Jota Ishikawa and Nori Tarui Journal of International Economics

Ryo Arawatari, Takeo Hori, and Kazuo Mino Journal of Monetary Economics

Takashi Kamihigashi Mathematical Social Sciences

Carmen Camacho, Takashi Kamihigashi, and Cagri Saglam Journal of Economic Theory

Rui Wan, Minoru Nakada, and Yasuhiro Takarada R esource and Energy Economics

Shigeto Kitano and Kenya Takaku Economic Inquiry

Tsuyoshi Toshimitsu Journal of Industry, Competition and Trade

  Kazunobu Hayakawa, Nuttawut Laksanapanyakul, Hiroshi Mukunoki, and Shujiro Urata World Bank Economic Review

Shigeto Kitano and Kenya Takaku Open Economies Review@

Shigeto Kitano and Kenya Takaku B.E. Journal of Macroeconomics

Takumi Naito Journal of International Economics

Makoto Hasegawa and Kozo Kiyota Journal of Public Economics

Angus C. Chu, Guido Cozzi, Yuichi Furukawa, and Chih-Hsing Liao European Economic Review

Tomomichi Mizuno and Kazuhiro Takauchi Asia-Pacific Journal of Accounting and Economics

Takumi Naito Economics Letters

Kenji Fujiwara and Keita Kamei Journal of International Trade and Economic Development

Tsuyoshi Toshimitsu Keio Economic Studies

Hiroshi Mukunoki Journal of Economics

Eiji Fujii Open Economies Review

Tsuyoshi Toshimitsu International Trade Journal

Tsuyoshi Toshimitsu Economics Bulletin

Yohei Tenryu International Review of Economics


December 2017

Jota Ishikawa, Faculty of Economics, Hitotsubashi University, jota@econ.hit-u.ac.jp and Nori Tarui, Department of Economics, University of Hawaii at Manoa, nori@hawaii.edu

gBackfiring with Backhaul Problems: Trade and Industrial Policies with Endogenous Transport Costsh
Journal of International Economics
Trade barriers due to transport costs are as large as those due to tariffs. This paper incorporates the transport sector into a standard model of international trade with perfectly competitive output sectors and studies the effects of trade and industrial policies. Transport firms need to commit to a shipping capacity sufficient for a round trip, with a possible imbalance of shipping volumes in two directions. This imbalance is known as the gbackhaul problem.h As transport firms attempt to avoid this problem, a tariff in one sector may affect other independent import and/or export sectors. In particular, domestic tariffs may backfire: domestic exports may also decrease, harming domestic export sectors and the domestic economy. This finding contributes to the literature on how import liberalization may generate a positive effect on the liberalizing country's exports by identifying a new channel through endogenous changes in transport costs given the backhaul problem.


Ryo Arawatari, Takeo Hori, and Kazuo Mino
gOn the Nonlinear Relationship between Inflation and Growth: A Theatrical Expositionh
Journal of Monetary Economics
The relationship between inflation and growth is examined in an R&D-based model of endogenous growth in which the R&D abilities of agents are heterogeneous. We analytically demonstrate that if the distribution of ability has a fat and long tail, the relationship between inflation and growth becomes nonlinear; the negative relationship between inflation and growth is weaker in the heterogeneous ability economy than it is in the homogeneous ability economy for low inflation, whereas the opposite outcome holds for high inflation. Our numerical example shows that this nonlinear relationship between inflation and growth holds under plausible parameter values.


Takashi Kamihigashi (Kobe University)
gA Simple Optimality-Based No-Bubble Theorem for Deterministic Sequential Economies with Strictly Monotone Preferencesh
Mathematical Social Sciences
We establish a simple no-bubble theorem that applies to a wide range of deterministic sequential economies with infinitely lived agents. In particular, we show that asset bubbles never arise if at least one agent can reduce his asset holdings permanently from some period onward. Our no-bubble theorem is based on the optimal behavior of a single agent, requiring virtually no assumption beyond the strict monotonicity of preferences. The theorem is a substantial generalization of Kocherlakota's (1992, Journal of Economic Theory 57, 245--256) result on asset bubbles and short sales constraints.

Carmen Camacho (Centre National de la Recherche Scientifique), Takashi Kamihigashi (Kobe University), and Cagri Saglam (Bilkent University)
gRobust Comparative Statics for Non-monotone Shocks in Large Aggregative Gamesh
Journal of Economic Theory
A policy change that involves a redistribution of income or wealth is typically controversial, affecting some people positively but others negatively.  In this paper we extend the grobust comparative staticsh result for large aggregative games established by Acemoglu and Jensen (2010, 49th IEEE Conference on Decision and Control, 3133--3139) to possibly controversial policy changes. In particular, we show that both the smallest and the largest equilibrium values of an aggregate variable increase in response to a policy change to which individuals' reactions may be mixed but the overall aggregate response is positive. We provide sufficient conditions for such a policy change in terms of distributional changes in parameters.


