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)
gThe Welfare Effect of a Free Trade Agreement in the Presence of Foreign Direct Investment and Rules of Originh
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 firmsf 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)

gStrategic trade policy and network compatibilityh

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)
gRules of Origin and Technology Spillovers from Foreign Direct Investment under International Duopolyh
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)
gExchange Rate Regimes and Wage Comovements in a Ricardian Model with Moneyh
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)
gAid for trade and global growthh
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)
gAn Eaton-Kortum model of trade and growthh
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)
gThe Impact of Trade Margins on the Skill Premium: Evidence from Mexicoh
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)
gInfinite-Horizon Deterministic Dynamic Programming in Discrete Time: A Monotone Convergence Principle and a Penalty Methodh
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)

gPrice and quantity competition in a differentiated duopoly with network compatibility effectsh

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)
gTrade and the Emissions Trading System in a Small Open Economyh
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)
gInternational Transmission of Bubble Crashes in a Two-Country Overlapping Generations Modelh
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)
gSeeking Ergodicity in Dynamic Economiesh
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)

gOptimal timing of advertising with demand spilloversh

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)

gGreenhouse-Gas Emission Controls and Firm Locations in North–South Tradeh

Environmental and Resource Economics

http://link.springer.com/article/10.1007/s10640-015-9991-0

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 (eNorthf and eSouthf), 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.