November 2007

Jota Ishikawa and Kaz Miyagiwa

"Price undertakings, VERs, and foreign direct investment - The case of foreign rivalry"
Canadian Journal of Economics

Antidumping (AD) petitions are often withdrawn in favor of VERs and price
undertakings. This paper compares the three options in the presence of
protection-jumping foreign direct investment (FDI), with special emphasis
on rivalry between foreign firms. We show that a VER is less likely to
induce FDI than a price undertaking or AD. As a result, by settling AD
cases with VER agreements, the importing country can pursue a more
protectionist policy without triggering FDI. This result may explain the
1994 GATT ban on VERs following the proliferation of AD use.

Dao-Zhi Zeng (Kagawa University) and Toru Kikuchi (Kobe University)
"The Home Market Effect and Trade Costs"
Japanese Economic Review
<zeng@gsm.kagawa-u.ac.jp>
Concerning industrial location, the home market effect (HME) predicts that a
large country is a net exporter of industrial goods. Recent literature shows that high
transport costs in the traditional sector may obscure the HME in an early model of
two sectors `a la Helpman and Krugman. This paper presents an alternative model
that displays the relationship between the HME and arbitrary transport costs while
allowing for the derivation of analytical results by simple algebra. Our results show
that the transport costs in the traditional sector do not obscure the HME but
constitute a dispersion force decreasing the impact of the HME.

Marcelo Fukushima (Kobe University) and Toru Kikuchi (Kobe University)
"Competing Communications Networks and International Trade"
Journal of Economic Integration
<047d257e@stu.kobe-u.ac.jp>
This paper investigates the effects of competing communication networks on
trade patterns in a Chamberlinian-Ricardian model of monopolistically competitive
firms with a continuum of industries that require communication services
in production. We conclude that intraindustry trade between different
networks is determined by the relative size of networks and technological differences,
and that a network will not have incentive to expand indefinitely,
despite network externalities.

Kazumichi Iwasa (Kobe University)  and Toru Kikuchi (Kobe University)
"Strategic Divisionalization, Product Differentiation and International Competition"
Journal of the Korean Economy
<kikuchi@econ.kobe-u.ac.jp>
In this note we construct a simple international differentiated duopoly model that

involves a divisionalization decision. It will be shown that the number of third market

divisions of a parent firm with a cost advantage is relatively large. The results imply

that the cost competitiveness of one country’s firm will be magnified through

divisionalization decisions.

October 2007

Junko Doi (Kansai University) and Kazuo Mino (Osaka University)
"A Variety Expansion Model of Growth with External Habit Formation"
 Journal of Economic Dynamics and Control
<mino@econ.osaka-u.ac.jp>
This paper introduces consumption externalities into one of the base line 
models of growth in which continuing expansion of product variety sustains long-term growth. 
We assume that consumers set a benchmark stock of consumption for each good so that there 
are commodity specific external effects. Each good is produced by a monopolistically 
competitive firm and the film exploits the presence of consumption external effects in 
determining its profit-maximizing price. Given those settings, we show that the introduction 
of consumption externalities may affect the balanced-growth characterization, transitional 
dynamics and policy effects in fundamental manners.
 
Seiya Fujisaki (Osaka University) and Kazuo Mino (Osaka University)
"Generalized Taylor Rule and Determinacy of Growth Equilibrium"
Economics Bulletin
<mino@econ.osaka-u.ac.jp>
This paper re-examines equilibrium determinacy under the interest-rate 
control rules in a simple model of endogenous growth. We use a standard 
money-in-the-utility formulation with fixed labor supply and an Ak technology 
under which the balanced-growth path is unique and money is superneutral 
in the long run. We show that even in such an environment the interest-rate 
feedback rule a la Taylor may produce indeterminacy of equilibrium if the 
monetary authority adjusts the nominal interest rate in response to the growth rate 
of real income as well as to the rate of inflation. 

