Causes of the Long Stagnation of Japan during the 1990s: Financial or Real?

Corporate investment is the most important factor to explain the long stagnation of Japan during the 1990s. Using the Bank of Japan diffusion indices of “real profitability” and “banks' willingness to lend,” we estimate investment functions for four groups of firms: large/small and manufacturing/non-manufacturing. Our results suggest that for large firms, financing constraints are not significant whereas the converse is true for small firms. A fall of investment during 1992–94 is largely explained by real factors. However, the credit crunch occurred beginning 1997 and it lowered the growth rate of GDP by 1.6%. J. Japan. Int. Econ., September 1999, 13,(3), pp. 181–200. Faculty of Economics, Nagasaki University, 4-2-1 Katafuchi, Nagasaki 850-8506, Japan; and Faculty of Economics, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: E22, E30, G21, N15.     

Monetary Policy, Credit, and Real Activity: Evidence from the Balance Sheet of Japanese Firms

We analyze the mechanism of monetary transmission in the Japanese economy by using the quarterly time series data disaggregated by firm size. In particular we examine the channels through which monetary policy influences the firm's fixed investment with special focus on the firm's land. We estimate the vector autoregressive model where we encompass two competing hypotheses on the monetary transmission: monetary and credit channels. Our evidence is in support of the credit channel. We find that land has played a vital role in the monetary transmission, especially for small firms. Moreover, we find that fall of land value in 1990s weakened the efficacy of monetary policy considerably. J. Japan. Int. Econ., December 2000, 14(4), pp. 385–407. Institute of Social and Economic Research, Osaka University, Osaka, Japan Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: E22, E32, E44, E51.     

Japanese Nuclear Power and the Kyoto Agreement

A global computable general equilibrium model is used to evaluate interactions of nuclear power and climate change policy in Japan. We find that to match official Japanese forecasts for nuclear power would require subsidies of 50 to 70 percent. We find that the carbon price is $20 to $40 (US 1995$) per ton higher compared with the unconstrained case if nuclear expansion is limited to plants already commissioned or under construction, a scenario whose likelihood increased as a result of the recent nuclear accident. J. Japan. Int. Econ., September 2000, 14(3), pp. 169–188. Joint Program on the Science and Policy of Global Change, 77 Massachusetts Avenue, Building E40-263, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139-4307. Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: Q4, Q2, F1.     

Japanese Regulation of Truck Transport

Since 1951 the Japanese Ministry of Transport has been vested with sweeping authority to restrict entry and set prices in commercial trucking, but the standard price schedules that it continues to publicize and periodically revise are in fact widely disregarded by commercial trucking firms. There are no economies or diseconomies of scale and firms have expanded until industry profits are exhausted. The changes in truck transport regulation introduced in 1991 were mainly directed at freeing a new activity, parcel delivery service, from regulatory constraints and spreading some of the benefits to others in the industry. J. Japan. Int. Econ., March 2001, 15(1), pp. 1–28. Department of Economics, North Carolina State University, Raleigh, North Carolina 27695-8110. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: L92, L51.     

Determinants of Trade Credit in the Japanese Manufacturing Sector

This paper examines the determinants of trade credit in Japanese manufacturing companies. The empirical analysis presents evidence that the volume of trade credit is influenced not only by transactional factors but also by financial positions. The empirical test reveals that firms' future business prospects affect the volume of trade credit. Notably, for small firms whose liquidity is constrained, nontransactional factors such as an increase in cash flow reduce the need for trade credit. This paper also finds that trade payables act as a complement to bank loans. The quantitative relationship between trade payables and bank loans suggests that when monetary policy works in the financial markets, it also influences the trade-related credit markets. J. Japan. Int. Econ., June 2001, 15(2), pp. 160–177. Department of Economics, Fukushima University, 1 Kanayagawa, Fukushima-shi, Fukushima 960-1296, Japan. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: E52, G32.     