Rui Wan (Nanjing University), Minoru Nakada (Nagoya University), and Yasuhiro Takarada (Nanzan University)
gTrade Liberalization in Environmental Goodsh
Resource and Energy Economics
Trade negotiations have started to pay attention to liberalization in environmental goods (EGs), whose production may require dirty intermediate goods. We construct a two-country trade model to explore the effects of trade liberalization in EGs on the local pollution, the global environment and welfare in the presence of such an environmental conundrum. We find that countries do not necessarily benefit from trade liberalization in EGs in the absence of an environmental policy. With the assistance of an upstream pollution tax, trade liberalization in EGs improves each country's welfare. This result holds independent of whether the upstream market is competitive or not, or whether we have upstream trade across countries. For asymmetric countries, trade liberalization in EGs improves the world welfare and the welfare for the country if it has a smaller demand for EGs; or experiences less damage from the production of dirty inputs; or values environment improvement more.


October 2017


Shigeto Kitano (Kobe University) and Kenya Takaku (Hiroshima City University)
gCapital Controls, Monetary Policy, and Balance Sheets in a Small Open Economyh
Economic Inquiry
We develop a small open economy, New Keynesian model that incorporates a financial accelerator in combination with liability dollarization. Applying a Ramsey-type analysis, we compare the welfare implications of an optimal monetary policy under flexible exchange rates and an optimal capital control policy under fixed exchange rates. In an economy without the financial accelerator, an optimal monetary policy under flexible exchange rates is superior to an optimal capital control policy under fixed exchange rates. In contrast, in an economy with the financial accelerator, an optimal capital control under fixed exchange rates yields higher welfare than an optimal monetary policy under flexible exchange rates.


Tsuyoshi Toshimitsu (Kwansei Gakuin University)

gStrategic compatibility choice, network alliance, and welfareh

Journal of Industry, Competition and Trade

Based on a simple model of compatibility choice under differentiated Cournot duopoly with network externalities, we consider how the levels of a network externality and product substitutability affect the choice of compatibility. In particular, if the level of network externality is larger than that of product substitutability, there are multiple equilibria involving imperfect and perfect compatibility. Furthermore, we demonstrate the conditions for constructing such a network alliance so that firms provide perfectly compatible products. The network alliance is stable and socially optimal.


September 2017


Kazunobu Hayakawa (Institute of Developing Economies), Nuttawut Laksanapanyakul (Thailand Development Research Institute), Hiroshi Mukunoki (Gakushuin University), and Shujiro Urata (Waseda University)
gImpact of Free Trade Agreement Use on Import Pricesh
World Bank Economic Review
We examine the impact of free trade agreement (FTA) use on import prices. For this analysis, we employ establishment-level import data with information on tariff schemes, that is, the FTA and most-favored-nation schemes used for importing. Unlike previous studies, we estimate the effects of FTA use on prices by controlling for differences in importing-firm characteristics. There are three main findings. First, the effect of FTA use is overestimated when not controlling for importing firm-related fixed effects. Second, on average, firmsf FTA use reduces tariffs by 12 percentage points and raises import prices by 3.6%–6.7%. Third, in general, we do not find a price rise resulting from the costs of complying with rules of origin.


August 2017


Shigeto Kitano (Kobe University) and Kenya Takaku (Hiroshima City University)
gCapital Controls and Financial Frictions in a Small Open Economyh
Open Economies Review
We develop a small open economy model with financial frictions between domestic banks and foreign investors, and examine the welfare-improving effect of capital controls. We show that capital controls are effective in addressing the amplification effect due to financial frictions. As the degree of financial frictions increases, the welfare-improving effect of capital controls becomes larger and a more aggressive policy rule is appropriate. Comparing two economies, one with and one without gliability dollarization,h we also find that the welfare-improving effect of capital controls is larger in the presence of gliability dollarization,h and the difference between the effects becomes larger as the degree of financial frictions increases.

Shigeto Kitano (Kobe University) and Kenya Takaku (Hiroshima City University)
gCapital Controls as a Credit Policy Tool in a Small Open Economyh
B.E. Journal of Macroeconomics
We develop a sticky price, small open economy model with financial frictions à la Gertler and Karadi (2011), in combination with liability dollarization. An agency problem between domestic financial intermediaries and foreign investors of emerging economies introduces financial frictions in the form of time-varying endogenous balance sheet constraints on the domestic financial intermediaries. We consider a shock that tightens the balance sheet constraint and show that capital controls, the effects of which are rigorously examined as a policy tool for the emerging economies, can be a credit policy tool to mitigate the negative shock.


