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2019: Forthcoming papers and abstracts

December 2019

Yasuhiro Takarada (Nanzan University), Yasushi Kawabata (Nagoya City University), Akihiko Yanase (Nagoya University), Hiroshi Kurata (Tohoku Gakuin University)
"Standards Policy and International Trade: Multilateralism versus Regionalism"

Journal of Public Economic Theory

We develop a simple model of policy coordination on domestic standards and examine whether domestic standards policy can lead to regional and multilateral harmonization of standards under the principle of national treatment. This paper focuses on mandatory product and process standards affecting the characteristics of a final good that control negative consumption externalities (e.g., vehicle emissions control and safety standards, restrictions on the use of pesticides for agricultural goods, and safety standards for electrical products). Only the products that meet a country’s national standards are allowed to circulate in that country’s market. Raising standards reduces negative externalities caused by consumption of a traded good but increases firms’ costs. We use the core as the solution concept. A standards regime is considered to be in the core if it is not blocked by any coalition within countries. The main finding is that a multilateral agreement on standards that maximizes world welfare is only in the core if externalities are local or slightly transboundary. Otherwise, only a regional agreement on standards is in the core. As extensions, we consider many and asymmetric number of firms, asymmetry in market size, fixed costs for different standards, and a multilateral agreement on different standards.

Kazunobu Hayakawa (Institute of Developing Economies), Hiroshi Mukunoki (Gakushuin University), Chi-hai Yang (National Central University)
"Liberalization for Services FDI and Export Quality: Evidence from China"

Journal of The Japanese and International Economies

By employing firm-level export data in China, this paper empirically examines the effect of liberalization of services foreign direct investment (FDI) on exporting firms’ quality upgrading. To evaluate its relative effectiveness, we also examine other kinds of trade policies, including tariffs in export destination countries and input and output tariffs in China. With China’s accession to the World Trade Organization in December 2001, these trade policies changed substantially during our sample period of 2000-06. Empirical results showed that easing the restrictiveness of services FDI resulted in raising export product quality, mainly for foreign-owned enterprises. More than any other trade policy, we found that reduced input tariffs contributed to raising export product quality.

Ronaldo Carpio (University of International Business and Economics), Takashi Kamihigashi (Kobe University)
"Fast Value Iteration: An Application of Legendre-Fenchel Duality to a Class of Deterministic Dynamic Programming Problems in Discrete Time"

Journal of The Japanese and International Economies

We propose an algorithm, which we call "Fast Value Iteration"(FVI), to compute the value function of a deterministic infinite-horizon dynamic programming problem in discrete time. FVI is an efficient algorithm applicable to a class of multidimensional dynamic programming problems with concave return (or convex cost) functions and linear constraints. In this algorithm, a sequence of functions is generated starting from the zero function by repeatedly applying a simple algebraic rule involving the Legendre-Fenchel transform of the return function. The resulting sequence is guaranteed to converge, and the Legendre-Fenchel transform of the limiting function coincides with the value function.

November 2019

Wei Hao (Beijing Normal University), Ran Yuan (Beijing Normal University) and Laixun Zhao (Kobe University)
“Cultural Factors and Study Destinations of International Students”

China & the World Economy

We examine the role of cultural factors in attracting international students, using data of 102 countries from 2000 to 2015. Our results show that t he export of cultural products is conducive to the increase of international students, and in particular, international students choose to study in developing countries whose official language and religious beliefs are different from their home countries, while they tend to go to developed countries with a common language. We also examine the features of international students in China and Chinese students in other countries. The policy implication from our study is that “soft power” such as a unique culture, common value and migration networks is important in attracting foreign students.

Naoto Jinji (Kyoto University), Xingyuan Zhang (Okayama University), Shoji Haruna (Fukuyama University)
"Does a firm with higher Tobin’s q prefer foreign direct investment to foreign outsourcing?"

The North American Journal of Economics and Finance

In this study, we investigate whether firms’ choices of offshoring modes vary according to their characteristics that are reflected in the value of Tobin’s q. When a firm chooses its offshoring mode from foreign outsourcing (FO) and foreign direct investment (FDI), a model developed by Chen, Horstmann, and Markusen (2012, Canadian Journal of Economics) predicts that Tobin’s q is negatively associated with the share of FO in total offshoring activities. Using detailed Japanese firm-level data, we find that Tobin’s q is negatively and significantly correlated with the share of Japanese firms’ engagement in FO in the sum of FO and FDI. With regard to our empirical methodology, we employ fractional regression models, because our dependent variable (i.e., the share of FO) is bounded between zero and one. We also address the issue of endogeneity by using a simple two-step method to control endogenous explanatory variables in the fractional regression models. We show that the above finding is robust.