U.S. Distribution Entry Strategy of Japanese Manufacturing Firms: The Role of Keiretsu

This article identifies the determinants of three modes of foreign market entry into distribution activities—arm's-length contracts, joint ventures, and wholly owned subsidiaries—and assesses the impact of unique institutional structures on the decision. We examine 310 Japanese manufacturers' entries into the U.S. market and find evidence that keirestu affiliation significantly increases the likelihood that contracts are chosen, suggesting common keiretsu membership by manufacturers and general trading companies mitigates agency problems in contractual delegation of foreign distribution activities. Regading the choice between joint ventures and wholly owned subsidiaries, relaxed capital and information constraints increase the likelihood that keiretsu firms establish wholly owned subsidiaries. J. Japan. Int. Econ., March 2000, 14(1), pp. 43–72. Anderson Graduate School of Management, University of California, 110 Westwood Plaza, Los Angeles, California 90095-1481; A. T. Kearney, 222 West Adams, Chicago, Illinois 60606 Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: E23, L22, L14.     

The Japanese Labor Markets: Unemployment and Vacancies

We employ a disequilibrium model to examine the disequilibrium and structural causes of unemployment and vacancies in Japanese labor markets on the basis of business survey data. The Keynesian is a primary determinant of unemployment and the underconsumption of vacancies in most subperiods for both large and small firms. The degree of mismatch in the labor markets for large firms is lower than that for small ones. It exhibits a decreasing trend until the beginning of the eighties, then reverses to an increasing one around the mid-eighties. This paper contributes to issues such as recently conspicuous structural causes, transfer of employees, and dual structure through an alternative approach to the conventional methods. J. Japan. Int. Econ. June 1999, 13(2), pp. 91–118. Faculty of Economics, Tohoku University, Sendai 980-8576, Japan; and Faculty of Economics, Niigata University, Niigata 950-21, Japan. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: D58, J60, C40.     

Identifying Monetary Policy Shocks in Japan

It is sometimes argued that central banks influence the private economy in the short run by controlling a specific component of high-powered money, not its total amount. Using a structural VAR approach, this paper evaluates this claim empirically, in the context of the Japanese economy. I estimate a model based on the standard view that the central bank controls the total amount of high-powered money, and another model based on the alternative view that it controls only a specific component. It is shown that the former yields much more sensible estimates than the latter. J. Japan. Int. Econ., March 2000, 14(1), pp. 22–42. Department of Economics, Yokohama National University, 79-3 Tokiwadai, Hodogayaku, Yokohama 240-8501, Japan. Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: E52, E58, C32.     

Are Corporate Financing Decisions Different in Japan? An Empirical Study on Capital Structure

This paper investigates empirically how Japanese firms determine capital structure. I show that a firm's capital structure in Japan can be explained, to some extent, by real factors derived from theories of the capital structure. I also find remarkable results showing that the capital structure of Japanese firms is substantially affected by the institutional and regulatory characteristics of Japanese capital markets. Therefore, I conclude that both real and institutional factors are important determinants of corporate financing decisions in Japan. This result indicates that it is necessary to consider both theories and institutional features in each country to fully understand a firm's capital structure choice. J. Japan. Int. Econ., September 1999, 13(3), pp. 201–229. School of Commerce, Waseda University, 1-6-1, Nishiwaseda, Shinjuku-ku, Tokyo, 169-8050, Japan. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: G15, G32, G38.     

Trade and the Wage Structure in the Presence of Price Differentials in the Product Market: The Japanese Labor Market 1965–1990

The decomposition of demand into domestic, export, and import components in a cross-industry study of 18 two-digit manufacturing industries suggests that export growth has less of an impact on interindustry wage differentials than the equivalent growth in domestic demand. The difference seems to be greatest in the case of full-time workers in large firms. This result for Japan is different from those of similar studies for the United States and is consistent with a model of industry rent-sharing with domestic–international price differentials in the product market.J. Japan. Int. Econ., March 1999,13(1), pp. 22–43. Nissan Institute of Japanese Studies, Oxford University, 27 Winchester Rd., Oxford OX2 6NA, EnglandCopyright 1999 Academic Press.Journal of Economic LiteratureClassification Numbers: F14, J31.     

