2012

Yasushi Kawabata Journal of International Trade & Economic Development

Seiya Fujisaki Economics Bulletin

Shigeto Kitano and Kenya Takaku International Review of Economics and Finance

Kazuharu Kiyono and Jota Ishikawa Japanese Economic Review

Akihiko Yanase, Review of International Economics

Akihiko Yanase, Hiroshi Kurata, and Yasushi Kawabata Review of International Economics

Takashi Kamihigashi International Journal of Economic Theory

Tadashi Morita Review of International Economics

Tadashi Morita Journal of Macroeconomics

Kazuharu Kiyono and Jota Ishikawa International Economic Review

Takumi Naito International Tax and Public Finance

Yuji Matsuoka and Toru Kikuchi Pacific Economic Review

Eric W. Bond, Kazumichi Iwasa and Kazuo Nishimura Macroeconomic Dynamics

Eric W. Bond, Kazumichi Iwasa and Kazuo Nishimura International Journal of Economic Theory

Kazuo Mino and Yasuhiro Nakamoto Mathematical Social Sciences
Angus C. Chu and Yuichi Furukawa Southern Economic Journal

Masahiko Shibamoto and Shigeto Kitano Pacific Economic Review

Tsuyoshi Toshimitsu Open Economies Review

Seiya Fujisaki Economics Bulletin

Akihiko Yanase and Makoto Tawada International Economic Review

Kozo Kiyota Oxford Economic Papers

Jota Ishikawa and Eiji Horiuchi Economic Record

December 2012

Yasushi Kawabata (Nagoya City University)

“The effects of cross-regional free trade agreements under a vertical industry structure”

Journal of International Trade & Economic Development

This paper examines the effects of a cross-regional free trade agreement (FTA) on tariffs, welfare, and the incentives for multilateral free trade in a three-country model with a vertical industry structure. We show that the FTA induces member countries to reduce their tariffs on nonmember countries. On the other hand, a nonmember country lowers its tariff on final-good imports, but raises its tariff on intermediate-good imports. Also, the FTA makes member and nonmember countries better off. After the FTA is enacted, member and nonmember countries have an incentive to support multilateral free trade, so an FTA acts as a building block for multilateral trade liberalization.

November 2012

Seiya Fujisaki (Shinshu University)

“Economic Stability and Interest-Rate Controls in an Open-Economy Model with Productive Money”

Economics Bulletin, Vol. 32 No. 4 pp. 3053-3060

We analyze the relation between interest-rate controls and equilibrium determinacy in a two-country model in which money is employed as a factor of production. Given this specification, holding cash generates an opportunity cost. Therefore, equilibrium can be indeterminate even if both countries demonstrate additive-separable utilities between consumption and non-productive money.

Shigeto Kitano (Kobe University) and Kenya Takaku (Nagoya University)
“An Optimal Government Spending Reversal Rule in a Small Open Economy”
International Review of Economics and Finance
This paper presents a reexamination of debt stabilization policy in a small open economy borrowing from abroad. Spending reversals are incorporated as a policy option available to policy-makers for stabilizing public debt. Results show that a spending reversal rule can be welfare-improving and that there exists an optimal degree of spending reversal. An optimal spending reversal rule can lower both the tax rate volatility and interest rate volatility compared with the case without the reversal rule. Results also suggest that, as friction in foreign borrowing becomes greater (because of a higher country-specific interest rate premium), the welfare benefit of the reversal rule will be increasingly important.

Kazuharu Kiyono (Waseda University) and Jota Ishikawa (Hitotsubashi University),

“Reexamination of Strategic Public Policies”
Japanese Economic Review

This paper attempts to reinterpret the familiar approach to strategic public policies from the viewpoint of inefficiencies involved in oligopoly where firms engage in Cournot competition. To this end, we introduce tools called "quasi-reaction functions" and "quasi-supply curves". These tools allow us to conduct analyses by using the standard partial equilibrium diagram, i.e., the quantity-price plane. We can directly find the relationship between prices and quantities and hence easily deal with inefficiencies and policies to correct them. We specifically reexamine public policies related to mixed-oligopoly, excess entry, technology choices with free entry and exit, and foreign oligopoly.

