), as well as their location and
share decisions. If the South has a poor abatement technology, its best
policy is to impose a relatively high emission tax to attract a full-ownership
FDI. If it has a good abatement technology, the best policy is to impose
a relatively low emission tax to attract the JV. Furthermore,
deregulation of foreign ownership of the JV improves the quality of the

October 2004

Kazuo Mino (Osaka University), Koji Shimomura (Kobe University),
and Ping Wang (Vanderbilt University)
"Occupational Choice and Dynamic Indeterminacy"
Review of Economic Dynamics
This paper constructs a two-sector model of two-period lived overlapping
generations with endogenous occupational choice in which
ability-heterogeneous agents choose whether to become educated when young
and skilled when old. We show that endogenous occupational choice in this
two-sector framework can result in dynamic indeterminacy without
complicated preferences/technologies and without requiring the
consumption-good production to be more capital-intensive.

September 2004

Kiyoshi Matsubara (Nagoya City University)

gImport Penetration and Domestic Process Innovationh

Review of International Economics


This paper develops a model of R&D competition between domestic and foreign firms
that explicitly incorporates the effect of the market structure. We focus on how differences
in costs modify the effects of increases in the number of foreign firms on R&D investments
of domestic firms. We show that an increase in the number of foreign firms may have
a positive effect on a domestic firm's R&D investment. We also show that two trade policies,
tariffs or quotas, could have different effects on R&D investments of domestic firms.
A welfare analysis shows that greater cost advantages increase social welfare.

Toru Kikuchi (Kobe University) and Koji Shimomura (Kobe University)
"Monopolistic Competition with Efficiency Gaps and a Heckscher-Ohlin Trade
Japanese Economic Review
We develop a two-factor, three-sector model of international trade in which
the monopolistically competitive firms are characterized by different fixed
production costs.
We show that, depending on the pattern of the international distribution of
factor endowments, the trade pattern is determined not only by relative
factor endowments as suggested by Heckscher and Ohlin, but also by absolute
factor endowments via a mechanism of competitive selection in the
monopolistically competitive sector.

August 2004

Junko Doi (Kyoto Sangyo University) and Kazuo Mino (Osaka University)
"Technological Spillovers and Patterns of Growth with Sector-Specific R&D"
Journal of Macroeconomics
This paper studies a two-sector model of endogenous
technical change in which expansion of each production
sector is associated with sector-specific R&D investment.
We show that the pattern of growth is sensitive to
the specification of intersectoral technological spillovers
as well as to the preference structure. If technological
spillovers and preferences of consumers are represented by
CES functional forms, the balanced-growth equilibrium may not
exhibit a well-behaved saddlepoint property: it is possible
that the balanced-growth path is locally indeterminate or
unstable. In addition, a slight modification of technological
spillover effects easily yields multiple balanced-growth paths.
In contrast, Cobb-Douglas specifications present a unique and
determinate balanced-growth equilibrium.

Yasuhiro Takarada (Nanzan University)

"On the Welfare Effects of Technology Transfer"

Pacific Economic Review


This paper examines the welfare effects of aid tied to technology transfer

in a two-country general equilibrium model. In the recipient country,

some factors of production employed in a particular industry are

difficult to use in other industries because their properties are

specific to the industry. Technology transfer facilitates efactor

movementf and improves the efficiency of factor markets in the

recipient. We identify and interpret the conditions under which

technology transfer benefits the recipient and harms the donor. We also

show that technology transfer can enrich (or harm) both the donor and

the recipient under certain conditions.