Takumi Naito (Vanderbilt University and Waseda University)
gGrowth and welfare effects of unilateral trade liberalization with heterogeneous firms and asymmetric countriesh
Journal of International Economics
How do reallocations across heterogeneous firms induced by unilateral trade liberalization affect long-run growth and welfare? To answer this question, we formulate a two-country model of endogenous growth, heterogeneous firms, and asymmetric countries. The relative wage and number of domestic varieties are endogenously determined. We show that even unilateral trade liberalization can raise the balanced growth rate. Although growth-enhancing trade liberalization is always welfare-enhancing in the symmetric country case, it does not generally ensure higher long-run welfare for at most one country because of asymmetric real wage effects caused by a change in the relative number of varieties.


July 2017


Makoto Hasegawa <m-hasegawa@grips.ac.jp> and Kozo Kiyota <kiyota@sanken.keio.ac.jp>
gThe Effect of Moving to a Territorial Tax System on Profit Repatriation: Evidence from Japanh
Journal of Public Economics
In an increasingly globalized world, the design of international tax systems in terms of the taxation of foreign corporate income has attracted much attention from policy makers and economists alike. In the past, Japanfs worldwide tax system taxed foreign source income upon repatriation. However, to stimulate dividend repatriations from Japanese-owned foreign affiliates, the Japanese government introduced a foreign dividend exemption system in 2009 that exempted dividends remitted by Japanese-owned foreign affiliates to their parent firms from home-country taxation. This paper examines the effect of this dividend exemption system on profit repatriation by Japanese multinationals. We find that the response of Japanese-owned affiliates to the dividend exemption was heterogeneous. More particularly, foreign affiliates with a large stock of retained earnings were generally more responsive to the reform and significantly increased dividend payments to their parent firms in response to the enactment of the dividend exemption system. Dividend payments by these affiliates also became more sensitive to withholding tax rates on dividends levied by host countries under the new exemption system.


Angus C. Chu (Fudan University), Guido Cozzi (University of St. Gallen), Yuichi Furukawa (Chukyo University), and Chih-Hsing Liao (Chinese Culture University)
gInflation and Economic Growth in a Schumpeterian Model with Endogenous Entry of Heterogeneous Firmsh

European Economic Review
This study develops a Schumpeterian growth model with endogenous entry of heterogeneous firms to analyze the effects of monetary policy on economic growth via a cash-in-advance constraint on R&D investment. Our results can be summarized as follows. In the special case of a zero entry cost, an increase in the nominal interest rate decreases R&D, the arrival rate of innovations and economic growth as in previous studies. However, in the general case of a positive entry cost, an increase in the nominal interest rate affects the distribution of innovations that are implemented and would have an inverted-U effect on economic growth if the entry cost is sufficiently large. We also calibrate the model to aggregate data of the US economy and find that the growth-maximizing inflation rate is about 3%, which is consistent with recent empirical estimates. Finally, we also explore the welfare effects of inflation and consider a number of extensions to the benchmark model.


Tomomichi Mizuno (Kobe University) and Kazuhiro Takauchi (Kansai University)
gRules of origin and uncertain compliance costh
Asia-Pacific Journal of Accounting and Economics
This study considers the role of the cost uncertainty associated with meeting the rules of origin (ROO) in a free trade area/agreement (FTA). While the literature tends to overlook the cost uncertainties of ROO compliers, we show that the uncertain production costs resulting from meeting the ROO yield the coexistence of compliers and non-compliers in symmetric oligopoly firms. We also show that the regime in which compliers and non-compliers coexist is not the best one for an FTA importer, while it may be the best one for world welfare. We also discuss the case that uncertain production costs are firm-specific.


June 2017


Takumi Naito (Vanderbilt University and Waseda University)
gAn asymmetric Melitz model of trade and growthh
Economics Letters
In an asymmetric two-country Melitz model, compared with the old balanced growth path, unilateral trade liberalization increases the masses and revenue shares of exported varieties and the growth rates of all countries for all periods, and welfare of all countries.


Kenji Fujiwara (Kwansei Gakuin University) and Keita Kamei (Yamagata University)

gTrade Liberalization, Division of Labor and Welfare under Oligopolyh

Journal of International Trade and Economic Development

Incorporating explicitly division of labor into a two-country general oligopolistic equilibrium model, we examine the effects of trade liberalization on firm productivity and welfare. We show that a tariff reduction increases the firm productivity of the trading industries but decreases that of the non-trading industries. An expansion of the trading industries, in contrast, decreases the firm productivity of both the trading and non-trading industries. We then find that a tariff reduction necessarily reduces welfare while the welfare effect of expansion of trading industries is ambiguous.