October 2012

Akihiko Yanase (Tohoku University)
“Trade and Global Pollution in Dynamic Oligopoly with Corporate Environmentalism”
Review of International Economics
This paper examines the effects of international trade in the presence of dynamic oligopolistic competition where the stock of global pollution has a negative welfare effect and the oligopolists' objectives may include society's pollution damage as well as private profits. In a symmetric case where the number of firms, emission coefficient, and firms' environmental consciousness are the same in two countries, an opening of trade unambiguously improves each country's welfare in the short run. In the long run, however, trade increases the stock of global pollution and hence, whether opening of trade is beneficial depends on the parameters of the economy. If there are asymmetries between countries, the short-run gains from trade in both countries are not necessarily guaranteed, because trade liberalization may increase output in one country and reduce it in the other. Moreover, free trade may result in lower pollution stock than under autarky.

Akihiko Yanase (Tohoku University), Hiroshi Kurata (Tohoku Gakuin University), and Yasushi Kawabata (Nagoya City University)
“Free Trade Agreement and Vertical Trade with a Manufacturing Base”
Review of International Economics
We examine the effects of free trade agreement (FTA) on tariffs and welfare in a three-country model with vertical trade, where an FTA is formed between a country exporting a final good whose production involves using an intermediate good, and a country exporting the intermediate good in exchange for the final good. We demonstrate that the FTA reduces its member country's external tariff, whereas it raises the non-member country's tariff. The non-member country unambiguously becomes better off. In contrast, the FTA may or may not make its member countries better off. This implies that the formation of an FTA may not always be Pareto-improving.

Takashi Kamihigashi (Kobe University)

“Ergodic Chaos and Aggregate Stability: A Deterministic Discrete-Choice Model of Wealth Distribution Dynamics”
International Journal of Economic Theory
This paper studies wealth distribution dynamics in a small open economy with a continuum of consumers indexed by initial wealth. Each of them solves a discrete-choice problem whose optimal policy function exhibits ergodic chaos. We show that for any initial distribution of wealth given by a density, the wealth distribution converges to a unique invariant distribution, and aggregate wealth converges to the corresponding value. Thus ergodic chaos leads to aggregate stability rather than instability. These results are illustrated with various numerical examples.

August 2012

Tadashi Morita (Osaka Gakuin University)

“Cost-reducing R&D investment, Labor market, and Trade”

Review of International Economics (2012 20:821-827)

This paper constructs a two-country model in which oligopolistic firms export goods and undertake cost-reducing R&D investment. Each country imposes tariffs. A decrease in the tariff rates in both countries decreases cost-reducing R&D investment.

Tadashi Morita (Osaka Gakuin University)

“Dynamic analysis of location choice by multinational firms”

Journal of Macroeconomics

This paper constructs a North–South endogenous growth model to investigate how the organizational forms of final goods firms evolve. Initially, the final goods firms in the North obtain intermediate goods from Northern firms and produce in the North. When trade costs are sufficiently low, as the economy develops, the final goods firms produce the final goods in the North and obtain the intermediate goods from Southern firms. As the economy develops further, they produce the final goods in the South and obtain intermediate goods from Southern firms.

Kazuharu Kiyono (Waseda University) and Jota Ishikawa (Hitotsubashi University)
“Environmental Management Policy under International Carbon Leakage”
International Economic Review
This paper studies environmental management policy when two fossil-fuel-consuming countries non-cooperatively regulate greenhouse-gas emissions through emission taxes or quotas. The presence of carbon leakage caused by fuel-price changes affects the tax-quota equivalence. We explore each country's incentive to choose a policy instrument in a two-stage policy choice game and find subgame-perfect Nash equilibria. This sheds new light on the questions of which policy instrument is more stringent and of why adopted instruments could be different among countries. In particular, our result suggests a reason why developing countries tend to employ emission taxes, while developed countries tend to adopt emission quotas.

