November 2010


Kenji Fujiwara (Kwansei Gakuin University)
gMarket Integration and Competition in Environmental and Trade Policiesh

Environmental and Resource Economics

Recent empirics suggest the relevance of transport cost reductions for world trade growth along with eliminations in protectionist trade barriers. To address the welfare effects of trade cost reductions in a context of `trade and the environment,' we develop a two-stage game model where governments choose environmental and trade policies and firms play a Cournot-Nash game. We show that reductions in transport costs lead to lower emission taxes and higher tariffs. And, we find that the degree of pollution damage plays a central role in whether market integration is welfare-improving relative to autarky.

Kenji Fujiwara (Kwansei Gakuin University), Tsuyoshi Shinozaki (Tohoku Gakuin University), and Akihiko Yanase (Tohoku University)
gDynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protectionh
Review of Development Economics

This paper develops a two-country dynamic game model of tariff protection to reconsider optimal trade policies and their implications for welfare. We show that an import subsidy is optimal in the feedback Nash equilibria, which results in a curious possibility that the domestic market is monopolized by the foreign firm. However, welfare comparisons among Nash equilibria, free trade, and autarky reveal that feedback Nash equilibria involve higher welfare than both autarky and free trade, i.e., dynamic noncooperative choices of policy serve as tacit policy coordination and ensure larger trade gains relative to free trade.

Kenji Fujiwara (Kwansei Gakuin University)
gEnvironmental Policy and Trade Liberalization: The Case of Transboundary Pollution from Consumptionh
Natural Resource Modelling


This paper develops a reciprocal market model of international duopoly with transboundary pollution from consumption to examine the effects of bilateral tariff reductions on the equilibrium pollution tax and welfare. We show that tariff reductions induce each country to raise an emission tax and that trade liberalization is welfare-improving if the parameter of pollution damages is sufficiently large. These results are in contrast to the case of production-generated pollution and we seek the reason for this contrast.


October 2010


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

"A two-country model of trade and growth with intersectoral knowledge spillovers"

Journal of Economics


We formulate a two-country, two-good, two-factor endogenous growth model with learning by doing and intersectoral knowledge spillovers. Our model exhibits no transitional dynamics because of constant returns to capital, the existence of only one state variable for each country, and the factor price equalization theorem. By applying our model to the problem of aid and growth, we show that a permanent increase in untied aid raises the common growth rate if and only if the propensity to consume the capital-intensive good in the recipient country is larger than in the donor country.


Yuji Matsuoka (Kobe University) and Marcelo Fukushima (Kobe College)
"Time Zones, shift working and international outsourcing"
International Review of Economics & Finance, Vol. 19, Issue 4, October 2010, Pages 769-778

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We build a trade model with two identical countries located in different time zones and one sector with intermediate differentiated goods produced in two successive stages. We introduce shift working disutility that raises night wage and firms that gvirtuallyh outsource foreign labor. We found that firms only outsource if outsourcing costs are relatively low and shift disutility is high. When outsourcing occurs, it generates the highest level of welfare among production modes. Intermediate values of shift working disutility generate the lowest level of welfare. Outsourcing and domestic labor are substitutes at the firm level and complements at the economy level.

September 2010


Yuichi Furukawa (Chukyo University)
"Intellectual Property Protection and Innovation: An Inverted-U Relationship"

Economics Letters

This paper shows in an endogenous growth model without scale effects that the relationship between intellectual property protection and innovation can be inverted U-shaped. The inverted-U relationship emerges from an interaction between learning-driven and R&D-driven technological advances.


Kozo Kiyota (Yokohama National University)

gAre US Exports Different from China's Exports? Evidence from Japan's Importsh

The World Economy

Are US exports different from Chinafs exports? If so, how? This article attempts to answer this question, using product-level manufacturing import data from Japan. To make the comparison clear, this article also examines exports from the EU. The results indicate that more than 85 per cent and 83 per cent of products exported by the USA and the EU, respectively, to Japan are also commonly exported from China. Both the US and the EU export products are priced higher than Chinafs export products, regardless of industries. This result suggests that quality differences matter in explaining the high overlap of Chinafs export products with US and EU export products. In some industries, however, the price differences of US and EU exports relative to Chinafs exports are relatively small. This result implies that either Chinese firms are upgrading the quality of their products, or US and EU firms are improving their efficiencies such that they can compete with Chinese firms.


