Regional Dynamics in Japan: A Reexamination of Barro Regressions

Cross-section regressions, so-called “Barro regressions,” have been widely used in world and regional income data to test whether convergence takes place. This paper applies alternative methodologies, a time series test and a Markov chain model, to Japanese prefectural data and reexamines the results of J. Barro and X. Sala-i-Martin (1992,J. Japan. Int. Econ.6, 312–346). These methodologies show that the hypothesis of convergence as “catching up” does not hold for Japanese prefectural data. Through analyses similar to those of Barro and Sala-i-Martin, Markov chain models are shown to be more informative than cross-section regressions about the evolution of cross-section data.J. Japan. Int. Econ., March 1999,13(1), pp. 61–72. ECO/CS3, OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France.Copyright 1999 Academic Press.Journal of Economic LiteratureClassification Numbers: C21, C22, C23, E32, E37, O41.     

Measuring the Liquidity Effect: The Case of Japan

In this paper, we measure the liquidity effect in Japan, complementing the work done by F. Hayashi (2001, Int. Econ. Rev.42, 287–316) and compare it to the liquidity effect in the United States. Since institutional features are similar across these two countries, we apply J. Hamilton's (1997, Amer. Econ. Rev.87, 80–97; 1998, Carnegie-Rochester Conf. Ser. Public Pol. 49, 1–44) methodology to estimate the liquidity effect for each day of the maintenance period. Detailed daily data supplied by the Bank of Japan enable us to obtain more accurate estimates for Japan. Our key findings, which are not found in F. Hayashi (2001, Int. Econ. Rev.42, 287–316) are as follows: (1) On the final day of a reserve maintenance period, both countries show the strongest evidence of the liquidity effect, and (2) in both countries the liquidity effect tends to be larger and more statistically significant toward the end of the period. J. Japan. Int. Econ., September 2002, 16(3), pp. 289–316. Ministry of Economy, Trade and Industry, 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: E43, E44, E52.     

Missing Household Saving and Valuation of Corporations: Inquiry into Japanese National Accounts I

The Japanese household sector has suffered a capital loss of some 400 trillion yen (in 1990 consumption prices) since 1970. This is a large enough loss to explain the Japanese recession of the 1990s. We can trace some three fourths of this capital loss to the loss in the market value of Japanese corporations relative to their accounting value (at reproduction cost). The behavior of the corporate sector leading to this loss is obscured because, in the Japanese National Accounts, the corporate sector contains both private and public enterprises, and information presented for this sector is seriously incomplete. Nevertheless, data suggest that corporations have attempted to maximize their productive capacity rather than their market value and overinvested in plant and equipment since at least 1970. An unusual corporate governance structure in Japan may have permitted and even induced corporate management to follow such a strategy. The paper concludes with a set of recommendations to improve the presentation of these issues in the National Accounts. J. Japan. Int. Econ., June 2002, 16(2) pp. 147–176. University of Pennsylvania, Philadelphia, Pennsylvania 19104 and NBER. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: C82, E21, E22, G30.     

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.     

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.     

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.     

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.     

Downward Nominal Wage Rigidity in Japan

This paper analyzes whether or not Japanese nominal wages exhibit downward rigidity. We posit a wage adjustment model in which, below a certain wage inflation rate, wages may or may not move as much as optimal or notional wages do. By using data on wages of 18 industries and aggregate time series data, we find that nominal wages were rigid downward until 1998, but not with the inclusion of years 1999 and 2000. That is, Japanese wages responded flexibly downward to the recession of 1997–1998, but with a lag. The interpretation of such results is not straightforward. But we provide some preliminary discussions of possible factors behind such a pattern of wage movements, focusing on the relationship between wage changes and the seniority-based wage system. J. Japan. Int. Econ., March 2001, 15(1), pp. 50–67. The Bank of Japan, Chuo-ku, Tokyo 103-0021, Japan. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: E24, E31, J30.     

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.     

International Trade and Bank Groups: Welfare Enhancing or Welfare Reducing?

In international competition, are bank groups efficiency enhancing or efficiency reducing? This paper attempts to clarify this issue by asking instead: efficiency for whom? In a simple, illustrative model, this paper shows that bank groups can be efficiency enhancing for the bank and the member firms, but hurting its competitor. More important global welfare rises with bank groups. These results are robust when we allow the bank and the member firm to bargain over its loan rate, when bank groups can be formed endogenously and when there are multiple exporters. Results in this paper suggest alternative interpretations of existing econometric results concerning the role of Japanese groups in U.S.–Japan trade. J. Japan. Int. Econ., June 2002, 16(2) pp. 212–226. Department of Economics, University of California, Santa Cruz, Santa Cruz, California.     

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.     

The Elusive Total Budget Outlay of the Japanese Government: An Inquiry into the Japanese National Accounts II

The gross expenditure by the general government sector in the Japanese National Accounts for 1997 was reported to be 180.5 trillion yen. This figure is known to exclude some components of the fiscal activity of the government. Hence, while this figure is well defined, it is incomplete as a measure of the total expenditure of the Japanese government. The Fiscal Statistics issued by the Ministry of Finance, on the other hand, reports that net total outlay of the central government alone for 1997 was 170.0 trillion yen. When the provincial and local governments' outlay is added and adjusted for duplication, the total outlay is estimated at 234 trillion yen. The definition for this figure, however, is quite vague. It is extremely difficult to pin down the total government expenditure from the fiscal records of the government. The measurement of other concepts encounters similar problems. In this paper, we explore reasons why the fiscal records of the Japanese government are so obscure. We also consider what may be done to generate measures of fiscal activities of the Japanese government that are easily interpretable and usable in assessing their macroeconomic impacts. J. Japan. Int. Econ., June 2002, 16(2) pp. 177–193. University of Pennsylvania, Philadelphia, Pennsylvania 19104, and NBER. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: C82, H10, H50, H60, H70, H80.     

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.     

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.     

Composition Effect of Migration and Regional Growth in Japan

I study roles of internal migration in regional income convergence in Japan. According to theory, migration from poor regions to rich ones should have been an important source of convergence, but previous empirical studies do not find such an effect. Some have argued this may be because migrants carry higher human capital than nonmovers. I investigate this hypothesis critically by studying how migration has affected educational attainment and demographic structure of the regions. It is shown that, although this effect did slow down convergence, its magnitude was too small to account for the discrepancy between theory and empirics. J. Japan. Int. Econ., March 2001, 15(1), pp. 29–49. Department of Economics, Yokohama National University, 79-3 Tokiwadai, Hodogaya-ku, Yokohama 240-8501, Japan. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: O40, O53, R11, R23.     

Can IT be Japan's savior?

This paper constructs a multi-sector model to take explicit account of the very sharp change in the relative price between non-IT and IT goods. The model is calibrated to the Japanese economy, and its solution path from 1990 on is compared to Japan's macroeconomic performance in the 1990s. Compared to the one-sector analysis of Japan in the 1990s [Hayashi, F., Prescott, E.C., 2002. The 1990s in Japan: A lost decade. Rev. Econ. Dynam. 5, 206–235], our model does slightly better or just as well in accounting for Japan's output slump and does worse in accounting for the capital–output ratio. We also show that, to revive a 2% long-term growth in per capita GDP, Japan needs to direct 10% of private total hours to the IT sector. J. Japanese Int. Economies 19 (4) (2005) 543–567.     

Why Are There Rich and Poor Countries? Symmetry Breaking in the World Economy: A Note

This paper extends K. Matsuyama (1996, Journal of the Japanese and International Economies, 10, 419–439) to allow for the presence of a fixed factor such as land. By assuming that agricultural production is more land-intensive than manufacturing production, we generalized Matsuyama's results on symmetry breaking in the world economy. That is, international trade by causing an agglomeration of economic activities in different countries of the world makes inevitable the coexistence of rich and poor. J. Japan. Int. Econ. June 1999, 13(2), pp. 140–149. Department of Economics, Tufts University, Medford, Massachusetts 02155. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: F12 and O12.     

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.     

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.