Determinants of Individual-Firm Markup in Japan: Market Concentration, Market Share, and FTC Regulations

This paper estimates individual firm level markup for more than 400 major manufacturing firms in Japan. Our estimates suggest the presence of significant market power for most of these firms, due not only to market concentration but also to the firms' own market shares, as well as advertizing and sales promotion efforts. The paper then goes on to assess systematically the impact on estimated markups of regulatory measures taken by the Fair Trade Commission (FTC) of the Japanese Government. We find that non-punitive FTC activities are directed toward the right targets and are reasonably effective, whereas injunctions, the strongest measure endowed to the FTC, has essentially no effect on the markups of firms in our sample. J. Japan. Int. Econ., Dec. 1999, 13(4), pp. 424–450. Institute of Economic Research, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan; Institute for Social and Economic Research, Osaka University; and Faculty of Economics, University of Tokyo. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: L13, L41.     

Declining Self-Employment in Japan

The self-employment rate has decreased in Japan. This paper examines reasons why working householders aged below 55 avoid self-employment, focusing on age, location, and gender effects. Increasing age and living in local areas encourage householders to be self-employed. Between 1989 and 1994, however, both the age and local effects weakened, while the positions of self-employed females were not improved. We estimate earnings functions for self-employed workers and employees, controlling sample selection bias. The decline in real income of self-employed workers relative to employees particularly in metropolitan areas was more likely to prevent over-35 householders from being self-employed. J. Japan. Int. Econ., March 2002, 16(1) pp. 73–91. Faculty of Economics, Gakushuin University, 1-5-1 Mejiro Toshima-ku, Tokyo 171-8588, Faculty of Economic, Tokyo Metropolitan University, 1-1 Minami-Osawa, Hachioji-city, Tokyo 192-0397, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: J23, J24, J31.     

Modifications of the Balassa–Samuelson Model: The Effects of Balanced Growth and Capital Accumulation

In this paper modified versions of the Balassa–Samuelson model are developed. We stress the effects of balanced productivity growth and capital accumulation, which is often ignored or not fully understood in existing studies. Our theoretical analysis shows that these effects and the differential productivity growth effect can be presented in a unified framework. Empirical estimates using 1970–1990 sectoral data for the OECD show that our modified models are more suited to the data than the commonly used Balassa–Samuelson model. J. Japan. Int. Econ., March 2002, 16(1) pp. 31–49. Faculty of Economics, Nagasaki University, 4-2-1 Katafuchi, Nagasaki 850-8506, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: F36; F41; F43.     

Does International Diversification Really Diversify Risks?

This paper demonstrates that large adverse shocks are more highly correlated with one another than positive shocks across national stock markets of industrialized economies. This finding is robust if we allow for an ARCH process or if we exclude the data of October 1987. It is shown that the negative skewness of the world market portfolio is primarily responsible for such time-varying correlations of national stock markets. We propose to model the world market portfolio return by using the extended QGARCH model of J. Y. Campbell and L. Hentschel (1992, J. Finan. Econ.31, 281–318). The finding suggests that the U.S. investors' benefit from international portfolio diversification could be far more limited than is commonly thought. J. Japan. Int. Econ., March 2002, 16(1) pp. 109–134. Institute of Economic Research, Hitotsubashi University, Kunitachi-city, Tokyo 186–8603, Japan; and Institute of Policy and Planning Sciences, University of Tsukuba, Tsukuba, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: F30, G11, G15.     

Impacts of the Basle Capital Standard on Japanese Banks' Behavior

This paper examines how the risk-based capital standards, the so-called Basle Accord, influenced 87 major Japanese banks' behavior between 1990 and 1993. As the Japanese stock prices fell, banks' latent capital gains, which is part of tier II capital, became smaller. Empirical findings are consistent with a view that banks with lower capital ratios tended to issue more subordinated debts (tier II) and to reduce lending (risk assets). J. Japan. Int. Econ., September 2002, 16(3), pp. 372–397. Institute of Economic Research, Hitotsubashi University, Kunitachi, Tokyo 186-8603, Japan; and Faculty of Economics, Meiji Gakuin University, Tokyo 108-8636, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: G18, G21, G28.     

