December 2008

 

Kenji Fujiwara (Kwansei Gakuin University)
gWhy environmentalists resist trade liberalizationh
Environmental and Resource Economics
<kenjifujiwara@kwansei.ac.jp>
We build a two-country differential game model of polluting oligopoly to consider the effects of trade liberalization. As in static models, the opening of trade promotes competition but expands the global pollution. Characterizing open-loop and feedback strategies, we derive a sufficient condition for losses from trade. This losses-from-trade proposition could provide a rationale for persistent resistance to globalization by environmentalists.

 

October 2008

 

Fuat Sener (Union College) and Laixun Zhao (Kobe University)

"Globalization, R&D and the iPod Cycle"

Journal of International Economics 

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

This paper constructs a dynamic scale-free North-South model of trade with endogenous innovation. In the North a local-sourcing-targeted race and an outsourcing-targeted R&D race take place simultaneously within each industry. The former results in the winner firm manufacturing in the North, while the latter culminates in the winner firmfs immediate outsourcing to the South, generating the iPod cycle. We study three aspects of globalization: reductions in the resource-requirement in outsourcing-targeted R&D, increased subsidies to outsourced production, and reduced Southern imitation due to TRIPs. Each event boosts outsourcing-targeted R&D and increases the frequency of iPod cycles. The aggregate innovation rate rises despite a possible fall in local-sourcing-targeted R&D, and the North-South relative wage decreases.

 

Jung Hur (Sogang University) and Laixun Zhao (Kobe University)

"Labor-Management Bargaining, Labor Standards and International Rivalry"

Journal of Economic Behavior & Organization

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

Using the labor unionfs bargaining power as an indication of government policy on labor standards issues, we analyze the competition between a domestic (North) firm and a foreign (South) firm, and their relationship with optimal labor standards (LS). First, we show that the optimal level of LS is higher when labor unions are employment-oriented than when they are not. Second, it is higher under free trade than under the optimal tariff system if labor unions are employment-oriented. Third, ea race to the bottomf of LS occurs in the case of wage-oriented unions. Fourth, the Northfs imposing a tariff to force the Southern government to raise its LS is effective only if the Southern union is wage-oriented. In order to raise Southern LS, both countries may need some deeper form of economic integration, if the North does not want to abandon its free trade system.

 

Shingo Ishiguro (Osaka University) and Laixun Zhao (Kobe University)

"Raising Wages to Deter Entry in Unionized Markets"

Japanese Economic Review

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

This paper investigates the strategic effects of new entry into product markets under a unionized oligopoly where entry and wage negotiations are sequential. When both an incumbent and an entrant hire unionized workers, the incumbent has incentives to raise the wage, because a higher wage strengthens the bargaining position of the union relative to the entrant at subsequent negotiations, which then discourages the latter to enter. We also show that entry is more likely to be deterred (accommodated) if the union is wage (employment) oriented and that raising unemployment compensation during recession kills two birds with one stone — it reduces the burden of the unemployed and induces new entry of firms, creating more employment opportunities. However, during a business boom, our results predict that reducing unemployment compensation is a better policy.

 

Laixun Zhao (Kobe University)

"International Labor Standards and North-South Competition"

The World Economy

<zhao@rieb.kobe-u.ac.jp> 

This paper models the economic aspects of labor standards in an oligopolistic framework of three countries, incorporating labor-management negotiations in the North and monopsonic labor markets in Southern countries. Different from the literature, a higher LS not only incurs a higher cost, but also benefits workers and induces them to work harder. Because of these links, Northern intervention, via import taxes or minimum LS regulation, may often have perverse effects on Southern countries.  Specifically, imposing an unconditional tariff against a certain Southern country to force up its LS does not work. Further, the unconditional tariff would shift production to another country. These shed light on why developing countries oppose including LS in WTO negotiations. However, a LS-contingent tariff, or a minimum LS regulation is effective in raising LS in Southern countries, but the utility of the Northern labor union may fall. Incorporating altruism and humanitarian concerns mitigates the effects of unconditional tariff policies. Finally, as the empirical evidence shows, we demonstrate that multinational enterprises choose to locate in those developing countries whose LS is relatively higher rather than lower.

 

Jota Ishikawa (Hitotsubashi University), Yoichi Sugita (Columbia University) and Laixun Zhao (Kobe University)
"Corporate Control, Foreign Ownership Regulations and Technology Transfer"
Economic Record
<zhao@rieb.kobe-u.ac.jp>
Multinationals are often required to form joint ventures (JVs) with local firms when entering the host country market. Explicitly taking corporate control into account, we explore the relationship between technology transfer and foreign ownership regulation in the presence of technology spillovers from JVs to local firms. It is shown that foreign ownership regulations may facilitate both technology transfer and spillovers when the multinational has corporate control. Under corporate control by the local partner firm, however, such regulations may hamper technology transfer.