Fumio Dei (Kobe University)

gQuality of Labour Markets in a Developing Countryh

Review of International Economics


This study is an application of Yanofs market quality economics to trade. I consider the quality of labour markets in a developing country and shed light on an important role of the voting mechanism in the process in which the quality of labour markets is endogenously determined. Assuming the majority vote, I demonstrate that if the timing of voting is wrong, a developing country misses high-quality labour markets although trade provides an opportunity for it to reach high-quality labour markets.


July 2010


Kenji Fujiwara (McGill University and Kwansei Gakuin University)
gWhen are voluntary export restraints voluntary? a differential game approachh
Australian Economic Papers
We revisit voluntariness of voluntary export restraints (VERs) in a differential game model of duopoly with sticky prices. We show that a VER set at the free trade level has no effect on equilibrium under open-loop strategies while the same policy results in a smaller profit for the exporting firm, i.e. it is involuntary under a non-linear feedback strategy. Moreover, we prove an extended proposition of Dockner and Haug (1991) on voluntariness of VERs under a linear feedback strategy.

Kenji Fujiwara (McGill University and Kwansei Gakuin University)
gMarket integration, environmental policy, and transboundary pollution from consumptionh
Journal of International Trade and Economic Development
Recent empirics report that transport cost declines significantly contribute to rapidly growing world trade. This paper develops a reciprocal market model of intra-industry trade with transboundary pollution from consumption to consider how market integration in the form of transport cost reductions affects the noncooperative choice of an environmental policy and the equilibrium welfare. We show that market integration can improve welfare locally, but that welfare under any non-prohibitive trade cost can not be higher than welfare under autarky. This impossibility of trade gains exhibits a sharp contrast to the case of production-generated pollution.


Jota Ishikawa (Hitotsubashi University) and Toshihiro Okubo (Kobe University)
"Environmental Product Standards in North-South Trade"
Review of Development Economics

Consumption is one channel through which the environment is damaged. To protect the environment, various product standards have been introduced across the world. This paper uses a new economic geography framework to explore the effects of environmental product standards on environment in a North-South trade model. We examine the situation in which North unilaterally introduces an environmental product standard. Specifically, those products that do not meet the standard are not allowed to be sold in Northfs market. We find that such a standard may worsen Northfs environment but improve Southfs environment due to firm relocation.

Jota Ishikawa (Hitotsubashi University), Yoichi Sugita (Stockholm School of Economics), and Laixun Zhao (Kobe University)
"Commercial Policy and Foreign Ownership"

Review of International Economics

Foreign multinationals often not only export but also control local firms through FDI. This paper examines the various effects of trade and industrial policies when exports and FDI coexist. We focus on the case in which a foreign firm has full control of a local firm through partial ownership. Cross-border ownership on the basis of both financial interests and corporate control leads to horizontal market-linkages through which tariffs and production subsidies may harm locally-owned firms but benefit the foreign firm. Foreign ownership regulation benefits locally-owned firms. These results could have strong policy implications for developing countries that attract an increasing share of world FDI.

June 2010


Toru Kikuchi (Kobe University) and Koichi Hamada (Yale University)

gTime Preference and Trade Imbalanceh

Review of International Economics

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This paper presents a unified theory of trade and investment in the world where the rate of time preference varies between countries. In the framework proposed by Buiter (1981), we can analyze the situation where two countries have different rates of discount. Here, the value of the debt to income does not converge to zero but remains constant even in the long run. Furthermore, we show that the existence of less capital-intensive nontradables works to promote capital movements: since a more patient country incompletely specializes in less-capital intensive nontradables, capital must flow out of that country.