A panel study of zombie SMEs in Japan: Identification,borrowing and investment behavior

Utilizing a panel dataset of firms for the period 1999–2008, we estimated the prevalence of zombies among Japanese Small- and Medium-sized enterprises (SMEs) and their borrowing and investment behaviors. We observe that 4–13% of SMEs were zombie firms during the period 1999–2008. The estimation of the borrowing function reveals that SME zombie firms did not change their loans in response to a change in land values due to evergreening. We also observe that the profitability of investment, measured by marginal q, did not have positive effects on investments of zombie firms. This indicates that investment increase resulting from evergreen loans was not necessarily productive or profitable.     

Long-Run Relationship between Consumption and Income in Japan: Tests of the Deterministic Cointegration Restriction

This paper reexamines two versions of the permanent income hypothesis derived from R. E. Hall (1978, J. Polit. Econ.86, 971–987) and R. G. King, C. L. Plosser, J. H. Stock, and M. W. Watson (1991, Amer. Econ. Rev.81, 819–840) using Japanese quarterly data. The main focus is on the relationship between stochastic and deterministic trends of consumption and income. It is found that the deterministic cointegration restriction implied by the two models is strongly rejected in Japan in contrast to the U.S. result, and the rejection of King et al.'s model depends on the existence of a trend break. This finding suggests that the postwar Japanese economy experienced the change in a steady state path considered by the neoclassical growth model. J. Japan. Int. Econ., June 2002, 16(2) pp. 253–278. Graduate School of Economics, Hitotsubashi University, 2-1 Naka Kunitachi, Tokyo 186-8601, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: C32, E21.     

Retirement Saving in Japan: With Emphasis on the Impact of Social Security and Retirement Payments

In this paper, we apply Kazuo Sato's target wealth hypothesis to saving for life after retirement and analyze the impact of social security wealth, retirement payments, permanent income, and other factors on people's retirement saving using micro data from the Survey of Social Security and Self Help, which was conducted in 1996 by the Japan Institute of Life Insurance. Our findings provide strong confirmation of the target wealth hypothesis and of the life cycle model and imply that the Japanese take account of their future social security benefits and retirement payments, their permanent income, etc., when saving for life after retirement. J. Japan. Int. Econ., June 2001, 15(2), pp. 131–159. Graduate School of Economics, and Institute of Social and Economic Research, Osaka University, 6-1, Mihogaoka, Ibaraki, Osaka, 567-0047, Japan. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: D12, D91, E21, H55.     

On the Determinants of Career Interruption by Childbirth among Married Women in Japan

The purpose of this paper is to investigate determinants of job continuity across childbirth for married women in Japan. We use data from the Statistical Bureau's 1992Employment Status Surveyon nearly 8000 married women who were employed right before childbirth. Our estimation and simulation results suggest that education and access to child care are important determinants for a married woman to continue her work across childbirth, while high wages and short working hours help her to continue to work but are less important determinants. Also, the estimation result suggests that diversified working environments across industries and firm sizes possibly influence women's decisions.J. Japan. Int. Econ., March 1999,13(1), pp. 73–89. Tokyo Metropolitan University, Department of Economics, Hachioji, Tokyo 192-03, Japan; and University of Tsukuba, Institute of Policy and Planning Sciences, 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8573, Japan.Copyright 1999 Academic Press.Journal of Economic LiteratureClassification Numbers: J22.     

Biased Technological Change and Japanese Manufacturing Employment

This paper examines the effect of technological change on the demand for production and nonproduction workers of the Japanese manufacturing industries since the 1980s. First, a decomposition of the change in the share of nonproduction workers in total employment into between-industry shifts and within-industry shifts reveals that the within-industry shifts were dominant in the 1980s. Second, cross-sectional regressions show that investment in computers has had a significant impact on increasing the share of the wage-bill held by nonproduction workers. These findings suggest that skill-biased technological change is at work in Japanese manufacturing industries. J. Japan. Int. Econ., September 2001, 15(3), pp. 298–322. Development Bank of Japan, 1-9-3 Otemachi, Chiyoda-ku, Tokyo 100-0004, Japan. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: J23, J31, O30.