Jota Ishikawa and Yoshimasa Komoriya

"Subsidies and Countervailing Duties with Firm Heterogeneity"

Asia-Pacific Journal of Accounting and Economics

The WTO allows importing countries to impose countervailing duties (CVDs)

when subsidies provided in exporting countries cause serious injuries.

This paper examines the effects of CVDs as well as those of subsidies.

Using an international oligopoly model, we specifically explore direct

export subsidies and capital subsidies in the presence of heterogeneity

among recipients. All recipient firms gain from export subsidies, but this

may not be the case for capital subsidies. The maximum CVD allowed under

the WTO rules may be more than enough to offset the injury caused by a

capital subsidy.

September 2007

Ichiroh Daitoh (Tohoku University)
"Environmental Protection and Trade Liberalization in a Small Open Dual Economy"
Review of Development Economics
<idaito@intcul.tohoku.ac.jp>
We investigate when environmental protection and trade liberalization may
improve urban unemployment and welfare in a small open Harris-Todaro model
with polluting urban manufacture. While a tariff reduction decreases
manufacturing employment, a higher pollution tax may increase it when a
dirty input is complementary to capital. Environmental protection reduces
the level of urban unemployment under the same condition as trade
liberalization. Trade liberalization will mitigate a decrease in GDP due to
environmental protection if the degree of urbanization is low and if rural
technology exhibits weak diminishing returns to labor. This GDP effect plays
a central role in welfare improvement.

August 2007

Yan Ma (Kobe University)

"Trade Theorems in a Model of Vertical Production Chain"

International Review of Economics & Finance

< mayan003@kobe-u.ac.jp>

This paper investigates the Rybczynski theorem, the Stolper-Samuelson theorem, and

the Heckscher-Ohlin theorem in a two-factor vertical production chain model of trade.

For this purpose, capital is introduced into the model of Yano and Dei (2003). A primary

analytic device is the economy-wide production curve. This curve is derived under autarky

and free trade, respectively.

July 2007

Kazumichi Iwasa (Kobe University) and Toru Kikuchi (Kobe University)

"Indirect Network Effects and Trade Patterns"

Economics Bulletin

<kikuchi@econ.kobe-u.ac.jp>

Indirect network effects exist when the utility of consumers is

increasing in the variety of complementary products available for use with

an electronic hardware device. In this note, we examine how indirect

network effects work as a determinant of trade patterns. For these purposes

we construct a simple two-country model of trade with incompatible

country-specific hardware technologies. We show that trade patterns are

determined by the interaction between hardware differentiation and indirect

network effects due to software availability.

Yunfang Hu (Kobe University), Ryoji Ohdoi (Osaka City University) and Koji Shimomura　

“Indeterminacy in a Two-Sector Endogenous Growth Model with Productive Government Spending”

Journal of Macroeconomics

<hu@econ.kobe-u.ac.jp>

We construct a two-sector endogenous growth model in which productive

government spending is essential for sustaining an economy's long-run growth. It

is shown that, like the original one-sector Barro (1990) model, the

balanced growth path (BGP) equilibrium is unique under some conditions. Unlike

Barro (1990), however, our two-sector framework exhibits transitional

dynamics. In fact, when the intertemporal elasticity of substitution for

consumption is large, around the BGP equilibrium, there is a continuum of equilibrium

paths whose growth rates commonly converge to a balanced growth rate. That

is, the BGP equilibrium is indeterminate.

Hiroshi Kurata （Ritsumeikan University), Takao Ohkawa （Ritsumeikan University), and Makoto Okamura（Hiroshima University),
“Location Choice, Competition, and Welfare in Non-Tradable Service FDI”

International Review of Economics & Finance

<hkurata@fc.ritsumei.ac.jp>

We investigate whether non-tradable service FDI is efficient from a welfare point of view. A fixed number of firms strategically decide which markets to locate in and then compete in quasi-Cournot fashion. Considering firm location in two symmetric markets, non-tradable service FDI may or may not be efficient for the source country, depending on the total number of firms, competition in markets and the curvature of the demand function. In contrast, non-tradable service FDI is always efficient for the host country and the overall economy. This implies that any policy that affects firm location between two symmetric markets will not be beneficial from a welfare viewpoint.