Toru Kikuchi (Kobe University) and Sugata Marjit (Centre for Studies in Social Science)

gGrowth with Time Zone Differencesh

Economic Modelling

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We propose a two-country growth model of intermediate business services trade that captures the role of time zone differences. It is shown that a time-saving improvement in intermediate business services trade involving production in different time zones can have a permanent impact on productivity.


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

gCompeting Industrial Standards and the Impact of Trade Liberalizationh

International Economic Journal

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The main purpose of this study is to illustrate, with simple trade theory, the relationship between competing industrial standards and trade liberalization. We assume that there are two competing industrial standards in an international context, each of which applies to a group of differentiated products. A product can be used only in combination with other products based on the same industrial standard. We examine the impact of trade liberalization (i.e., a decline in trade costs) on consumersf choice of a standard. It will be shown that the degree of indirect network effects, captured with substitution between differentiated products, plays an important role as a determinant of the impact of trade liberalization.


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

gInterregional Trade, Industrial Location and Import Infrastructureh

International Economics and Economic Policy

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The purpose of this study is to illustrate, with a simple two-region, two-good, two-factor model, how an improvement in one regionfs import infrastructure can affect firmsf location decisions and the nature of the trading equilibrium. It is shown that, through improvements in import infrastructure, one region might divert high-tech industries to another region. This effect reduces the incentive to improve import infrastructure.


Toru Kikuchi (Kobe University)

gA Simple Model of Foreign Brand Penetration under Monopolistic Competitionh

Journal of Economics


The main purpose of this study is to illustrate, with a simple monopolistic competition trade model, how trade liberalization (i.e., a decline in trade costs) can affect domestic entrepreneursf decision between providing domestic or foreign brands, and thus the degree of foreign brand penetration. It is shown that, as trade costs decrease, more entrepreneurs choose to provide foreign brands. Furthermore, it is shown that the shift to foreign brands magnifies the negative impact of trade liberalization on the profits of firms selling domestic brands.


Yoshinori Kurokawa (University of Tsukuba)
"Variety-skill complementarity: a simple resolution of the trade-wage inequality anomaly"
Economic Theory
The Stolper-Samuelson theorem predicts that the relative wage of high-skilled to low-skilled labor will increase in the high-skill abundant US but decrease in low-skill abundant Mexico after trade liberalization, while it actually began to rise in both countries in the late 1980s. We present a simple resolution of this "trade-wage inequality anomaly" in a model of variety trade. Variety trade increases the variety of intermediate goods used by the final good. If the varieties and high-skilled labor are complements, the skill premium rises in both countries. This linking of imports of new foreign varieties--the extensive margin--to wage inequality is compatible with evidence. Our numerical examples illustrate that small amounts of variety trade can produce a significant increase in relative wage.

Yoshinori Kurokawa (University of Tsukuba)
"Fixed cost, number of firms, and skill premium: An alternative source for rising wage inequality"
Economics Letters
The number of firms and the wage inequality increased in U.S. manufacturing industries after the Carter/Reagan deregulation was implemented. By extending a variety model, this paper provides a possible theoretical explanation for this observation on the basis of fixed cost.


April 2010


Jota Ishikawa (Hitotsubashi University), Hodaka Morita (University of New South Wales), and Hiroshi Mukunoki (Gakushuin University)
"FDI in Post-Production Services and Product Market Competition"
Journal of International Economics
Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign firm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited.


Seiya Fujisaki (Osaka University) and Kazuo Mino (Kyoto University)
"Long-Run Impacts of Inflation Tax with Endogenous Capital Depreciation"
Economics Bulletin
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This paper examines the long-run impact of inflation tax in the context of a generalized Ak growth model in which the rate of capital depreciation is endogenously determined. We assume that the rate of capital depreciation positively depends on capital utilization rate and negatively depends on maintenance expenditures. Money is introduced via a cash-in-advance constraint that may apply to the maintenance expenditures as well as to consumption and investment spendings. We find that the long-run effects of inflation tax are more complex than those obtained in the monetary Ak growth model with a fixed capital depreciation rate. In particular, the relation between inflation and growth is highly sensitive to the specification of the capital depreciation technology as well as to the forms of cash-in-advance constraints.