July 2004

Toru Kikuchi (Kobe University)
"A Note on Chamberlinian-Ricardian Trade Patterns"
Economics Bulletin


Using a two-country model of monopolistic competition with cross-country
technical heterogeneity, this note explores the determinants of comparative
advantage. It is shown that trade patterns are determined by a technology
index, and that autarky relative prices do not serve as reliable predictors
of trade patterns.
Toru Kikuchi (Kobe University)
"Virtual Integration and Endogenous Growth in the World Economy"
International Advances in Economic Research
This study develops a three-country model of endogenous growth that captures
the role of the interconnection of country-specific communications networks
(i.e., virtual integration), which affects the productivity of R&D activity
through an increase in stock of knowledge capital. The number of countries 
connected to internationally interconnected networks is found to determine 
the structure of dynamic comparative advantages. That is, countries with 
interconnected networks have a dynamic comparative advantage in differentiated 
products that require communication and R&D activities. In the connected countries, 
researchers gain from efficient R&D activity through the utilization of the greater 
stock of knowledge capital.


June 2004

Eiji Fujii (University of Tsukuba)

"Intra and Inter-Regional Causal Linkages of Emerging Stock Markets:

Evidence from Asia and Latin America in and out of Crises"

Journal of International Financial Markets, Institutions & Money


This study examines the causal linkages among several emerging stock markets

in Asia and Latin America since 1990. These markets experienced both rapid growth

and major upheaval during the sample period, and thus, provide potentially rich information

on the nature of cross-market interactions. Using daily observations of stock indices

and the GARCH family of econometric models, we conduct the residual cross-correlation

function tests to investigate cross-market causality both in the first and second moments

of the stock returns. The empirical results reveal significant causal linkages both within

each region and across the two regions. Further, our rolling test results indicate that the

significance of the causality varies considerably over time. Importantly, we find that

the causal linkages tend to strengthen particularly at the time of major financial crises.

The empirical results also point to some imperative issues including inter-regional asymmetry

in the causality and persistence of shocks on market linkages.


May 2004

Fumiko Takeda (University of Tokyo) and Koichi Takeda (Hosei University)
"Refinance and Coordination among Multiple Creditors and a Debtor Firm"
Global Business & Economics Review -Anthology 2004
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This paper investigates the conditions under which a large creditor provides
a debtor firm with refinance and examines how it affects the decisions of
the debtor firm and other creditors. Our analyses are based on a
coordination game among multiple creditors and a debtor firm under
incomplete information. We find that refinancing can increase the payoff of
the large creditor only when the debtor firm faces a substantial, but not
hopeless, risk of default. Whether the refinance succeeds in preventing the
default caused by the coordination failure among creditors and the debtor
firm, or incurs the moral hazard of the debtor firm, depends on how poor the
fundamentals of the debtor firm are. Another finding is that the size of the
refinance tends to be larger in cases where the prior lending by a large
creditor was greater, resulting in more serious moral hazards.

April 2004

Toru Kikuchi (Kobe University)
"Agricultural Productivity, Business Services, and Comparative Advantage"
Open Economies Review
This study develops a two-good (agriculture and technology) model of trade
that captures the role of agricultural productivity, which deepens the
division of labor in the technology sector. The level of the agricultural
productivity is found to determine the structure of comparative advantage:
the country that has an absolute advantage in the agricultural sector also
has a comparative advantage in the technology sector.

Toru Kikuchi (Kobe University)
"Communications Networks and Regional Economic Development"
Journal of the Korean Economy
Recently Korea showed the signs of a strong economy with sophisticated
communications networks (e.g., broadband network services, wireless
telecommunications networks): a growing connectivity across regions through
networks becomes a crucial factor in determining the performance of the
Korean economy. This study develops a multi-region model that captures the role of 
communications networks in enhancing interregional trade in intermediate
business services. A link between the adoption of communications networks
and improved regional performance is explored. The paper also examines
the relationship between interregional trade in business services and
international trade in goods.

Toru Kikuchi (Kobe University)
"Technological Catch-up and Reversed Home Market Effects"
Keio Economic Studies
This study develops a model of trade that highlights the effects of
technological catch-up due to falling communication costs as a driving
force behind trade in goods with positive transportation costs.
It is shown that the impact of catch-up may be magnified through firms'
location decisions: due to the reversed home market effects, firms in the
developed country begin to move to the developing country.