Yoshihiro Kondo (Yokohama City University), Yoshiyuki Nakazono (Yokohama City University), Rui Ota (Yokohama City University), Qing-Yuan Sui (Yokohama City University)
"Heterogeneous impacts of Abenomics on the stock market: A Fund flow analysis"

Journal of The Japanese and International Economies

This study examines the heterogeneous impacts of Abenomics on the Japanese stock market using fund flow data. While Fukuda (2015) identifies changes in foreign investors’expectations from price changes in financial markets, we focus on changes in the quantity demanded of Japanese stocks. We obtain three findings. First, only foreign investors aggressively and immediately purchased Japanese stocks at the onset of Abenomics. Second, since the two years following the launch of Abenomics, foreign investment inflows into Japanese stocks have changed due to external factors originating in the United States. Third, a VAR analysis shows the heterogeneous impacts of Abenomics among investors inside and outside Japan. However, the changes in foreign investors’expectations are short-lived in the sense that signs of permanent shifts as a result of Abenomics cannot be identified after 2014.

Kozo Kiyota (Keio University, University of Hawaii, and RIETI), Toshiyuki Matsuura (Keio University), Yoshio Higuchi (Keio University and the Japan Institute for Labour Policy and Training)
"Multinationals, Intrafirm Trade, and Employment Volatility"

Canadian Journal of Economics

This paper examines the theoretically ambiguous relationship between the volatility of employment growth and the foreign exposure of firms. We employ unique Japanese firm-level data over the period 1994-2012. This allows us to investigate any differences in this relationship across multinational firms and trading and nontrading firms, manufacturing and wholesale trade, and intrafirm and interfirm trade. One major finding is that in manufacturing, employment volatility increases as the share of intrafirm exports to total sales increases. In contrast, in wholesale trade, employment volatility declines as the share of intrafirm imports to total imports increases. One possible interpretation of these results is that the transmission of foreign supply and demand shocks could be through not only manufacturing, but also wholesale trade firms. Further, a higher share of intrafirm trade could magnify foreign demand shocks in manufacturing, and could mitigate foreign supply shocks in wholesale trade.

May 2019

Keisaku Higashida (Kwansei Gakuin University), Kenta Tanaka (Musashi University), Shunsuke Managi (Kyushu University)
"The efficiency of conservation banking schemes with inter-regionally tradable credits and the role of mediators"

Economic Analysis and Policy

The notion of tradable allowance schemes for biodiversity conservation (conservation banking) has been drawing attention and the number of such schemes has been increasing over the past few decades. An increase in the number of schemes increases the need for institutional designs that incorporate inter-regional or inter-scheme trading; however, this may be difficult because of the heterogeneity of biodiversity and the variation in evaluation methodologies. Focusing on the role of environmental traders as mediators, this study considers inter-scheme or inter-regional transactions of credits experimentally and explores the possibility that mediators simultaneously encourage efficiency and conservation. Experimental results suggest that environmental traders behave as theoretically predicted and enhance efficiency by exporting credits from areas with a higher environmental biodiversity value to those with a lower value. Our results highlight the importance of institutional frameworks in allowing market mechanisms to work effectively under conservation banking schemes.

April 2019

Naoto Jinji (Kyoto University), Xingyuan Zhang (Okayama University), Shoji Haruna (Fukuyama University)
"Do Deeper Regional Trade Agreements Enhance International Technology Spillovers"

The World Economy

We examine whether regional trade agreements (RTAs) enhance international technology spillovers using a panel of patent citation data for 114 countries/regions for the period 1990-2007. We use patent citations as a proxy for technology spillovers. The focus of this study is on whether the depth of regional integration matters for technology spillovers among member countries/regions of RTAs. The depth of integration is measured by the extent to which an RTA includes legal obligations outside the current mandate of the World Trade Organization. We find that the depth of integration actually influences technology spillovers and that a deeper integration in a broad sense has a greater impact on technology spillovers than do technology-related provisions.

Tsuyoshi Toshimitsu (Kwansei Gakuin University)
"Analysis of merger control in a network products market"

Manchester School

Using a horizontally differentiated three-firm model, we consider horizontal mergers and antitrust policy in a network products market, where network externalities and compatibilities between products and services are observed. In particular, we focus on the role of merger-related network compatibility. That is, if the degree of the net degree of merger-related network compatibility is larger than the degree of product substitutability, consumer surplus is higher than in the premerger case. In this case, the proposed merger is allowed by antitrust authorities based on a consumer welfare standard. Furthermore, relating to a merger externality on an outsider, we examine the American Online and Time Warner case.

Tomomichi Mizuno (Kobe University) and Kazuhiro Takauchi (Kansai University)
"Optimal Export Policy with Upstream Price Competition"

Manchester School

We present a third-market model with a vertical trading structure, in which upstream input suppliers engage in homogeneous price competition. We show that, under downstream Bertrand competition, a non-monotonic export policy may result. Specifically, the optimal policy of the exporting country can turn into a tax--subsidy--tax as the degree of product substitutability rises. We also confirm the conventional result for which the optimal policy is an export subsidy (tax) if there is Cournot (Bertrand) competition downstream, provided that the number of domestic suppliers is at an intermediate level. We further discuss bilateral policy interventions when both exporting countries offer a subsidy/tax to their domestic downstream firms. We show that a non-monotonic export policy (tax--subsidy--tax) can arise even in this extended setting.

