Keisuke Hattori (Aoyama Gakuin University), Keisaku Higashida (Kwansei Gakuin University)
"Who should be regulated: Genuine producers or third parties?"
Journal of Economics
This study develops a model in which a “genuine” producer supplying genuine products competes with competitive “third-party” producers supplying compatible third-party products. We use this model to examine (i) how the strategic behavior of the genuine producer to drive out third parties (running comparative advertising, establishing technical barriers) afects the market equilibrium, (ii) whether the government should regulate such behavior by the genuine producer, and (iii) whether the government should regulate the entry of firms that supply third-party products. We find that a small amount of spending on advertising and creating technical barriers improves social welfare. However, their amounts in market equilibrium are socially excessive because the negative effects (e.g., the cost of advertising and creating barriers and an increase in production cost for third parties) outweigh the positive effects (e.g., an increase in the consumption of the genuine product and mitigation of the distortion of insufficient supply). Furthermore, we find that prohibitive measures (e.g., prohibition of advertising and technical barriers, entry prohibition of third-party producers) may improve welfare.
Alan Woodland (University of New South Wales) and Chisato Yoshida (Independent Researcher, Formerly Ritsumeikan University)
"Illegal Immigration with Tariff Distortions"
Foreign Trade Review
We construct and analyse a two-country general equilibrium model in which the home and foreign countries trade two final goods, and legal immigration is restricted. International trade is distorted via tariffs imposed by both countries. Foreign migrants attempt illegal entry to the home country but face a probability of detection and arrest by border patrol of the home country. We examine how stricter border patrol affects the level of illegal immigration, establish conditions under which stricter border patrol reduces successful illegal immigration and determine the welfare implications of this policy change. We also determine the effects on illegal immigration and the welfare of all agents when illegal immigrants increase remittances back to the source country.
Binh Tran-Nam (University of New South Wales) and Makoto Tawada (Nagoya University)
"Overview of the Special Issue in Honour of Professor Murray C. Kemp"
Foreign Trade Review
This special issue of Foreign Trade Review celebrates the late Professor Murray C. Kemp’s contributions to international trade theory and investment. The issue is co-edited by two of Professor Kemp’s PhD graduates. The contributors to this special issue represent a select sample of Professor Kemp’s friends, colleagues, former graduate students and mentees from around the world, including his two most significant and prolific co-authors, namely Professor Henry Wan, Jr. and the late Professor Ngo Van Long. Professors Wan and Long kindly agreed to contribute not only articles but also tributes to Professor Kemp.
Kazunobu Hayakawa (Institute of Developing Economies), Hiroshi Mukunoki (Gakushuin University)
"The Magnification Effect in Global Value Chains"
Review of International Economics
We examine the “magnification effect,” which demonstrates that as the number of separable production stages increases, trade increases dramatically as trade costs decline. We empirically investigate the existence of this magnification effect by estimating gravity-type equations for worldwide trade to obtain the tariff elasticity of trade per industry. We find that tariff elasticity is higher in industries with a greater degree of global value chain participation. These results are observed for both gross and value-added trade. Furthermore, we find that tariff elasticity is higher in intra-Asian trade, especially in machinery industries.
Takumi Naito (Waseda University)
"Does a larger country set a higher optimal tariff with monopolistic competition and capital accumulation?"
In a two-country endogenous growth model with monopolistic competition and capital accumulation, we show that: (i) a country’s optimal tariff is positive; and (ii) a more productive, and hence an economically larger, country sets a lower optimal tariff.
Xiao Feng (Nankai University), Yongjin Wang (Nankai University), Laixun Zhao (Kobe University)
"Export Capacity Constraints and Distortions"
Journal of Development Economics
We investigate how export capacity constraints (ECCs) affect resource misallocation and aggregate productivity by distorting the firm’s export mode. Using unique datasets in China, we first document a number of observed patterns for the so-called “dual-channel exporters”, which export only a fraction of their products directly with the rest via intermediaries. We show that introducing capacity constraints reconciles the theory with the observed patterns in the data. Our quantitative exercise suggests that removal of the ECCs leads to gains of 2.27% in aggregate productivity, 4.97% in total exports and 0.37% in national welfare.
