Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns

We apply a modified "gravity model" incorporating measures of factor endowments to analyze Japanese and U.S. bilateral trade flows and direct foreign investment positions with a sample of around 100 countries for the period 1985–1990. Country features that our analysis takes into account are population, income, the land–labor ratio, the average level of education, and region. We find that features of a country associated with more trade with either Japan or the United States also tend to be associated with more direct foreign investment (DFI) from Japan or the United States. U.S. economic relations with Japan and Western Europe provide an important exception. Despite U.S. concern about its trade deficit with Japan, we find Japan to be much more open to the United States, not only as a source of imports, but also as a destination for U.S. exports than most countries in Western Europe. Taking other factors into account, however, Western Europe is more open to U.S. direct foreign investment. We also find that a country′s level of education tends to increase significantly U.S. interaction of all types with that country, even after correcting for per capita income. Education does not play a significant role in Japanese trade patterns. As factor endowment theory would predict, the United States tends to trade more with densely populated countries, while Japan tends to import more from sparsely populated countries. Even after taking into account population, income, factor endowments, and region, there is a substantial degree of "bilateralism" in Japanese and U.S. economic relationships in that the residual correlation among exports, imports, and outward direct foreign investment is much larger than would be the case if these magnitudes were independent across countries. J. Japan. Int. Econ. December 1994, 8(4), pp. 478–510. Boston University, Boston, Massachusetts 02215; and National Bureau of Economic Research, Cambridge, Massachusetts 02138.     

The effects of Japanese social security retirement benefits on personal saving and elderly labor force behavior

Japanese annual time-series data covering the period 1951 to 1982 reveals that changes in the program of social security retirement benefits have substantial influence on personal saving and retirement behavior. The empirical results show that social security retirement benefits depress personal saving by approximately 13,500 yen per capita in real terms from 1951 to 1982. However, declining labor force participation of the elderly (i.e., earlier retirement) stimulates personal saving by an estimate 500 yen over the same period. The study finds that the benefit effect dominates the retirement effect. The net effect is consequently a downward impact on personal saving. The parameter estimates indicate that the retirement behavior induced by social security retirement benefits tends to become more sensitive and responsive to a rise in the benefits. In addition, this study has identified a negative interdependency between the personal saving and labor retirement behaviors; that is, an individual saves more before retirement if he expects to stay a shorter time in the labor market, and vice versa. Moreover, personal saving influenced by retirement behavior tends to become less and less responsive, though the results indicate a relatively large response, and although very small, the retirement behavior gradually becomes more responsive to changes in personal saving.     

Life cycle and bequest savings A study of Japanese and U.S. households based on data from the 1984 NSFIE and the 1983 survey of consumer finances

This paper investigates whether the elderly save or dissave in light of two newly available sets of cross-section micro data, the 1983 “Survey of Consumer Finance” for the United States and the 1984 “National Survey of Family Income and Expenditure” for Japan. Contrary to dominant earlier findings we find for the United States that families after retirement dissave on average about a third of their peak wealth by the time of death, leaving the rest (mostly their homes) as bequests. For Japan, special handling is made to eliminate possible sample selection bias due to the different economic characteristics of the elderly forming independent households and those living with children. We find that the elderly belonging to both groups continue to save, and moreover, there appear to be significant signs of ongoing wealth transfer between the generations. The data in both countries also show that the elasticity of saving with respect to a life time income measure is significantly greater than unity, and more strongly so within higher age groups. J. Japan. Int. Econ., December 1988, 2(4), pp. 450–491. Department of Economics, University of Pennsylvania, Philadelphia, PA 19104-6297, and National Bureau of Economic Research.     

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.     

What Lessons Should Japan Learn from the U.S. Deposit-Insurance Mess?