Tadashi Morita (Osaka University)
"Dynamic Analysis of Outsourcing"
Journal of Economics
This paper constructs a North-South endogenous growth model where final good producers in the North determine whether they outsource the production of intermediate goods to the South or not. When the final good producers outsource the production of intermediate goods to the Northern firms, the price of intermediate goods is high, whereas the cost of outsourcing is low. On the other hand, when they outsource to the Southern firms, the price of intermediate goods is low, whereas the cost of outsourcing is high. Using this model, this paper analyzes not only steady state but also transition path. This paper investigates that, as the economy develops, the wage inequality between the North and the South widens and that the outsourcing location for the Northern final good producers switches from the North to the South.


Hiroshi Kurata (Tohoku Gakuin University), Takao Ohkawa (Ritsumeikan University), and Makoto Okamura (Hiroshima University)

"Market Size and Firm Location in a Service Industry"
Review of International Economics
This paper investigates the welfare effects of firm location in a service industry. We consider the situation where firms determine their locations in either of two regions with a difference in market size. From the viewpoint of the consumersf welfare, there are too few firms in the large market and too many in the small market. However, from the viewpoint of the producersf and social welfare, the opposite is true. Further, an increase in the difference in market size is unambiguously unfavorable for the producers. On the other hand, such an increase is favorable for the consumers and the economy as a whole.


March 2010


Yasushi Kawabata (Mie University), Akihiko Yanase (Tohoku University), and Hiroshi Kurata (Tohoku Gakuin University)

gVertical Trade and Free Trade Agreementsh

Journal of the Japanese and International Economies


We investigate the effects of free trade agreements (FTAs) on tariffs and welfare in vertical trade. We consider a three-country model where an FTA is formed between a country exporting a final good and a country exporting an intermediate good. The FTA unambiguously leads to a reduction in the member countryfs tariff, but may cause the non-member countryfs tariff level to increase. In the case where FTA raises the non-member countryfs tariff level, the FTA increases that countryfs welfare. In contrast, the FTA may render its member countries better off. This result implies that the formation of an FTA may not always be Pareto-improving.


Yasushi Kawabata (Mie University)

gStrategic Export Policy in Vertically Related Marketsh

Bulletin of Economic Research


This paper analyses how strategic export policies are affected by introducing an imperfectly competitive intermediate good into a Bertrand duopoly model with product differentiation, where a home and a foreign final-good firm export to a third-country market. It is shown that when the home and foreign markets for the intermediate good are segmented, the optimal export policy towards the final good is a tax. In contrast, under integrated markets, the optimal export intervention is a subsidy. Whether bilateral export intervention is welfare improving compared with free trade, depends on the degree of product differentiation between the home and foreign final goods. 


Dao-Zhi Zeng (Tohoku University) and Laixun Zhao (Kobe University)

"Globalization, Interegional and International Inequalities"

Journal of Urban Economics


This paper examines the impact of globalization on interregional and international inequalities in a setup of two countries and four regions, under international mobility of capital. In contrast to the literature, countries and regions are not required to be symmetric. We find that the aforementioned inequalities are closely related to the country size, region size, the degree of globalization (e.g., capital mobility and trade costs) and the level of local infrastructure. In particular, international trade behaves as a dispersion force when capital is internationally mobile for small countries such that reducing domestic transport costs lowers its interregional inequality, but the opposite can be true for large countries or when capital is internationally immobile.


Arijit Mukherjee (University of Nottingham) and Laixun Zhao (Kobe University)

"Profit Raising Entry"

Journal of Industrial Economics


Common wisdom suggests that entry reduces profits of incumbent firms. On the contrary, we demonstrate that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, then entry may benefit the cost efficient incumbents while hurting the cost inefficient ones. And the total outputs of all incumbents may be higher under entry.


