2016
Hiroshi Mukunoki Review
of International Economics
Tsuyoshi Toshimitsu Journal of Industry, Competition
and Trade
Naoto Jinji and Yoshihiro Mizoguchi Japan and the
World Economy
Yoshinori Kurokawa, Jiaren Pang, and Yao Tang Journal of International Economics
Takumi Naito Review of International
Economics
Takumi Naito Canadian Journal of
Economics
Manoj Atolia and Yoshinori Kurokawa Journal
of Policy Modeling
Takashi Kamihigashi and Masayuki Yao Optimization
Tsuyoshi Toshimitsu Japanese Economic Review
Yasuhiro Takarada, Masafumi Tsubuku, and Madoka Okimoto Environmental Economics and Policy Studies
Lise Clain-Chamosset-Yvrard and Takashi Kamihigashi Journal of Mathematical Economics
Takashi Kamihigashi and John Stachurski Journal of Economic Theory
Tsuyoshi Toshimitsu Journal of Industry, Competition and Trade
Jota Ishikawa and Toshihiro
Okubo Environmental and Resource Economics
Angus C. Chu, Guido Cozzi, and Yuichi Furukawa Journal of Economic
Dynamics and Control
December 2016
Hiroshi Mukunoki (Gakushuin University)
“The Welfare Effect of a Free Trade Agreement in the Presence of Foreign Direct
Investment and Rules of Origin”
Review of International Economics
This paper investigates
the welfare effect of forming a free trade agreement (FTA). To receive
tariff-free treatment, firms must comply with the rules of origin (ROO).
Outside firms could undertake either market-oriented or export-platform foreign
direct investments (FDIs). ROO have the following effects: (i) An infeasible
FTA may become feasible by deterring outside firms’ FDIs, (ii) an FDI of a less
efficient firm could replace that of an efficient firm, or (iii) FDIs made
before the FTA is concluded might be eliminated. These potential effects
complicate the welfare effect of the FTA and could decrease the consumer
surplus in member countries.
November 2016
Tsuyoshi Toshimitsu (Kwansei Gakuin
University)
“Strategic trade policy and network
compatibility”
Journal of Industry, Competition and Trade
We consider strategic trade
policy for information and communication technology (ICT) product markets with
international rivalry. Usually, ICT products exhibit network externalities and
product compatibility (i.e., network compatibility). We demonstrate that the
optimal strategic trade policy depends on the degree of network compatibility
of ICT products. Furthermore, using an endogenous decision game for strategic
variables (i.e., quantity and price), we consider the relationship between the
optimal strategic trade policies and the endogenous mode of competition.
October 2016
Naoto Jinji (Kyoto University) and Yoshihiro Mizoguchi
(Teikyo University)
“Rules of Origin and Technology Spillovers from Foreign Direct Investment under
International Duopoly”
Japan and the World Economy
Using a simple
three-country model of international duopoly, this study analyzes the optimal
choice of rules of origin (ROO) in a free trade area/agreement (FTA) when firms
from outside the FTA must undertake foreign direct investment (FDI) in FTA
countries and conduct part of their production process within the FTA to comply
with the ROO. FDI causes spillovers of the superior production technology from
a non-FTA firm to its competitor within the FTA, depending on how much of the
production process is shifted to the FTA area. In this situation, this study
predicts that as the degree of multilateral trade liberalization before
formation of the FTA is higher, the optimal ROO tends to be less stringent.
August 2016
Yoshinori Kurokawa (University of Tsukuba), Jiaren Pang
(Tsinghua University), and Yao Tang (Bowdoin College)
“Exchange Rate Regimes and Wage Comovements in a Ricardian Model with Money”
Journal of International Economics
We construct a
Ricardian model of trade with money and trade costs. The model predicts that
the nominal wages of the trading countries exhibit stronger positive
comovements when the countries fix their bilateral exchange rates, while
comovements of real wages are not affected by exchange rate regimes. Our
numerical experiments suggest that a reduction in trade costs increases both
nominal and real wage comovements, regardless of regimes. When downward nominal
wage rigidity is introduced, nominal wage comovements under the fixed regime
remain stronger than under the flexible regime and the difference is smaller on
the shorter time horizon, while a slight difference in real wage comovements
between the two regimes shows up and is larger on the shorter time horizon.
When we consider membership in the Economic and Monetary Union of the European
Union as a fixed exchange rate regime, panel regression results based on data
from OECD countries are broadly consistent with our model and numerical
experiments.