Takumi Naito (Waseda University)
“Aid for trade, infrastructure, and growth”
International Tax and Public Finance
Aid for trade is a new foreign aid initiative to assist recipient countries to build trade-related infrastructure. We formulate a small-country, two-good (i.e., investment and consumption goods), two-factor (i.e., capital and labor) endogenous growth model with learning by doing and intersectoral knowledge spillovers, where the import transport cost depends inversely on public infrastructure. Focusing on the case where the country is incompletely specialized and imports the investment good, we show that a permanent increase in the recipient's aid/GDP ratio raises the steady-state growth rate if and only if the investment good is more labor-intensive.

July 2012

Yuji Matsuoka (Kobe University) and Toru Kikuchi (Kobe University)
“Footloose Capital and Comparative Advantage”
Pacific Economic Review
We investigate the effect of country size differentials and Ricardian technology differences on firms’ location decisions using a two-country, two-good (homogeneous agricultural good and differentiated manufacturing products), two-factor (labor and footloose capital) simple New Economic Geography (NEG) model. We found that manufacturing firms may agglomerate in a country where the manufacturing sector has a comparative disadvantage. Additionally, when country size differentials and Ricardian technology differences exist between two countries, the key factor influencing firms’ location decisions changes according to the level of trade liberalization, from being market size-dependent to becoming technology-dependent.

June 2012

Eric W. Bond (Vanderbilt University), Kazumichi Iwasa (Kyoto University) and Kazuo Nishimura (Kyoto University)
“Poverty traps and inferior goods in a dynamic Heckscher–Ohlin model”
Macroeconomic Dynamics
We extend the dynamic Heckscher–Ohlin model in Bond et al. [Economic Theory(48, 171–204, 2011)] and show that if the labor-intensive good is inferior, then there may exist multiple steady states in autarky and poverty traps can arise. Poverty traps for the world economy, in the form of Pareto-dominated steady states, are also shown to exist. We show that the opening of trade can have the effect of pulling the initially poorer country out of a poverty trap, with both countries having steady state capital stocks exceeding the autarky level. However, trade can also pull an initially richer country into a poverty trap. These possibilities are a sharp contrast with dynamic Heckscher–Ohlin models with normality in consumption, where the country with the larger (smaller) capital stock than the other will reach a steady state where the level of welfare is higher (lower) than in the autarkic steady state.

Eric W. Bond (Vanderbilt University), Kazumichi Iwasa (Kyoto University) and Kazuo Nishimura (Kyoto University) 
“The dynamic Heckscher–Ohlin model: A diagrammatic analysis”
International Journal of Economic Theory
In this paper, we show that the main results of dynamic Heckscher–Ohlin models (with non-homothetic preferences) can be derived from diagrams which represent the basic functions in static models such as the Rybczynski line, income expansion paths, and excess demand functions at steady states. Results include not only the existence and the multiplicity of steady states in autarky and under free trade, but also their stabilities and the static and dynamic Heckscher–Ohlin theorems.

May 2012

Kazuo Mino (Kyoto University) and Yasuhiro Nakamoto (Kyushu Sangyo University)
“Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents”
Mathematical Social Sciences
This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogenous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if the intragroup externalities dominate the intragroup external effects, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, if the intergroup external effects of consumption are strong enough, the steady state equilibrium is either unstable or locally indeterminate. Using analytical as well as numerical considerations, we present intuitive implications of stability conditions.

Angus C. Chu (Durham University, Shanghai University of Finance and Economics) and Yuichi Furukawa (Chukyo University, Simon Fraser University)
“Patentability and Knowledge Spillovers of Basic R&D”
Southern Economic Journal
This study develops an R&D-based growth model with basic and applied research to analyze the growth and welfare effects of two patent instruments: (a) the patentability of basic R&D, and (b) the division of profit between basic and applied researchers. We find that for the purpose of stimulating basic R&D and economic growth simultaneously, increasing the share of profit assigned to basic researchers is more effective than raising the patentability of basic R&D, which has either a negative effect or an inverted-U effect on technological progress. However, a benevolent patent authority requires both patent instruments to achieve the socially optimal allocation in the decentralized economy.