Laixun Zhao (Kobe University)
"A Simple Model of the Hukou System and Chinese Exports"
Review of International Economics
We construct a simple model of hukou reform for the transition period (specifically, 1984-2010) when peasants were allowed to migrate to cities for work only. We show that reform recovers some of the deadweight losses from Mao’s strict hukou control, but the gains from reform are unevenly distributed. Using the basic model, we illustrate two factors that contribute to China’s trade boom and export pattern reversal, namely, the rural-urban migration caused by the institutional reform in the labor market and the demographic dividend China has enjoyed for the past 40 years. We apply the model to examine the impacts of various policies such as special economic zones, export-tax refund, urbanization, etc., which should provide directions for empirical and quantitative research.
Kazunobu Hayakawa (Institute of Developing Economies), Tadashi Ito (Gakushuin University), Hiroshi Mukunoki (Gakushuin University)
"Lerner meets Metzler: Tariff pass-through of worldwide trade"
Journal of the Japanese and International Economies
In this study, we quantify the worldwide tariff pass-through, that is, the impact of tariff reductions on trade prices. Some estimations show that a one-percentage-point reduction in tariffs decreases trade prices by approximately 0.1% (Lerner paradox). To determine the mechanism underlying this result, we decompose trade prices into product quality and quality-adjusted trade prices. We find that a one-percentage-point reduction in tariff rates decreases product quality by approximately 1.6% and increases quality-adjusted trade prices by approximately 1.5% (Metzler-like paradox in terms of quality-adjusted price). Thus, we construct a theoretical model to demonstrate the mechanism behind these empirical results. We suggest that both a firm-delocation mechanism under variable markups and a quality-sorting mechanism are the driving forces behind these empirical findings. Finally, we examine the welfare effect of tariff changes by employing this theoretical model. Despite the large decrease in trade prices, trade liberalization worsens consumer welfare.
Kozo Kiyota (Keio University, RIETI, and TCER) and Yoshinori Kurokawa (University of Tsukuba)
"Factor Intensity Reversals Redux: Feenstra Is Right!"
Review of International Economics
Two- or more-factor general equilibrium models commonly assume no factor intensity reversals (FIRs): a good that is relatively capital intensive compared with other goods within a country/region is also relatively capital intensive within another country/region. This assumption is so important that its breakdown results in the collapse of several well-known theorems, such as the Heckscher–Ohlin theorem and the Stolper–Samuelson theorem. Seeing a recent observation, however, Feenstra (2015, Advanced international trade: Theory and evidence (2nd ed.), Princeton University Press) argues that FIRs are quite realistic. Our nonparametric test finds that recent regional-level data support his view. At the two-digit industry level, the degree of FIRs among regions is higher than those found in previous studies, which is accompanied by wide differences in relative factor prices among regions. The degree has also increased over the last two decades. FIRs are even stronger at the disaggregated four-digit industry level and, though not many, exist at the two-aggregated-industry level as well. At all the three levels, FIRs do not disappear even when we take into account other factors such as human capital and land. Thus, considering a model without restrictions on FIRs might be a possible direction of research.
Takanori Shimizu (University of Hyogo) and Hisayuki Okamoto (Sonoda Women's University)
"Tourism infrastructure and the environment: how does environmental regulation affect welfare, tourism industry, and domestic wage inequality?"
The Japanese Economic Review
This study presents a general equilibrium model of a small open developing economy with pollution generated by the tourism industry. The national government issues emission permits and constructs tourism infrastructure for the tourism sector. We examine the effects of a stricter environmental regulation on welfare, production, and income distribution. If the elasticity of substitution in the tourism sector is sufficiently low, a stricter environmental regulation paradoxically expands the tourism sector and narrows domestic wage inequality, even under constant tourism terms of trade. In this model, in addition to the two traditional channels, there is a new channel through which a stricter environmental regulation affects the tourism terms of trade and domestic welfare. The new channel, which arises from the difference between the marginal value product of tourism infrastructure and its price, improves the tourism terms of trade and domestic welfare if (1) the marginal value product of tourism infrastructure is greater than its price, (2) the output of tourism infrastructure is increased by a stricter environmental regulation, and (3) the excess supply of a tourism service decreases with a stricter environmental regulation.