March 2019

Angus C. Chu (Fudan University), Guido Cozzi (University of St. Gallen), Haichao Fan (Fudan University), Yuichi Furukawa (Chukyo University), and Chih-Hsing Liao (Chinese Culture University)
"Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms"

Review of Economic Dynamics

This study develops a monetary Schumpeterian growth model with heterogeneous households and heterogeneous firms to explore the effects of inflation on innovation and income inequality. Household heterogeneity arises from an unequal distribution of wealth. Firm heterogeneity arises from random quality improvements. Under endogenous firm entry, inflation has an inverted-U effect on economic growth and income inequality. Calibrating the model for a quantitative analysis, we find that the model can match the growth-maximizing and inequality-maximizing inflation rates that are estimated using cross-country panel data. Finally, we simulate the utility-maximizing inflation rate and explore how it is affected by relative household wealth.

February 2019

Kozo Kiyota (Keio University, University of Hawaii, and RIETI), Toshiyuki Matsuura (Keio University) and Lionel Nesta (Universite Cote d'Azur, CNRS, Gredeg, OFCE SciencesPo and SKEMA Business School)
"What's Behind the Figures? Quantifying the Cross-Country Exporter Productivity Gap"

Economic Inquiry

We present a simple framework that allows us to examine the cross‐country exporter productivity gap without accessing confidential firm‐level data. This gap depends on the three readily available statistics: the productivity gap between two countries; the export participation rates; and export premia. This gap holds irrespective of the distribution underlying firm productivity and irrespective of the presence of fixed costs. Under specific conditions, allocative efficiency may affect the exporter productivity gap. The empirical analysis globally validates this exercise.

January 2019

Satoshi Honma (Tokai University) and Yushi Yoshida (Shiga University)
"Convergence in pollution terms of trade"

The Journal of International Trade & Economic Development

To construct pollution terms of trade (PTT) on the basis of CO2 emissions, we implement the world input–output tables for 40 countries by 35 industries to account for intermediate trade. We examine whether the PTTs have converged among the 40 countries between 1995 and 2009. The empirical evidence supports PTT convergence; PTT growth is negatively related to its initial level and this empirical result is robust to various control variables.

Yuri Sasaki (Meiji Gakuin University) and Yushi Yoshida (Shiga University)
"Decomposition of Japan's trade balance"

International Review of Economics & Finance

Hit by the global financial crisis and a great earthquake followed by a tsunami, Japan's trade balance has turned to deficit, ending its 26 years of trade surplus. However, it is puzzling that Japan's trade balance has remained long in deficit even during the sharp depreciation of the Japanese yen beginning at the end of 2012. As a contribution of this study, we provide consistently constructed indices for price and quantity, decomposed at the country and industry level for Japanese exports and imports between 1988 and 2014. Income elasticity, price elasticity, and pass-through elasticity are estimated at the country and industry disaggregated levels. The estimated results support that Japanese trade experienced a structural change both in income and exchange rate pass-through elasticity. After the crisis, Japanese exports became more unresponsive to exchange rate fluctuations, whereas Japanese import prices rose more proportionately with the depreciation of the Japanese yen, and income elasticity of imports rose sharply. The difference in income elasticity between Japan and the rest of world is reminiscent of the Houthakker-Magee effect and suggests that the trade balance of Japan is likely to deteriorate. The decomposition of Japanese trade revealed that almost every element shifted, resulting in the deterioration of the external balance.

Kyoko Hirose (Kyushu Sangyo University) and Yushi Yoshida (Shiga University)
"Where at home do exporters produce and export?"

The World Economy

Foreign growth can induce changes in production structures across domestic regions through international trade. With a two‐country model with the explicit incorporation of two regions in the home country, we show that effects of foreign growth on exports and production to be possibly asymmetric among home regions. This foreign‐growth effect is especially prominent in Asia with China emerging as the largest trading country. We empirically test our theoretical hypothesis with the data set of Japanese regions. We find evidence that the growth of Asian countries leads to a change in the regional structure of exports and production in Japan. With respect to an adjacent Asian country, the growth of a foreign country exerts opposite effects on production among Japanese regions.

Qizhi Wang (Maruha Nichiro Corporation) and Rui Ota (Yokohama City University)
"The 2015 Chinese Food Safety Law and Market Quality"

Pacific Economic Review

Safety standards, including food safety laws, provide necessary infrastructure to improve market quality. The present study investigates the impact of the revised Chinese Food Safety Law on the quality of China's food market. Using an event study approach, we empirically analyse the impact of nine official news events relating to the new Food Safety Law on the stock prices of companies engaged in food-related businesses. The study demonstrates that three news events have a statistically significant and robust impact, and that all the events have a negative influence on the prices. The results show the possibility of a drop in market quality in the short term in the process of improving quality.

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