Masahiko Shibamoto (Kobe University) and Shigeto Kitano (Kobe University)
“Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries”
Pacific Economic Review
Lee and Chinn (2006) and Chinn and Lee (2009) decomposed current account and real exchange rate into temporary and permanent shocks and argued that a temporary shock creates the combination of a current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper extends their framework by examining a possible structural break in current account and real exchange rate dynamics. Using G7 country data for 1980--2007, we find structural changes in two-variable dynamics for all G7 countries during the 1990s. Temporary shocks have not been the main source of fluctuation in the current account since the 1990s. Our empirical results imply that the conventional mechanism has played a limited role in explaining the dynamics of the two variables.

April 2012

Tsuyoshi Toshimitsu (Kwansei Gakuin University)

“A note on the endogenous timing of tariff policy in the presence of a time lag between production and trade decisions”

Open Economies Review

Using the Hamilton–Slutsky extended endogenous timing game of observable delay framework, we analyze the endogenous timing of tariff policy in the presence of a time lag between production and trade decisions. In particular, focusing on the strategic relationships between an importing country’s government and an exporting monopoly firm, we show that a natural Stackelberg situation exists in which the importing country’s government as first mover determines the tariff rate and the exporting monopoly firm as second mover determines the production level. We also find that the natural Stackelberg equilibrium is Pareto superior to both the Nash and alternative Stackelberg equilibria. This implies that commitment to an ex ante optimal tariff policy before the production decision is made is optimal for the affected parties.

March 2012

Seiya Fujisaki (Shinshu University)

“Optimal fiscal policy with social status and productive government expenditure”

Economics Bulletin
We examine the optimal tax rule in an endogenous growth model with public capital and wealth-enhanced social status. When government expenditure is productive, the equality of marginal productivities of private and public capital holds. Wealth-induced preference can violate this equality, since the marginal utility from private capital is also a value of private capital. We obtain the optimal fiscal policy in which the positive income tax rate is higher than the subsidy rate for saving but is lower than the tax rate in the case without social-status preference.

February 2012

Akihiko Yanase (Tohoku University) and Makoto Tawada (Nagoya University)
“History-Dependent Paths and Trade Gains in a Small Open Economy with a Public Intermediate Good”
International Economic Review
This study reexamines McMillan's (International Economic Review 19 (1978), 665-78) analysis of a dynamic small open economy with a public intermediate good. Concerning the trade patterns of the open economy, we find results that were overlooked in McMillan's analysis. Among others, if labor endowment is of intermediate size, there are two saddle-point steady states, and the initial stock of the public good determines the long-run trade pattern. We also add a gains-from-trade analysis to McMillan's model and demonstrate that if the economy has a comparative advantage in a good with productivity less sensitive to the public intermediate good, the economy may lose from trade at the steady state.

Kozo Kiyota (Yokohama National University)

“Trade liberalization, economic growth, and income distribution in a multiple-cone neoclassical growth model”
Oxford Economic Papers
The empirical literature on trade liberalization reflects two puzzles. First, the effect of trade liberalization on economic growth is ambiguous. Second, the effect of trade liberalization by developing countries on their income distribution is ambiguous. This paper attempts to explain simultaneously these two puzzles, based on a multiple-cone neoclassical growth model. The model shows that countries that are labour abundant in a global sense may see a rise in income inequality and a fall in per capita gross domestic product with liberalization if they are capital abundant in a local sense. The results suggest that the existence of multiple cones and the multiple steady states within the same cone, or the existence of global and local factor abundances, can be a possible explanation of these puzzles.

January 2012

Jota Ishikawa (Hitotsubashi University and RIETI) and Eiji Horiuchi (Teikyo University)
“Strategic Foreign Direct Investment in Vertically Related Markets”
Economic Record
By using a simple North-South trade model with vertically related markets, this paper draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether the North firm strategically undertakes FDI in the presence of technology spillovers depends on South firm's capacity to absorb North's technology. When the capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers.