Kazunobu Hayakawa (Institute of Developing Economies,), Naoto Jinji (Kyoto University), Nuttawut Laksanapanyakul (Thailand Development Research Institute), Toshiyuki Matsuura (Keio University), Taiyo Yoshimi (Chuo University)
"Quantifying the costs of utilising regional trade agreements"
The World Economy 46(12): 3542-3570
https://doi.org/10.1111/twec.13472

This study proposes an approach for quantifying two kinds of costs related to the utilisation of regional trade agreements (RTAs). The first, called the “procurement adjustment cost,” represents the cost involved in meeting the rules of origin by adjusting procurement sources. The second is the additional fixed cost required to utilise RTAs, including document preparation costs for the certificates of origin. Applying our approach to Thailand's imports from China, our estimates suggest that procurement adjustment costs at the median are equivalent to 4% of the per-unit production cost. RTA utilisation also requires an additional 27% in fixed costs. In addition, we simulate how much a reduction in these costs would enhance RTA utilisation.

Mitsuo Inada (Miyazaki Municipal University) and Naoto Jinji (Kyoto University)
"The impact of policy uncertainty on foreign direct investment: Micro-evidence from Japan’s international investment agreements"
Review of International Economics
https://doi.org/10.1111/roie.12710

This study proposes an empirical strategy to identify the impact of policy uncertainty (PU) at the host economy-sector-reservation level on foreign direct investment (FDI) by exploiting sectoral differences in PU before and after the entry into force of international investment agreements (IIAs). These sectoral differences arise because IIAs mitigate PU in host economies, but sectors included in negative lists of IIAs continue to face different degrees of PU owing to exemptions from certain obligations, such as national treatment and the most favored nation in IIAs. Using this empirical strategy, we evaluate how the activities of Japanese multinational enterprises and their foreign affiliates are affected by Japan's 22 IIAs, including bilateral investment treaties and economic partnership agreements with investment provisions, during 1995–2016 at the microdata level. We find that PU regarding a combination of national treatment and most favored nation has a negative impact on FDI. In particular, PU discourages the establishment of new foreign affiliates. However, PU does not necessarily induce affiliates to exit the market.

Ayumu Tanaka (Aoyama Gakuin University), Banri Ito (Aoyama Gakuin University), and Naoto Jinji (Kyoto University)
"Individual preferences toward inward foreign direct investment: A survey experiment"
Journal of Asian Economics 88: 101644
https://doi.org/10.1016/j.asieco.2023.101644

In democratic societies, public attitudes toward foreign direct investment (FDI) can influence FDI policy as in other policy areas but have been largely ignored in FDI literature. To bridge this gap, we investigate individual preferences toward inward FDI. We employ a conjoint (vignette) survey experiment and analyze the determinants of preferences toward acquisitions by foreign firms. Conjoint survey experiments allow us to simultaneously estimate the effects of various attributes of foreign acquisitions, enabling us to analyze the complex causal relationships between various attributes of an acquisition project and people’s antipathy toward it. The results of the experiment show that the nationality of the foreign firm, reciprocity, and the economic conditions of the location of the firm being acquired are important factors. The subgroup analysis shows that older respondents and women are more negative about inward FDI. We also employ the gravity equation and confirm that our survey results are in line with the actual pattern of inward FDI stock.

Akio Kawasaki (Oita University), Tomomichi Mizuno (Kobe University), and Kazuhiro Takauchi (Kansai University)
"Downstream new product development and upstream process innovation"
Journal of Economics
https://doi.org/10.1007/s00712-023-00841-y

Research and development (R&D) in upstream and downstream markets influence each other. This is because, in assembly industries, when upstream input prices are low, downstream firms can easily introduce or develop new products. The introduction of a new product creates a new final good market, creating an increased demand for inputs. This greater demand for inputs provides an incentive for upstream firms to reduce their costs through R&D. In this study, we consider both downstream R&D for new product introduction and upstream R&D for cost reduction. We show that if upstream R&D is efficient (inefficient), the results of the downstream new product introduction race are strategic complements (substitutes). Furthermore, in terms of timing, the upstream firm determines its input price after observing the downstream firm’s investment decision, with the upstream firm extracting benefits from downstream R&D by raising the input price. It is well-known that this behavior by upstream firms impedes downstream investment (the hold-up problem). Despite this timing structure, we show that the more downstream firms invest, the lower the input price.

Banri Ito (Aoyama Gakuin University), Ayumu Tanaka (Aoyama Gakuin University), and Naoto Jinji (Kyoto University)
"Why do people oppose foreign acquisitions? Evidence from Japanese individual-level data"
Japan and the World Economy 66: 101187
https://doi.org/10.1016/j.japwor.2023.101187

This study empirically examines the determinants of individuals’ attitudes about inward foreign direct investment (FDI) using responses from questionnaire surveys that were originally designed. Individuals’ preferences for inward FDI differ between greenfield investments and mergers and acquisitions (M&A), and people are more likely to have a negative attitude toward M&A than greenfield investments. People with a negative image of the so-called “vulture fund” for foreign capital tend to oppose inward FDI, and this is more pronounced for M&A than greenfield investments. Moreover, loss aversion and high time preference rates are strongly related to opposition to inward FDI, and people with such behavioral biases tend to refuse indigenous firms to be acquired by foreign capital, even if they agree to accept greenfield investment. These results indicate that people’s preferences for inward FDI depend more on non-economic attributes than economic attributes. Our results also suggest that a lack of economic literacy is associated with unconscious biases against accepting inward FDI.

Yasushi Kawabata (Nagoya City University), Yasuhiro Takarada (Nanzan University)
"Greening Trade Agreements Through Harmonization of Environmental Regulations"
Environmental and Resource Economics
https://doi.org/10.1007/s10640-023-00787-1

Countries are increasingly using free trade agreements (FTAs) and customs unions (CUs) to cooperate on environmental issues by including environmental provisions in regional trade agreements (RTAs). We examine whether countries form RTAs with regional environmental regulations and join a multilateral trade agreement (MTA) with a common environmental regulation that maximizes world welfare. Each government imposes an environmental tax to mitigate negative externalities caused by the consumption of differentiated goods. The main finding is that a deep FTA with regional harmonization of environmental taxes may act as a stumbling block for an MTA with multilateral harmonization of environmental taxes if the degree of product differentiation is intermediate. In contrast, a deep CU with a regional environmental tax serves as a building block, even if negative consumption externalities are transboundary.

Jared Desello (Japan University of Economics), Mary Grace Agner (University of Asia and the Pacific)
"Financial Inclusion and the Role of Financial Literacy in the Philippines"
International Journal of Economics and Finance
https://doi.org/10.5539/ijef.v15n6p27

This paper studies the relationship between financial literacy and financial inclusion in the Philippines using data gathered from the 2019 Financial Inclusion Survey (FIS). We apply ownership of financial account and use of financial services as indicators of financial inclusion.
Financial Inclusion and the Role of Financial Literacy in the Philippines | Desello | International Journal of Economics and Finance | CCSE[https://doi.org/10.5539/ijef.v15n6p27] Financial Inclusion and the Role of Financial Literacy in the Philippines doi.org