 

Takeshi Ikeda (Kobe International University) and Tatsuhiko Nariu (Kyoto University)

"Third-degree Price Discrimination in the Presence of Asymmetric Consumption Externalities"

Journal of Industry, Competition and Trade

<ikeda@kobe-kiu.ac.jp>

In this paper, we consider third-degree price discrimination in two markets in the presence of asymmetric consumption externalities; we establish that under plausible conditions, a firm reduces its price in the market with low price elasticity of demand. The firm can increase its profits by reducing the price for these consumers and enlarging the demand for other consumers, provided that positive consumption externalities exist. Moreover, we show that third-degree price discrimination enhances not only the firmfs profit but also total consumer surplus.

 

September 2008

 

Tsuyoshi Toshimitsu (Kwansei Gakuin University)
"On the Effects of Emission Standards as a Non-tariff Barrier to Trade in the Case of a Foreign Bertrand Duopoly: A Note"
Resource and Energy Economics
<
ttsutomu@kwansei.ac.jp>
Employing a model of an environmentally differentiated product market, we analyze how an emission regulation as non-tariff barriers to trade affects imports, the environment, and welfare in the case of a foreign Bertrand duopoly. Related to this issue, we reconsider the result of Moraga-González and Padrón-Fumero (2002) that a strict emission standard on a dirtier product degrades the environment and reduces the net social surplus associated with the valuation of environmental damage, if the marginal social valuation of environmental damage is larger. On the other hand, we show that a strict emission standard on a cleaner product always improves the environment and the net social surplus associated with the valuation of environmental damage.

 

Kenji Fujiwara (Kwansei Gakuin University), Norimichi Matsueda (Kwansei Gakuin University)
gDynamic voluntary provision of public goods: a generalizationh
Journal of Public Economic Theory
<kenjifujiwara@kwansei.ac.jp>
This paper examines if the proposition offered by Fershtman and Nitzan (1991) and Wirl (1996) in the context of a dynamic voluntary provision model with a linear production function can be generalized to a more general CES formulation. By comparing the steady-state stocks of a public good in open-loop and feedback Nash equilibria with that under the cooperative solution, we demonstrate that their ranking among the steady-state stocks is indeed preserved under the CES framework.

 

Kazumichi Iwasa (Kobe University) and Toru Kikuchi (Kobe University)
"Indirect Network Effects and the Impact of Trade Liberalization: A Note"
Journal of International Trade and Economic Development
<kazumichi@hi-net.zaq.ne.jp>
<kikuchi@econ.kobe-u.ac.jp>
 In this note, we examine how trade liberalization affects production structure in the presence of indirect network effects (hardware/software systems). For these purposes we construct a simple two-country model of trade with two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization and increased intra-industry trade in software products may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies on intra-industry trade, some consumers may become worse off as the result of trade.

 

August 2008

 

Takumi Naito (University of California, San Diego and Tokyo Institute of Technology) and Kenzo Abe (Osaka University)
"Welfare- and revenue-enhancing tariff and tax reform under imperfect competition"
Journal of Public Economic Theory
<tanaito@ucsd.edu>
We examine welfare and revenue effects of tariff and tax reform in a country importing final and intermediate goods, both of which are produced under imperfect competition. We consider two reform strategies. First, lower the sum of a consumption tax and a tariff on the intermediate good, and leave the sum of the consumption tax and a tariff on the final good unchanged. Second, lower the former and change the latter to leave government revenue unchanged. We specify conditions under which each reform strategy raises welfare without decreasing government revenue.

 

Jota Ishikawa (Hitotsubashi University) and Yoshimasa Komoriya (Hitotsubashi University)
"Trade Costs, Wage Rates, Technologies, and Reverse Imports"
Canadian Journal of Economics
<jota@econ.hit-u.ac.jp>

We explore the effects of transport costs, tariffs and foreign wage rates on domestic economy in the presence of reverse imports, with special emphasis on inter-firm cost asymmetry in an international oligopoly model. To serve the domestic market, a foreign firm produces in the foreign country, while two domestic firms produce either at home or abroad. Surprisingly, an increase in the foreign wage rate may raise the profits of a firm producing in the foreign country. Even if all firms produce in the foreign country, an increase in the foreign wage rate may improve domestic welfare.

 

Kenji Fujiwara (Kwansei Gakuin University) and Norimichi Matsueda (Kwansei Gakuin University)
"Effects of Transboundary Pollution on the Mode of Competition in an International Polluting Good Market"
Review of International Economics
<kenjifujiwara@kwansei.ac.jp>
By analyzing a strategic interaction between environmentally-concerned governments, we examine how the competition mode of international polluting oligopoly is determined. We show that a resulting form of competition depends on the magnitudes of marginal damage costs and cross-border spillover as well as on the degrees of similarities in these environmental parameters.

