2017
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
“Backfiring with Backhaul Problems: Trade and Industrial
Policies with Endogenous Transport Costs”
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 “backhaul problem.”
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
“On the Nonlinear Relationship between Inflation and Growth: A Theatrical
Exposition”
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)
“A Simple Optimality-Based No-Bubble Theorem for Deterministic Sequential
Economies with Strictly Monotone Preferences”
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)
“Robust Comparative Statics for Non-monotone Shocks in Large Aggregative Games”
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 “robust comparative statics”
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)
“Trade Liberalization in Environmental Goods”
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)
“Capital Controls, Monetary Policy, and Balance Sheets in a Small Open Economy”
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)
“Strategic compatibility choice, network
alliance, and welfare”
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)
“Impact of Free Trade Agreement Use on Import Prices”
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, firms’ 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)
“Capital Controls and Financial Frictions in a Small Open Economy”
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 “liability dollarization,” we also find that the welfare-improving
effect of capital controls is larger in the presence of “liability
dollarization,” 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)
“Capital Controls as a Credit Policy Tool in a Small Open Economy”
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)
“Growth and welfare effects of unilateral trade liberalization with
heterogeneous firms and asymmetric countries”
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>
“The Effect of Moving to a Territorial Tax System on Profit Repatriation:
Evidence from Japan”
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, Japan’s 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)
“Inflation and Economic Growth in a Schumpeterian Model with Endogenous Entry
of Heterogeneous Firms”
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)
“Rules of origin and uncertain compliance cost”
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)
“An asymmetric Melitz model of trade and growth”
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)
“Trade Liberalization, Division of Labor and Welfare
under Oligopoly”
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)
“On an endogenous leader–follower
relationship and network compatibility”
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 consumers’ ex ante expectations for network
size, the reverse result arises.
April 2017
Hiroshi Mukunoki (Gakushuin University)
“Market Access and Technology Adoption in the Presence of FDI”
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)
“Government Size, Trade Openness, and Output Volatility: A Case of Fully
Integrated Economies”
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 Japan’s 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)
“On Market Integration and Product R&D: A Monopoly
Case”
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)
“On consumer expectations in a network goods market: The
monopoly case”
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 monopolist’s 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)
“The role of the private sector under insecure property
rights”
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.