Tsuyoshi Toshimitsu (Kwansei Gakuin University)

gOn an endogenous leader–follower relationship and network compatibilityh

Keio Economic Studies

We consider an endogenous leader–follower relationship in a network goods market, such as those found in the information and communication technology industries, where we observe network externalities and product compatibility (hereafter, network compatibility effects). Using the framework of an endogenous timing game, we examine how network compatibility effects affect strategic relationships between firms and the leader–follower relationship. In particular, we demonstrate that if there are sufficient asymmetric network compatibility effects between the firms, there is a unique subgame perfect Nash equilibrium in the endogenous timing game, where the firm providing the product with a large (small) network compatibility effect becomes a leader (follower) in the case of quantity competition. However, in the cases of price competition and quantity competition with consumersf ex ante expectations for network size, the reverse result arises.


April 2017


Hiroshi Mukunoki (Gakushuin University)
gMarket Access and Technology Adoption in the Presence of FDIh
Journal of Economics

This paper theoretically investigates whether improved access to the domestic market
@speeds up new technology adoption by foreign firms. Foreign firms choose between exporting and foreign direct investment (FDI) to serve the domestic market. If two firms compete in the domestic market, multilateral liberalization of FDI or the realization of multilateral free trade may deter or delay technology adoption, while they always promote and accelerate technology adoption if only a single firm serves the domestic market. Technology adoption can be quickest and consumer welfare greatest when the fixed cost of FDI and the trade costs are neither very high nor very low. Preferential liberalization of FDI promotes the technology adoption of the targeted firm but may not benefit consumers because it discourages technology adoption of the non-targeted firm.


March 2017


Eiji Fujii (Kwansei Gakuin University)
gGovernment Size, Trade Openness, and Output Volatility: A Case of Fully Integrated Economiesh
Open Economies Review
Government is often considered the safe sector of an open economy that provides households with insurance against external risk exposure. Among highly integrated economies, however, households should be able to exploit common financial markets to insure themselves. In this paper we examine the relationship between government size, trade openness, and output volatility across fully integrated economies using Japanfs regional income accounting and public finance data. The contributions of the government- and market-based insurances to inter-regional risk sharing are also estimated. The empirical results reveal some unique aspects of the state-market interactions under full economic integration with vertical fiscal imbalance.


Tsuyoshi Toshimitsu (Kwansei Gakuin University)

gOn Market Integration and Product R&D: A Monopoly Caseh

International Trade Journal

Applying a monopoly model with endogenous quality choice to the case of multiple national markets, we consider the effect of market integration on product R&D incentives (i.e., quality-improving), profit, and consumer surplus. We demonstrate that the effect of market integration depends on the difference in income distributions between two countries and the level of trade cost. In particular, if the difference in income distributions between two countries is large (small) and/or trade cost is low (high), market integration can decrease (increase) the level of product quality and social welfare in the two countries.


Tsuyoshi Toshimitsu (Kwansei Gakuin University)

gOn consumer expectations in a network goods market: The monopoly caseh

Economics Bulletin

We reconsider the effects of consumer expectations on the fulfilled expectations equilibrium in a network goods market. Based on a simple monopoly model incorporating network externalities, we examine how the degree of commitment of consumer expectations, conversely, the degree of the monopolistfs commitment to actual output, affects outcomes in the fulfilled expectations equilibrium. We demonstrate that an increase in the proportion of consumers committing to an ex ante expectation for network size, reduces output, consumer surplus, and profit in equilibrium. We also examine the case of myopic expectations.


February 2017


Yohei Tenryu (Kyushu International University)

gThe role of the private sector under insecure property rightsh

International Review of Economics

It is well known that the so-called voracity effect can be observed in an economy with a weak property rights system. Voracious behavior is regarded as one of the excess uses of the common assets. In this paper, we seek to examine voracious behavior from a different perspective by introducing a new direction of capital flow: from the private sector to the common sector. A government mandates that all competing interest groups invest their private capital in the common sector to mitigate the effects of excess use of the commons. In this situation, we study how this capital flow affects the voracious behavior of the groups and the growth rate of the economy. The main findings are that, while there is no standard voracity effect, an increase in the contribution of the private sector into the common sector causes more voracious behavior and thus reduces economic growth. This suggests that policies designed to preserve the commons can lead to a harmful effect on the economy.