Kenji Fujiwara (Kwansei Gakuin University)
"Duopoly can be More Anti-Competitive than Monopoly"
Economics Letters
<kenjifujiwara@kwansei.ac.jp>
We prove two results on feedback equilibria under dynamic renewable resource duopoly. The linear feedback output is smallest, which sharply contrasts to the existing literature where it is largest. Moreover, prices in two feedback equilibria are higher than under monopoly.

 

Tetsuya Saito (SUNY at Buffalo)
"An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n > 0 with Two Stage Budgeting"
Economics Bulletin
<tsaito5@buffalo.edu>
This expository note shows a proof of Alchian and Allen's conjecture broadly known as a phrase `shipping the good apples out' meaning that consumers purchase fine quality relatively more than coarse one if a fixed charge is imposed. Their statement is often referred as the Alchian-Allen theorem (or effect). The proof requires conditions about homogeneity, inner solution and substitutability and they also justify two-stage budgeting. In order this work to be an exposition, I emphasize graphical representations, however, a comparison with the proof of Borcherding and Silberberg (JPE; 1978) is also considered. This comparison clarifies difference between proofs using Hicksian demand functions and using Marshallian demand functions (with some specific conditions). Extending sequential budgeting procedures, we also discuss perspectives toward multiple-quality analysis. That turns out a definition based on sequential budgeting may open a way of experimental study about the effect.

 

July 2008

 

Eiji Horiuchi (Teikyo University) and Jota Ishikawa (Hitotsubashi University)
"Tariffs and Technology Transfer through an Intermediate Product"
Review of International Economics

<jota@econ.hit-u.ac.jp>
We examine the relationship between tariffs and North-South technology transfer in an oligopoly model when technology is embodied in a key component that only North firms can produce. They may have an incentive to transfer their technologies to South firms even if the South's licensing market is restricted and/or if IPR (intellectual property right) protection is imperfect in the South. Interestingly, a decrease in the tariff on the final good as well as an increase may induce technology transfer. Our analysis suggests that the South should implement pro-competitive policies to induce technology transfer and enhance welfare.

 

Yan Ma (Kobe University) and Fumio Dei (Kobe University)

gProduct Quality, Wage Inequality, and Trade Liberalizationh

Review of International Economics

<mayan003@kobe-u.ac.jp>

This paper constructs what we call a quality differentiation model of Chinese trade. This model captures some salient features of Chinese trade and allows us to analyze the impact of trade liberalization on wage inequality. At present, Chinese trade displays the following features: high-quality cars are imported and low-quality cars are produced and consumed domestically, for which some parts are imported. These features lead us to consider trade liberalization as two types of tariff reductions: namely, a tariff reduction on final quality-differentiated goods and a tariff reduction on intermediate goods. This study shows that the two types of tariff reductions have completely different effects on wage inequality. Moreover, the results show that welfare inequality and wage inequality change in opposite directions when the tariff on final quality-differentiated goods is reduced.

 

June 2008

 

Toru Kikuchi (Kobe University)
"Distribution Costs, International Trade and Industrial Location"
Economics Bulletin

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

The purpose of this study is to illustrate, with a simple two-country, two-good, two-factor model, how a technological/regulational improvement in one country's distribution sector can affect firms' location decisions and the nature of the trading equilibrium. It is shown that, through improvements in distribution sector, one country might divert high-tech industries to another country.

 

Junko Doi, Kazumichi Iwasa, Koji Shimomura
gGiffen behavior independent of the wealth levelh
Economic Theory
<jkdoi@ipcku.kansai-u.ac.jp>
We demonstrate that a well-behaved utility function can generate Giffen behavior, where gwell-behavedh means that its indifference curves are smooth, convex, and closed in a commodity space; the resulting demand function of each good is differentiable with respect to prices and income. Moreover, we show that Giffen behavior is compatible with any level of utility and an arbitrarily low share of income spent on the inferior good. This contrasts sharply with the common view that the Giffen paradox tends to occur when householdsf wealth levels are low.

 

Kozo Kiyota (Yokohama National University and University of Michigan)
Toshiyuki Matsuura (Hitotsubashi University),
Shujiro Urata (Waseda University), and
Yuhong Wei (Hitotsubashi University)
"Reconsidering the Backward Vertical Linkages of Foreign Affiliates: Evidence from Japanese Multinationals"
World Development
<surata@waseda.jp>
This paper examines the determinants of the backward vertical linkages of Japanese foreign affiliates in manufacturing for the period 1994-2000, focusing on the local backward linkages, or local procurement in the host country. Our major findings are twofold. First, the unobserved affiliate-specific characteristics explain the large part of the variation of the backward linkages among foreign affiliates. Second, the experience of the affiliate has positive and sometimes nonlinear effects on local procurement for the affiliates, especially in Southeast Asia and China.

