Individual Characteristics,Behavioral Biases,and Trade Policy Preferences: Evidence from a Survey in Japan

Import liberalization is one of the most actively debated issues in trade policy. This paper examines how trade policy preferences are related to individual characteristics based on a survey in Japan. Among 10,000 surveyed individuals, people working in non‐agricultural sectors, those working in managerial occupations, or those above retirement age tend to favor freer imports. This paper also finds that people who are influenced by the status quo bias are likely to oppose import liberalization even after controlling for each individual's various characteristics, suggesting that neither income compensation nor insurance schemes are sufficient for expanding support for free trade.     

R&D,Firm Size and Innovation Outputs: Are Japanese Firms Efficient in Product Development?

Although Japanese firms in various industries enjoyed outstanding success during the 1980s, the recent economic news has been less favorable. Like their American counterparts, Japanese managers have faced difficult decisions regarding plant closures, layoffs, and moving production facilities overseas. Many Japanese business leaders attribute the innovation successes of the 1980s, at least in part, to economies of scale resulting from increases infirm size. If this assertion holds true, the current economic climate in Japan seems certain to result in diminished economies of scale for innovative activities. Ryuhei Wakasugi and Fumihiko Koyata test this assertion in a statistical study of the innovation efficiency of Japanese electrical machinery firms. In other words, their study explores whether the hypothesized economies of scale apply to the innovation inputs and outputs of these firms. They examine the manner in which R&D expenditures, patent applications, and product developments relate to the size of Japanese electrical machinery firms during the late 1980s and early 1990s—a period marked by high levels of innovative activity among these firms. For the Japanese electrical firms in this study, innovation inputs that is, R&D expenditures—increase in greater proportion than firm size. In other words, the larger firms in this study pursued their innovation efforts more aggressively than did the smaller firms in the study. In terms of R&D expenditures, however, the study does not reveal any resulting economies of scale for either patent applications or product developments. Similarly, analysis of the data in this study does not identify any economics of scale for product developments as a result of increases in firm size. In fact, the only economies of scale identified in the study involve firm size and the number of patent applications. In general terms, the statistical evidence in this study does not support the hypothesis that an increase in firm size improves the efficiency of innovation activity. To put this another way, the study does not provide evidence to support the hypothesis of economies of scale in product development.     

Impacts of the WTO accession on Chinese exports

Using firm-level panel data of the Chinese electrical machinery and communication equipment manufacturers, this paper reveals that, after the entry into the World Trade Organization (WTO, henceforth), the export of Chinese firms was accelerated by a rise of productivity, but was not uniform among ownership structures. Classifying the firms into private domestic firms, state-owned enterprises, and foreign-invested enterprises, our empirical estimation concludes that the entry into the WTO had a ‘productivity effect’ on Chinese exports, and an asymmetric ‘ownership effect,’ which was less favorable to the exports for state-owned enterprises.     

Business groups,foreign direct investment,and capital goods trade: The import behavior of Japanese affiliates

We examine the impact of buyer–supplier relationships within business groups on capital goods trade by taking into account potential simultaneous effects of business group ties on foreign direct investment. We posit that (1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing home country exports; (2) if the establishment of overseas affiliates by business group firms attracts foreign direct investment by their capital goods suppliers, business group ties are localized and the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms, combined with information on linkages with machinery suppliers within horizontal and vertical business groups, provides broad support for these predictions. Our findings suggest that it may be incorrect to infer from the absence of a simple relationship between business group ties and trade that such ties are unimportant; instead, intra-group ties may be replicated abroad through foreign direct investment.     

Offshore Outsourcing and Non‐production Workers: Firm‐level Relationships Disaggregated by Skills and Suppliers

In analysing the impact of offshoring on the skill composition, previous empirical studies have established that offshoring firms employ more non‐production workers. However, not all non‐production workers are highly skilled. This paper disaggregates non‐production workers into the following three categories: (i) skilled non‐production workers, (ii) unskilled non‐production workers and (iii) non‐production workers with special skills for offshoring and other overseas business management. By linking our offshoring survey data with firm‐level data for Japanese manufacturing firms, this paper finds that the share of skilled non‐production workers tends to be significantly high in offshoring firms but that of unskilled non‐production workers is not. As offshoring has expanded from production to non‐production tasks, this result implies that the distinction between skilled versus unskilled workers becomes critical among non‐production workers. Using our unique data on supplier types in offshoring, this paper finds that the share of non‐production workers for the management of overseas activities tends to be high in foreign direct investment firms and in firms outsourcing to foreign independent suppliers, but not in Japanese firms outsourcing to offshore suppliers located abroad but owned by other Japanese firms. This difference indicates that coordination burdens are likely to be at least partly mitigated by common languages or shared business practices. These findings suggest that offshoring has different impacts on employment depending on suppliers and the worker’s skill. The principal results are confirmed robust even after various firm characteristics are controlled for in panel regressions, though we should not give any causal interpretations.     

Productive Government Expenditures and the Current Account

This paper examines the effects of a change in government expenditure on the current account of the balance of payments using the optimizing approach. It is assumed that government expenditure is productive, and is regarded as an input in the aggregate production function. Based on the Blanchard–Fischer-type model, the paper demonstrates decisively that the current account deficit is due to a permanent increase in government expenditure.
JEL Classification Numbers: F41, H30.     

Offshore Outsourcing and Productivity: Evidence from Japanese Firm‐level Data Disaggregated by Tasks

This paper examines the relationship of offshoring with productivity, based on the original survey data of Japanese firms. Productivity gains were found in the firms offshoring both manufacturing and service tasks, but not in the firms offshoring only either manufacturing or service tasks. This paper also finds that firms offshoring to various destinations tend to be more productive than non‐offshoring firms. These results suggest that the level of firms' engagement in offshoring is more important for productivity than whether or not firms engage in offshoring.     

How do Chinese industries benefit from FDI spillovers?

Recently, Foreign Invested Enterprises (FIEs) in China have increased their investment in not only production activity but also R&D activity. This paper examines the impact of spillovers from such activities by FIEs on two types of innovations by Chinese domestic firms: Total Factor Productivity (TFP) and invention patent application, using comprehensive industry and province-level data. We evaluate such spillovers according to FIEs' ownership structure, the origin of foreign funds and whether they are from the same industry or from other industries. We find an interesting asymmetry between spillovers to TFP and invention patent applications; while we do not find significant intra-industry spillovers from FIEs but find robust inter-industries spillover related to TFP, we find substantial intra-industry spillovers promoting invention patent applications but no evidence of inter-industries spillovers. Furthermore, whereas spillovers from FIEs to Chinese firms' TFP stem from their production activities, the source of spillovers related to invention patent applications is mostly through their R&D activity. Our findings indicate a need for multidimensional evaluation of the role of FDI in developing countries.