Morihiro Yomogida (Sophia University) and Laixun Zhao (Kobe University)

"Offshore Outsourcing, International Migration, and Wage Inequality"

Southern Economic Journal


This paper develops a general equilibrium model with a vertical production structure to examine the relationship between offshore outsourcing and international migration, especially emphasizing their effects on the wages of skilled and unskilled workers. Outsourcing in skilled-labor intensive services arises due to product differentiation and scale economies, and outsourcing in unskilled-labor intensive processing occurs because of factor endowment differences. This tractable model allows us to rank outsourcing and migration, according to the wages of both types of workers. We also examine whether offshore outsourcing and international migration are complements or substitutes.


Makoto Okamura (Hiroshima University) and Laixun Zhao (Kobe University)

"Competing to Outsource in the South"

Review of International Economics


This paper analyzes foreign-direct-investment (FDI) competition in a three-country framework: two Northern countries and one Southern country. We have in mind the competition of Airbus and Boeing in a developing country. The host-country government endogeneizes tariffs, while Airbus and Boeing choose domestic output and FDI. Wages and employment in the home countries are negotiated. We find that in the unique equilibrium, both Airbus and Boeing compete to undertake FDI in the developing country. This arises because the host country can play off the multinationals, which in turn stems from three factors: (a) Oligopolistic rivalry; (b) Quid prod quo FDI; (c) Strategic outsourcing—FDI drives down the union wages at home if the host-country wage is sufficiently low. However, if the host-country wage is sufficiently high, the union wage increases under FDI. In such cases, FDI competition benefits the multinationals, the labor unions, as well as the host country.


February 2010


Kenji Fujiwara (McGill University and Kwansei Gakuin University) and Tsuyoshi Shinozaki (Tohoku Gakuin University)
gThe Closed-Loop Effects of Market Integration in a Dynamic Duopolyh
Australian Economic Papers
This paper develops a dynamic game model of reciprocal dumping to reconsider welfare effects of market integration, i.e., reductions in transport costs. We show that welfare under trade is unambiguously less than welfare under autarky for any level of transport costs, which is impossible in static models where trade is gainful if the transport cost is low enough. This is because the negative effect through closed-loop property of feedback strategies dominates the positive effects.

Elias Dinopoulos (University of Florida), Kenji Fujiwara (McGill University and Kwansei Gakuin University), and Koji Shimomura (Kobe University)
gInternational Trade under Quasi-Linear Preferencesh
Review of Development Economics
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We analyze formally the pattern and volume of trade by embedding quasi-linear preferences in the standard perfectly-competitive, two-factor, two-sector, and two-country trade model. Quasi-linear preferences classify the two products into a luxury (income sensitive) and a necessity (income insensitive) one and preserve the traditional Heckscher-Ohlin and Heckscher-Ohlin-Vanek theorems: a country exports the good that uses intensively its abundant factor of production and exports factor services associated with its abundant factor of production. The predicted factor content of trade under quasi-linear preferences is smaller (larger) than the predicted factor content of trade under homothetic preferences if and only if the luxury good is capital (labor) intensive. This result offers a novel explanation for the gmissing-tradeh mystery.


January 2010


Kozo Kiyota (Yokohama National University) and Tetsuji Okazaki (University of Tokyo)

"Industrial Policy Cuts Two Ways: Evidence from Cotton Spinning Firms in Japan, 1956-1964"
Journal of Law and Economics
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A number of studies have revealed that the effect of industrial policy on productivity growth is negative. Is this because industrial policy fails to control the activities of firms, or because it can effectively control them? This paper attempts to answer these questions, using firm-level data from the cotton spinning industry in Japan for the period 1956-64. It has been determined that industrial policy cut two ways during this period. Industrial policy effectively controlled the output of cotton spinning firms, which contributed to the establishment of a stable market structure during the period. On the flip side, such policy constrained the reallocation of resources from less productive large firms to more productive small firms. Combined with the negative productivity growth of large firms during this period, industrial policy resulted in negative industry productivity growth.