June 2016
Takumi Naito (Waseda University)
“Aid for trade and global growth”
Review of International Economics
Aid for trade
increases a recipient's public services, which lower its import and export
transport costs. Formulating a two-country endogenous growth model, we obtain
two main results. First, a permanent increase in the donor's aid/GDP ratio
raises the steady-state growth rate as well as both countries' long-run
fractions and cost shares of imported varieties if and only if it lowers the
product of transport costs. Second, under a plausible condition, there exists a
unique interior growth-maximizing aid/GDP ratio. These results are robust to
alternative specifications for congestion and stock-flow nature of public
goods.
Takumi Naito (Waseda University)
“An Eaton-Kortum model of trade and growth”
Canadian Journal of Economics
We combine a
multi-country, continuum-good Ricardian model of Eaton and Kortum (2002) with a
multi-country AK model of Acemoglu and Ventura (2002) to examine how trade
liberalization affects countries' growth rates and extensive margins of trade
over time. Focusing on the three-country case, we obtain three main results.
First, a permanent fall in any trade cost raises the balanced growth rate.
Second, trade liberalization increases the liberalizing countries' long-run
fractions of exported varieties to all destinations. Third, the long-run
effects of trade liberalization are different from its short-run effects, which
can reverse the welfare implications of the static Eaton-Kortum model.
May 2016
Manoj Atolia (Florida State University) and Yoshinori
Kurokawa (University of Tsukuba)
“The Impact of Trade Margins on the Skill Premium: Evidence from Mexico”
Journal of Policy Modeling
This paper
formulates a static applied general equilibrium model of a small open economy
and then calibrates it to the Mexican input-output matrix for 1987. We use the
calibrated model to quantify how much of the dramatic rise in the skill premium
over the period 1987-1994, following the liberalization of the trade policy in
Mexico, can be accounted for by the change in the extensive margin of trade or
trade variety. Our numerical experiments show that the increase in the
extensive margin of Mexican manufactured trade with the U.S. can account for up
to approximately 12 percent of the actual increase in skill premium in Mexico
from 1987 to 1994.
Takashi Kamihigashi (Kobe University) and Masayuki Yao
(Keio University)
“Infinite-Horizon Deterministic Dynamic Programming in Discrete Time: A
Monotone Convergence Principle and a Penalty Method”
Optimization
We consider
infinite-horizon deterministic dynamic programming problems in discrete
time. We show that the value function of such a problem is always a fixed
point of a modified version of the Bellman operator. We also show that
value iteration converges increasingly to the value function if the initial
function is dominated by the value function, is mapped upward by the modified
Bellman operator, and satisfies a transversality-like condition. These
results require no assumption except for the general framework of
infinite-horizon deterministic dynamic programming. As an application, we
show that the value function can be approximated by computing the value
function of an unconstrained version of the problem with the constraint
replaced by a penalty function.
Tsuyoshi Toshimitsu (Kwansei Gakuin University)
“Price and quantity competition in a differentiated
duopoly with network compatibility effects”
Japanese Economic Review
We consider the efficiency of
price and quantity competition in a network products market, where we observe
product compatibility with network externalities (hereafter, network
compatibility effects). In particular, if network compatibility effects between
firms are sufficiently asymmetric, the Cournot equilibrium is more efficient
than the Bertrand equilibrium in terms of larger consumer, producer, and total
surpluses. Then, we consider an endogenous choice of the strategic variables,
price and quantity. If the degree of network compatibility effects of the rival
firm is larger (smaller) than the degree of product substitutability, then
choosing price (quantity) is a dominant strategy for the firm. Thus, if the
network compatibility effects of both firms are larger (smaller), the Bertrand
(Cournot) equilibrium arises. Furthermore, if the network compatibility effects
between the firms are sufficiently asymmetric, the firm with a larger (smaller)
network compatibility effect than a certain level of product substitutability
chooses quantity (price). In this case, the Cournot−Bertrand equilibrium arises
which is less (more) efficient than the Cournot equilibrium in terms of
consumer (producer) surplus.
April 2016
Yasuhiro Takarada (Nanzan University and University of
British Columbia), Masafumi Tsubuku (Nagoya University), and Madoka Okimoto
(University of Shizuoka)
“Trade and the Emissions Trading System in a Small Open Economy”
Environmental Economics and Policy
Studies
To control
greenhouse gas emissions efficiently, we should regulate all pollution emission
sources in the economy equally. However, in the real world, environmental
regulations differ by sector. Using a small open economy model, this paper
examines how the enforcement of an economy-wide emissions trading system (ETS)
(i.e., uniform environmental regulation) affects welfare under a trade policy
where the government initially implements different environmental regulations
across sectors. It is important to consider this relation between environmental
regulations and trade policy because countries tend to impose weak
environmental regulations in sectors facing global competition often protected
by import tariffs. We find that an economy-wide ETS may harm a small open
economy even under a low import tariff rate as long as the environmental
regulation in the exporting industry is weaker than in the importing industry.