In any representative democracy, public officials are subject to incentive conflict. Japan can benefit from understanding and eliminating the particular conflicts in bureaucratic incentives that make U.S. regulators reluctant to acknowledge and resolve deposit-institution insolvencies in a timely fashion. Weaknesses in accountability for the delayed consequences of regulatory decisions tempt regulators to help inefficient and insolvent banks to resist exit at the expense of other parties. To improve incentives, the consequences of regulatory choices must be made transparent enough for outsiders to monitor them. This can be done by assigning responsibility for privately insurable risks to private coinsurers and defining more fully government responsibilities for monitoring and minimizing financial institutions′ exposure to catastrophic risk. J. Japan. Int. Econ., December 1993, 7(4), pp. 329–355. Department of Finance, Boston College, Chestnut Hill, Massachusetts 02167.     

Stock market rationality and price volatility: Tests using Japanese data

This paper tests the stock market rationality hypothesis, which implies that a stock price is determined as the discounted sum of optimally forecasted future dividends. Mankiw-Romer-Shapiro volatility tests and new volatility tests which do not use the unobservable “ex post rational price” are applied to the data from a stock market in Japan. A Hausman type specification test of the market rationality hypothesis is also developed and applied to the data. The results suggest that we cannot reject the hypothesis that the Japanese stock market is rational. A couple of variance inequalities are violated by the data but the violation does not seem to be significant. J. Japan. Int. Econ., December 1987, 1(4), pp. 441–462. Massachusetts Institute of Technology, Cambridge, MA 02139.     

The Impact of Social Safety Net Programs on Household Savings in Colombia

This paper seeks to understand and quantify how social safety net programs impact household savings in developing countries, considering the case of Colombia using two complementary approaches. The first approach explores how the health regime affects savings in the country. The second evaluates the impact on savings of familias en acción, a major antipoverty conditional cash transfer program. The results suggest that the savings of informal households are higher than those of formal households, because, with little incentive to enter the formal job market, informal households need to cover slightly greater non‐covered risks. The results also show that familias en acción recipients save more than non‐recipients because recipients favorably adjust their expenditure patterns.     

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.     

African Americans and U.S. Politics: The Gradual Progress of Black Women in Political Representation

This paper argues that since the 1960s, African Americans have substantially increased their political participation in the U.S. political system. It claims that Blacks in the U.S. have built a strong political foundation and that their influence in the country’s political system has grown within the past four decades. The paper highlights, however, that more Black women tend to be active participants in the electoral process than Black men and that there is the potential for Black women to equal or surpass Black men in the number of elected officials within their race in the years and decades to come.

Estimating the effect of the one-child policy on Chinese household savings - Evidence from an Oaxaca decomposition

Researchers have long puzzled over China's high household savings rate. Some have hypothesized that the explanation lies with China's One-Child Policy (OCP). According to this hypothesis, faced with fewer children to support them in their old age, Chinese parents increased their savings to finance retirement. Previous research relied on empirical studies of the relationship between children and saving behavior. However, all of these studies based their analysis on data after the OCP was implemented. Their implicit counterfactual for China without an OCP was households with multiple children living in an OCP environment. In contrast, we compare Chinese people with people from regions that do not have restrictive population policies. These regions share many cultural, demographic and economic characteristics with China that suggest they can be used as a counterfactual for China. This approach enables us to employ a Blinder-Oaxaca decomposition procedure to identify the different channels by which children could affect savings. Our results suggest that the OCP decreased households' proclivity to save. The estimated effects are generally small, in the range of one to two percentage points. We find no evidence to indicate that the OCP can explain China's high saving rate. An implication of our findings is that they suggest that the recent relaxation of the OCP cannot be counted upon to substantially boost Chinese consumption.     

Pension reform and saving in Britain

The paper examines the pension programme in Britain, focusingon reforms that have increased the fraction of the work-forceopting out of public provision and that have permitted individualsto choose their private pension provider. It also examines theissue of pension provision and household saving. The paper highlightsthe disparities in retirement saving behaviour across typesof pension provision and different households. The paper discussesthe policy issues of the adequacy of household saving, and theimpact of pension reform on household saving and the publicfinances.     