Toru Kikuchi (Kobe University)
"On the Enlargement of Interconnected Communications Networks in the World
Quarterly Review of Economics and Finance
This note develops a multi-country model of trade that captures the role of
country-specific communications network interconnectivity, which enhances
trade in intermediate business services.
The effect of an enlargement of the network, which implies an increase in
the number of countries connected through networks, is examined.
It is shown that, from the viewpoint of the connected countries, an
enlargement of the interconnected networks has two conflictiing effects:
gains due to increased specialization and losses from a deterioration in
the terms of trade.

Toru Kikuchi (Kobe University)
"On the Interconnection of Networks and Gains from Trade in Business
Journal of Economic Research
Using a two-country model of monopolistic competition with country-specific
communications networks, this note establishes a link between gains from
trade in intermediate business services and gains from the interconnection
of networks.

March 2004

Naoto Jinji (Hitotsubashi University) and Tsuyoshi Toshimitsu (Kwansei Gakuin University)
"Minimum Quality Standards under Asymmetric Duopoly with Endogenous Quality Ordering: A Note"
Journal of Regulatory Economics
In this note, we revisit minimum quality standards (MQS) under a
vertically differentiated duopoly. We generalize the model in Ronnen
(1991) and Valletti (2000) by introducing asymmetry into the fixed cost
of quality improvement and by explicitly taking into account the
endogeneity of quality ordering. In the generalized model, we show that
the results derived by Ronnen (1991) and Valletti (2000) are largely robust.

Jun-ichi Itaya (Hokkaido University) and Kazuo Mino (Kobe University)
"Interest-Rate Rule and Multiple Equilibria with Endogenous Growth"
 Economics Bulletin
This paper examines the role of interest-rate feedback rule in
a monetary endogenous growth model in which money is introduced
via a cash-in-advance constraint and long-run growth is sustained
by external increasing returns. It is shown that dynamic properties
as well as the balanced-growth characterization are highly sensitive
not only to the degree of increasing returns but also to the interest
-rate feedback rule adopted by the monetary authority. In particular,
the conditions for indeterminacy of equilibrium depends heavily upon
whether the interest-rate rule is active or passive.

Kauzo Mino (Kobe University)
"Weitzman's Rule with Market Distortions"
 Japan and the World Economy
Weitzman (1976) provides a foundation for net national product
of a competitive economy as the annuity equivalent of the present
discounted value of maximized consumption. This paper considers
how Weitzman's rule should be modified if the competitive equilibrium
is affected by the presence of market distortions. The paper first
examines the model with external effects of capital in which there
are spillovers of knowledge. The paper also studies the model with
policy interventions where the policy maker seeks the second best
allocation. The central concern of the paper is to elucidate the
factors that generate a divergence between the net national product
and the welfare equivalent of maximized consumption. In discussing
each model, the paper presents a typical example that has been
widely discussed in the literature.

Takumi Naito (Tokyo Institute of Technology)
"Pattern of trade and indeterminacy"
Journal of Macroeconomics
This paper presents a three-sector small open endogenous growth model with
physical and human capital and constant returns to scale. The model shows that
the transitional path may be either saddle-path stable or indeterminate,
depending on the pattern of specialization. This occurs for two reasons.
First, in the presence of capital and labor income taxes, factor intensity
rankings between the operating corporate sector and the education sector in
value and physical senses can differ, which may cause too many stabilizing
forces. Second, the change in the pattern of specialization discretely changes
factor intensities in the operating corporate sector.



Kenji Fujiwara and Koji Shimomura

gA Factor Endowment Theory of International Trade under Imperfect

Competition and Increasing Returnsh

Canadian Journal of Economics


Constructing a two-good (competitive and imperfectly-competitive goods),

two-primary factor (capital and labor) and two-country model of international

trade where the imperfectly-competitive sector is subject to increasing returns

to scale, we establish an oligopolistic version of the Heckscher-Ohlin theorem.