 

Jota Ishikawa and Yoshimasa Komoriya (Hitotsubashi University)

"Stay or Leave? Choice of Plant Location with Cost Heterogeneity"
Japanese Economic Reivew

<jota@econ.hit-u.ac.jp>

In a two-country model, we examine location choices by two domestic firms when they serve only domestic market and their cost structures are different. Whether a firm, that has more incentive for foreign direct investment (FDI), is more efficient or less efficient than the other depends on the difference between domestic and foreign marginal costs, trade costs, and the presence of fixed costs. Plant locations may not be uniquely determined. In particular, a small change in trade costs may reverse plant locations. Moreover, a decrease in transport costs with FDI may deteriorate domestic welfare.

 

April 2008

 

Toru Kikuchi (Kobe University)
"Switching Costs and the Foreign Firm's Entry"
The Manchester School
<kikuchi@econ.kobe-u.ac.jp>
This paper considers a two-period model of market entry with homogeneous products and switching costs. It is shown that the pro-competitive effect of a foreign firm's entry (i.e., unilateral trade liberalization) emerges before the entry. Also, 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 the foreign entrant is relatively low, the first-period output of a domestic monopolist is relatively low as well.
 

Kozo Kiyota (Yokohama National University and University of Michigan)

and Shujiro Urata (Waseda University)
"The role of multinational firms in international trade: The case of Japan"
Japan and the World Economy
<surata@waseda.jp>
This paper examines the role of multinational firms in international trade using firm-level panel data for Japanese firms between 1994 and 2000. Our results indicate that multinational firms dominate Japanese trade. In 2000, only 12.4 percent of Japanese firms were multinationals but they accounted for 93.6 and 81.2 percent of Japanese exports and imports, respectively. We found that multinational firms emerged from being exporters/importers. These results imply that firms do not make the choice of either exporting or undertaking FDI, contrary to the findings of previous studies. Rather, exporters make a decision on whether or not to undertake FDI.

 

March 2008

 

Toru Kikuchi (Kobe University)
"Time Zones as a Source of Comparative Advantage"
Review of International Economics
<kikuchi@econ.kobe-u.ac.jp>
This note proposes a three-country model of monopolistic competition 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, satellite communications systems) 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 unconnected country inevitably specializes in the good that does not require business services.

 

Kenji Fujiwara (Kwansei Gakuin University)

gGains from Trade in a Differential Game Model of Asymmetric Oligopolyh

Review of International Economics

<kenjifujiwara@kwansei.ac.jp>
This paper revisits a classical topic of trade gains in a differential game model of oligopoly in which Home and Foreign firms differ in the number and cost. After deriving the feedback Nash equilibrium, we provide examples to consider how the difference in the number of firms or costs affects gainfulness of trade. We prove that feedback strategies can result in implications for trade gains which are sharply different from the open-loop case.

 

February 2008

 

Akihiko Yanase (Takasaki City University of Economics) and Yasushi Kawabata (Mie University)
"Strategic Import Policies in a Three Country Model with Vertically Related Industries"
Economics Bulletin

<yanase@tcue.ac.jp>
This note examines strategic import policies in a three-country model with vertical production and trade relationship. Reflecting horizontal and vertical effects of the import policy, each country's optimal policy can be either tariff or subsidy, depending on the relative numbers of upstream and downstream firms.


Akihiko Yanase (Takasaki City University of Economics)
"A Note on Pollution Intensity and the Effect of Tighter Environmental Policy on Comparative Advantage"
Keio Economic Studies

<yanase@tcue.ac.jp>
This note reexamines the two-factor (capital and labor), three-sector (two final goods sector and a pollution abatement sector) model developed by Chua (2003, Oxford Economic Papers 55, 25–35). By redefining pollution intensity, this note shows that an increase in the pollution tax rate unambiguously raises the price of a pollution-intensive good as long as the other (i.e., less pollution-intensive) good is least capital-intensive.

 

January 2008

 

Drusilla K. Brown (Tufts University)
Kozo Kiyota (Yokohama National University and University of Michigan)
Robert M. Stern (University of Michigan)
"An Analysis of a US-Southern African Customs Union (SACU) Free Trade Agreement"
World Development
<rmstern@umich.edu>
This paper analyzes the potential economic effects of bilateral negotiations for an FTA between the United States and the Southern African Customs Union (SACU). The US-SACU FTA bilateral negotiations were initiated in June 2003, but have become deadlocked over a series of issues of concern to the SACU. To determine whether a bilateral FTA might be in the SACU members' interests, we use the Michigan Model of World Production and Trade to assess the welfare and other economic effects of a bilateral FTA. We conclude that the benefits of an FTA are rather small, and that the interests of the global trading community, including the United States and SACU, could be better served by unilateral and especially multilateral liberalization.