Hiroshi Kurata（Ritsumeikan University),
"Foreign equity caps under two types of competition: Bertrand and Cournot"
Economics Bulletin

<hkurata@fc.ritsumei.ac.jp>

This paper explores foreign equity caps for international joint ventures under different types of competition, i.e., Bertrand and Cournot competition, with product differentiation. We demonstrate that government sets the foreign equity cap at a laxer level under Cournot competition than under Bertrand competition. This result illustrates that the possibility of international joint ventures weakens government's ability to affect firm behavior through the implementation of foreign equity caps.

March 2007

Toru Kikuchi (Kobe University)

"Network Externalities and Comparative Advantage"

Bulletin of Economic Research

<kikuchi@econ.kobe-u.ac.jp>

In this article I examine how the network externalities of communications

activities and trading opportunities interact to determine the

structure of comparative advantage. These interactions are examined

by constructing a two-country, three-sector model of trade involving

a country-specific communications network sector. The role of the

connectivity of network providers, which allows users of a network to

communicate with users of another network, is also explored

Toru Kikuchi (Kobe University)

"Switching Costs and the Impact of Trade Liberalization"

Economics Bulletin

<kikuchi@econ.kobe-u.ac.jp>

This paper considers a two-period model of market entry with horizontally

differentiated products and switching costs. Conditions that are conducive

to a competitive environment in the second period are shown to yield a less

competitive outcome in the first period. That is, when the marginal cost of

a foreign entrant is relatively low, the first-period output of a domestic

monopolist is relatively low as well.

Toru Kikuchi (Kobe University)

"Time Zones, Outsourcing and Patterns of International Trade"

Economics Bulletin

<kikuchi@econ.kobe-u.ac.jp>

This paper proposes a three-country model of business services trade that

captures the role of time zones in the division of labor. The connectivity

of business service sectors via communications networks (e.g., the

Internet) is found to determine the structure of comparative advantage.

That is, two countries with connected service sectors have a comparative

advantage in the good that requires business services. It is also shown

that the third country inevitably specializes in the good that does not

require business services.

Toru Kikuchi (Kobe University) and Chiharu Kobayashi (Doshisha University)

"Network Effects and the Impact of Trade Liberalization"

Economics Bulletin

<kikuchi@econ.kobe-u.ac.jp>

In this note, we examine how trade liberalization affects the profits of

firms in the presence of network effects. We will show that, contrary to

conclusions in the previous literature, trade liberalization between

identical countries increases firms' profits despite intensified

competition

Toru Kikuchi (Kobe University) and Chiharu Kobayashi (Doshisha University)

"Network Externalities, Competition, and Trade: East Asian Perspectives"

Journal of the Korean Economy

<kikuchi@econ.kobe-u.ac.jp>

There are large deviations in access to telecommunications infrastructure

and trading patterns within the East Asian region. We examine how the

network externalities of communication activities and trading opportunities

interact to determine the structure of comparative advantage. These

interactions are examined by constructing a simple two-country, two-good

model of trade involving a country-specific communications network sector.

The role of competition of network service providers, which allows users of

a network easier access to other networks, is also explored.

Yuqing Xing ( International University of Japan)

"Foreign Direct Investment and China's Bilateral Intra-Industry Trade with Japan and the US."

Journal of Asian Economics

<xing@iuj.ac.jp>

 This paper analyzes the dynamic changes of China 's intra-industry trade with its major trading partners, Japan and the US , from 1980 to 2004. The estimated intra-industry indexes demonstrate that, while shares of China's intra-industry trade with both Japan and U.S rose substantially, its intra-industry trade with Japan increased to 34 per cent of the overall trade in 2004, considerably larger than 10 per cent with the US. The Sino-Japanese intra-industry trade concentrated in electrical and machinery sectors and accounted for 52 per cent and 46 per cent of the total trade in those sectors respectively. On the other hand, it is in chemical and food sectors where intra-industry trade represented a relatively large proportion of Sino-US trade. In addition, the paper investigates to what extent that foreign direct investment from those two countries promoted their bilateral intra-industry trade with China . The empirical results show that, Japanese direct investment performed a significant role in enhancing the bilateral intra-industry trade. However, it finds no evidence that the US direct investment contributed to the growth of the Sino-US intra-industry trade.

Tomiura, Eiichi (Yokohama National University)

"Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level"

Journal of International Economics

<tomiura@ynu.ac.jp>

This paper documents how productivity varies with globalization modes,

based on a firm-level data set covering all manufacturing industries in Japan.

Foreign outsourcers and exporters tend to be less productive than the firms

active in FDI or in multiple globalization modes, but more productive than

domestic firms. This productivity ordering is robust even when firm size,

factor intensity and/or industry are controlled for.

Takumi Naito (Tokyo Institute of Technology) and Ryoji Ohdoi (Osaka City University)

"Dynamics of a two-sector endogenous growth model with intersectoral knowledge spillovers"

Economic Theory

<tnaito@soc.titech.ac.jp>

In a two-sector endogenous growth model with learning by doing and intersectoral

knowledge spillovers, we associate local dynamics with the slope of the excess demand

curve for a consumption good. Factor intensity determines the income effect, which

governs dynamics.

Kenji Fujiwara (Kwansei Gakuin University)

“A Decomposition of Gains from Trade in a Differentiated Oligopoly”

Japan and the World Economy

<kenjifujiwara@kwansei.ac.jp>

Constructing a two-country oligopolistic model with product differentiation,

this paper revisits welfare effects of free trade. The hybrid of procompetitive

and variety expansion effects means that trade liberalization has definite benefits

for the consumer, while it is contingent whether it is beneficial to oligopolistic firms

and national welfare. We illustrate how these two effects interactively affect

the possibility of gains from trade with simple diagrams.

Kazuo Mino (Osaka University)

"Growth and Bubbles with Consumption Externalities"

Japanese Economic Review

<mino@econ.osaka-u.ac.jp>

This paper explores the role of consumption externalities in an overlapping
generations economy with capital accumulation. If consumers in each generation
are concerned with other agents' consumption behaviors, there exist intergenerational
as well as intragenerational consumption externalities. It is the presence of 
intergenreational consumption externalities that may produce fundamental effects
both on equilibrium dynamics and on steady-state characterization of the economy. 
This paper demonstrates this fact in the context of a simple model of endogenously 
growing, overlapping-generations economy with or without asset bubbles. 

February 2007

Kenji Fujiwara (Kwansei Gakuin University) and Norimichi Matsueda

(Kwansei Gakuin University)

“On a Nonlinear Feedback Strategy Equilibrium of a Dynamic Game”

Economics Bulletin

<kenjifujiwara@kwansei.ac.jp>

This paper reports a seemingly surprising property of nonlinear

feedback Nash strategy in a differential game with no state variable in the

payoff of each player. While the open-loop Nash and linear feedback Nash

equilibria coincide with the static Cournot-Nash equilibrium, i.e., they

depend neither on time nor the state variable over time, the nonlinear feedback

strategy can be properly defined and it approximates the bilateral

collusion as proved by Tsutsui and Mino (1990).

Kenji Fujiwara (Kwansei Gakuin University)

“Partial Privatization in a Differentiated Mixed Oligopoly”

Journal of Economics

<kenjifujiwara@kwansei.ac.jp>

A model of differentiated mixed oligopoly is developed to

systematically discuss the welfare consequences of partial privatization of a

public firm. We analytically derive the optimal degree of partial privatization

not only in the short-run with restricted entry but also in the long-run

with free entry. It is shown that the short-run optimal policy is

non-monotonic in the degree of love of variety, while the optimal degree of

privatization is monotonically increasing in the consumer's preference for variety in

the long-run.

Masao Oda (Kansai University)

“Capital Imports and Tariffs”

Review of International Economics

<odams@mta.biglobe.ne.jp>

This paper develops a three-sector, three-factor specific factor model with a tariff and presents conditions

under which capital imports and tariffs can be welfare enhancing in a developing country. The impact on

welfare depends on the tariff revenue effect and the repatriation effect. A capital import is welfare enhancing

if it reduces the domestic output of imports. A tariff is welfare enhancing only if it reduces the return to foreign capital.

Yin-Wong Cheung (University of California, Santa Cruz), 
Menzie Chinn (University of Wisconsin) and 
Eiji Fujii (University of Tsukuba)
"The Overvaluation of Renminbi Undervaluation"
Journal of International Money and Finance

<efujii@sk.tsukuba.ac.jp>

We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. 
A framework built around the relationship between relative price and relative output levels is used. We find that, 
once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is 
undervalued, even though the point estimates usually indicate economically significant misalignment. The result is 
robust to various choices of country samples and sample periods, as well as to the inclusion of control variables.

January 2007

Elias Dinopoulos (University of Florida) and Laixun Zhao (Kobe University)

“Child Labor and Globalization”

Journal of Labor Economics

<zhao@rieb.kobe-u.ac.jp>

The paper embeds child labor in a standard two-sector general-equilibrium model of a small open economy facing perfectly competitive markets, efficiency wages, and free-trade. The modern sector produces a homogeneous good using skilled adult labor and capital, and offers effort-based efficiency wages. The agrarian (traditional) sector produces a homogeneous good using unskilled (child and adult) labor and skilled adult labor, and offers nutritional efficiency wages to child workers. Nutritional efficiency wages introduce wage stickiness and transform the economy into a dual one with unlimited supply of child labor. Trade policies that increase the output of the modern sector reduce the incidence of child labor and the dispersion of wages between adult skilled workers and unskilled workers. Emigration of skilled adult workers reduces the incidence of child labor, whereas emigration of unskilled adult workers has the opposite effect. Domestic subsidies that reduce the child wage increase the incidence of child labor; and a ban on child-labor benefits unskilled adult workers but hurts skilled adult workers.

Tsuyoshi Toshimitsu (Kwansei Gakuin University) and Naoto Jinji (Okayama University)
"A Note on Strategic Trade Policy and Endogenous Quality Choice"
Review of International Economics
<jinji　“at”　e.okayama-u.ac.jp>
This paper shows that some of the main policy implications in Park (2001) and Zhou, Spencer, and Vertinsky (2002) are sensitive to their assumptions on marginal production costs.  The unilaterally optimal policy for investment towards quality improvement is analyzed, assuming constant and non-negative marginal production costs under vertically differentiated international duopoly.  If marginal production costs are different across firms, the optimal policy for each exporting country may be opposite in its sign from that shown by the existing papers under Bertrand competition.  The policy reversal may also occur for the low quality exporting country under Cournot competition.

Nobuhito Suga (Hokkaido University)

"A Monopolistic Competition Model of International Trade with External Economies of Scale"

North American Journal of Economics and Finance

<suga@econ.hokudai.ac.jp>

This paper presents a two-country model of monopolistic competition in which differentiated products are produced subject to external economies of scale and two countries differ only in size measured by the factor endowment. It is shown that under free trade, the larger country has positive net exports of differentiated products, which leads to its gains from trade, while the smaller county may lose from trade. Noteworthy is that the industrial agglomeration induced by the inter-industry trade is possibly harmful to both countries if the two countries are similar in size and the taste for product diversity is sufficiently strong.