Demographic Effects on Personal Saving in the Future

After briefly examining the various proposed causes for the decline in the U.S. personal saving rate in the past decade, this essay then argues that a shift in the demographic composition of the population will be a much more important cause for a decline in personal saving in the future. A change in the balance between those in the labor force who are saving and retirees who are dissaving will result in a considerable fall in the aggregate saving rate under most assumptions. The simulation model used to examine this phenomenon takes into account the interest rate, the growth rate of the economy, the retirement age. the growth of population, and the life expectancy. Attention is also given to certain consequences of the fall in the saving rate, such as changes in the interest rate, changes in asset prices, and a decline in the GDP growth rate.     

Household savings in China

The domestic saving rate in China is the highest in the world and it surpasses the investment share in GDP, which is also very high by international standards. This excessive saving results in a large current account surplus. Understanding why the Chinese save so much is a central issue in the debate on global imbalances. The goal of our paper is to analyse empirically Chinese household saving behaviour taking into account the disparities within the country, at the provincial level and between rural and urban households. We first show that, notwithstanding the rising contribution of government and firms to national savings the real peculiarity lies with Chinese families. We move from Modigliani and Cao's (2004) attempt to explain rising personal saving in China within the life cycle hypothesis and show how a more careful analysis indicates that life-cycle determinants do not suffice, especially in the most recent period. Once we consider regional differences and distinguish urban and rural households using provincial-level data, it becomes clear that additional explanations are needed and that precautionary motives and liquidity constraints are playing an important role. Our results suggest that in order to reduce the propensity to save of Chinese households it is necessary to improve social services provision and to facilitate the access to credit.     

How to Share Our Risks Efficiently? Principles for Optimal Social Insurance and Pension Provision

The efficient organisation of social insurance is an important problem for modern societies. The paper discusses evidence that shocks in labour income have largely persistent effects and analyses the implications of this observation for the optimal design of institutions for wage contracting, social security, and pensions. In an optimal contract, wages reflect variations in individual productivity for incentives reasons. However, the optimal contract insures workers against firm specific shocks. These can better be born by shareholders who can diversify risks on capital markets. Progressive income taxation provides further insurance. On top of that there is scope for additional insurance based on ‘verifiable’ information on unemployment and health conditions. As final form of ‘insurance’, the paper analyzes the role of self-insurance. Income shocks can be absorbed partially by precautionary saving. The individual’s saving plans for retirement and for precaution are, therefore, related issues. In an institutional setting with mandatory saving for retirement, an integration of disability and unemployment insurance on the one hand and the pension system on the other hand in a lifetime savings account allows for this interrelation. The paper analyzes how to deal with the uncertainty in the return on savings in the framework of a lifetime saving account.     

Regionalism: An Overview

Regional trading arrangements are proliferating. This overview considers some of their implications. Section I reviews the paradigm of traditional trade theory which emphasizes the "second best" nature of these arrangements. It also evaluates the conditions under which they are permitted by the GATT. Section II notes that these arrangements increasingly move beyond simply removing internal border barriers toward deeper forms of integration involving common behind-the-border policies and systems of governance. Taking account of these aspects of the arrangements requires a different analytic paradigm, which evaluates these arrangements as an alternative to national governance rather than simply as a means of liberalizing trade. Section III considers existing and emerging regional arrangements in Europe, North America, and Asia in light of these paradigms. J. Japan. Int. Econ., Dec. 1994, 8(4), pp. 365–387. John F. Kennedy School of Government, Harvard University, and National Bureau of Economic Research, Cambridge, Massachusetts; and Brookings Institution, Washington, DC.     

International Saving, Investment and Trade

Feldstein and Horioka (Econ J 90:314–329, 1980) observed that saving and investment move closely together in the major OECD countries. This finding is a puzzle if national economies are characterized by one sector neoclassical production functions—with diminishing returns to capital, a high level of savings in a country should create an incentive to export capital. In this paper, we show that this incentive disappears in the presence of multiple sectors with differing capital intensities. In a high saving country, national capital can be absorbed domestically without a decline in its marginal product through a shift in the sectoral composition of national production towards capital intensive sectors. This is nothing but the well-known Rybczynski effect. We present a modified version of the standard Heckscher–Ohlin (HO) Model to show that very small barriers to capital mobility are enough to force national savings to stay within the country of origin. We also argue that, while the assumptions of this model may appear special, they are not unrealistic for the developed countries in the Feldstein Horioka study. Some historical economic trends are also consistent with the picture presented in this paper. Finally, the paper shows that the conventional insights from the one sector neoclassical model can be completely overturned in a multi-sector setting when technological differences are introduced.

Saving puzzles and saving policies in the United States

In the past two decades the widely reported personal savingrate in the United States has dropped from double digits tobelow zero. First, we attempt to account for the decline inthe National Income and Product Accounts (NIPA) saving rate.The macroeconomic literature suggests that 40-50 per cent ofthe drop since 1988 can be attributed to households spendingstock-market capital gains. Another 30 per cent is accountingtransfers from personal saving into government and corporatesaving because of the way pensions and capital gains taxes aretreated in the NIPA. Second, while NIPA saving measures arewell suited to measuring the supply of new funds for investmentand capital accumulation, it is not clear that they should bethe target of government saving policies. Finally, we emphasizethat the NIPA saving rate is not useful in judging whether householdsare preparing for retirement or other contingencies. Many householdshave accumulated significant wealth, primarily through retirementsaving vehicles and capital gains, even as the saving rate slid.There remains a segment of the population who save little andwhose behaviour appears untouched either by the stock-marketboom or the slide in personal saving. We explore reasons andpolicy options for their puzzling low saving rate.     

The impact of retirement on household consumption in Japan

Using monthly data from the Japanese Family Income and Expenditure Survey, we examine the impact of retirement on household consumption. We find little evidence of an immediate change in consumption at retirement, on average, in Japan. However, we find a decrease in consumption at retirement for low income households that is concentrated in food and work-related consumption. The availability of substantial retirement bonuses to a large share of Japanese retirees may help smooth consumption at retirement. We find that those households that are more likely to receive such bonuses experience a short-run consumption increase at retirement. However, among households that are less likely to receive a retirement bonus, we find that consumption decreases at retirement.     

U.S. current account debate with Japan then,with China now

This paper examines two U.S. current account deficit episodes, one in the 1980s and the other in the current 2000s, in which Japan and China, respectively, are the current account surplus countries that are criticized for contributing to the deficits. In both periods, U.S. policy makers pointed out the underdeveloped and closed financial markets of the current account surplus countries and advocated for these countries to fix the deficiencies, a position akin to the current “saving glut” argument. In both episodes, the current account surplus countries have criticized the United States for its low saving, especially public saving (the “Twin Deficit” argument). This paper presents empirical findings that are consistent with the Twin Deficit hypothesis; A one percentage point increase in the budget balance raises the current account balance by 0.10–0.49 percentage point for industrialized countries. The saving glut argument seems to be applicable only for countries with highly developed legal systems and open financial markets. While the United States has been experiencing a savings drought in both episodes, the Japanese current account surplus was driven by underinvestment in the 1980s and by over-saving during the 2000s. Furthermore, although the current Chinese current account surplus is driven by its over-saving, there is no evidence of excess domestic saving in the Asian emerging market countries; rather, they seem to have suffered from depressed investment in the wake of the 1997 financial crises.     

Chinese household saving and dependent children: Theory and evidence

This paper examines the impact of family size on household saving. We first study a theoretical life-cycle model that includes finite lifetimes and saving for retirement and in which parents care about the consumption by their dependent children. The model implies a negative relationship between the number of dependent children in the family and the household saving rate. Then, we test the model's implications using new survey data on household finances in China. We use the differential enforcement of the one-child policy across counties to address the possible endogeneity between household saving and fertility decisions in a two-stage least squares Tobit regression. We find that Chinese families with fewer dependent children have significantly higher saving rates. The data yields several additional insights on household saving patterns. Households with college-age children have lower saving rates, and households residing in urban areas have higher saving rates and a lower ratio of education expenditures to income. However, having an additional child reduces saving rates more for households in urban areas than in rural areas. Our regressions also indicate that saving rates vary with age and tend to be higher for households with more workers, higher education, better health, and more assets.