To avoid welfare deterioration, the government should then decrease the import
tariff rate in line with mitigation of the sectoral differences in
environmental regulation.
March 2016
Lise Clain-Chamosset-Yvrard (Aix-Marseille University,
CNRS-GREQAM and EHESS) and Takashi Kamihigashi (Kobe University)
“International Transmission of Bubble Crashes in a Two-Country Overlapping
Generations Model”
Journal of Mathematical Economics
We study the
international transmission of bubble crashes by analyzing stationary sunspot
equilibria in a two-country overlapping generations exchange economy with
stochastic bubbles. We consider two cases of sunspot shocks. In the
first case, we assume that only the foreign country receives a sunspot shock,
while in the second, we assume that both countries independently receive
sunspot shocks. In the first case, a bubble crash in the foreign country
is always accompanied by a bubble crash in the home country. In the second
case, a bubble crash in the foreign country can have a positive or negative
effect on the home bubble. We also show that there exists a unique locally
isolated stationary sunspot equilibrium, and that it is locally unstable.
Takashi Kamihigashi (Kobe University) and John Stachurski
(Australian National University)
“Seeking Ergodicity in Dynamic Economies”
Journal of Economic Theory
In estimation and
calibration studies, the convergence of time series sample averages plays a
central role. At the same time, a significant number of economic models do not
satisfy the classical ergodicity conditions. Motivated by existing work on
asymptotics of stochastic economic models, we develop a new set of results on
limits of sample moments and other sample averages using an order-theoretic
approach. Our results include a condition that is necessary and sufficient for
convergence over a broad class of moment functions. We discuss implications,
sufficient conditions and a range of economic applications.
February 2016
Tsuyoshi Toshimitsu (Kwansei Gakuin University)
“Optimal timing of advertising with demand spillovers”
Journal of Industry, Competition and Trade
We construct a model of a
horizontally differentiated duopoly with demand spillovers in which advertising
influences the willingness-to-pay of consumers for products and thereby affects
not only market share, but also the level of market demand. Furthermore, firms
decide the timing as well as the level of advertising. We first derive a
subgame perfect Nash equilibrium and Stackelberg equilibria in the advertising
competition. Then, using the framework of an endogenous timing decision game
with an observable delay (i.e., Hamilton and Slutsky, 1990), we consider the
optimal timing of advertising. We demonstrate that the optimal timing depends
on the degree of demand spillovers and the product substitutability. In
particular, if there are sufficient asymmetric demand spillovers between firms,
there is a unique Stackelberg equilibrium in the advertising competition, in
which the firm providing the product with small (large) demand spillovers
chooses to invest in advertising early (late), regardless of the mode of
competition.
January 2016
Jota Ishikawa (Hitotsubashi University) and Toshihiro
Okubo (Keio University)
“Greenhouse-Gas Emission Controls and Firm Locations in
North–South Trade”
Environmental and Resource Economics
http://link.springer.com/artic
This paper studies
greenhouse-gas emission (GHG) controls in the presence of international carbon
leakage through international firm relocation. In a new economic geography
model with two countries (‘North’ and ‘South’), only North sets a target for
GHG emissions. We compare the consequences of emission quotas and emission
taxes under trade liberalization on location of two manufacturing sectors with
different emission intensities and degrees of carbon leakage. With low trade costs,
further trade liberalization increases global emissions by facilitating carbon
leakage. Regulation by quotas leads to spatial sorting, resulting in less
carbon leakage and less global emissions than regulation by taxes.
Angus C. Chu
(University of Liverpool), Guido Cozzi (University of St. Gallen), Yuichi
Furukawa (Chukyo University)
"Unions, Innovation, and Cross-Country Wage Inequality"
Journal of Economic Dynamics and Control
This study explores the macroeconomic effects of
labor unions in a two-country R&D-based growth model in which the market
size of each country determines the incentives for innovation. We find that an
increase in the bargaining power of a wage-oriented union leads to a decrease
in employment in the domestic economy. This result has two important
implications on innovation. First, it reduces the rates of innovation and
economic growth. Second, it causes innovation to be directed to the foreign
economy, which in turn causes a negative effect on domestic wages relative to
foreign wages in the long run. We also derive welfare implications and
calibrate our model to data in the US and the UK to quantify the effects of
labor unions on social welfare and wage inequality across countries. Our
calibrated model is able to explain about half of the decrease in relative wage
between the US and the UK from 1980 to 2007. Furthermore, the decrease in
unions' bargaining power leads to quantitatively significant welfare gains in
the two countries.