Heterogeneity and the FDI versus export decision of Japanese manufacturers

We investigate whether productivity differences explain why some manufacturers sell only to the domestic market while others serve foreign markets through exports and/or FDI. When overseas production offers no cost advantages, our model predicts that investors should be more productive than exporters. An extension allowing for low-cost foreign production can reverse this prediction. Data for 1070 large Japanese firms reveal that firms that invest abroad and export are more productive than firms that just export. Among overseas investors, more productive firms span a wider range of host-country income levels. J. Japanese Int. Economies 17 (4) (2003) 448–467.     

Welfare State, Market Imperfections, and International Trade

Within a two-sector-two-country model of trade with aggregate scale economies and unionisation, a more generous welfare state in one country increases welfare in that country and can have positive spillover effects on the other. Furthermore, synchronised expansions of social security are more welfare enhancing than unilateral ones. Our results counter the fears that a race to the bottom in social standards may result from the ‘shrinking-tax-base’ entailed by international capital mobility. While affecting trade patterns and income distribution, capital mobility interacts with welfare state policies in increasing welfare, even when capital flows out of the country that initiates the shock.

The Spread of Industry: Spatial Agglomeration in Economic Development

This paper describes the spread of industry from country to country as a region grows. All industrial sectors are initially agglomerated in one country, tied together by input–output links between firms. Growth expands industry more than other sectors, bidding up wages in the country in which industry is clustered. At some point firms start to move away, and when a critical mass is reached industry expands into another country, raising wages there. We establish the circumstances in which industry spills over, which sectors move out first, and which are more important in triggering a critical mass.J. Japan. Int. Econ., December 1996,10(4), pp. 440–464. Centre for Economic Performance, London School of Economics; and London School of Economics and Centre for Economic Policy Research.     

Multinationals: Too Many or Too Few?— The Proximity–concentration Trade-off

The paper builds an analytically tractable model that illustrates the “proximity–concentration trade-off” involved in horizontal multinationals. For low trade costs, firms are single-plant firms, for intermediate costs, some are single-plant firms whereas others are multinationals, for large trade costs, firms are multinationals. Because of the modeling strategy, the model is suited for a welfare analysis of multinationals. It shows that too many firms choose to concentrate their production in only one location. Also, for some transport costs, a reduction in transport costs worsens welfare.

Productivity loss and reinstatement as a legal remedy for unjust dismissal

There are two types of legal remedies for unjust dismissal, damages or reinstatement. Although workers' motivation is negatively influenced by employment adjustments such as a wage cut or layoffs, fired workers can receive a remedy when they are protected by dismissal regulations. We consider which legal remedy policy is better, damages or reinstatement, from the viewpoint of workers' motivation at workplaces. Under a reinstatement policy, firms are more likely to make an employment adjustment, and reinstatement is dominated by damages from the viewpoint of social welfare when the productivity loss caused by employment adjustment is minor. On the other hand, when the productivity loss is serious, employment adjustment is more likely made under the damages policy, and reinstatement can be desirable. J. Japanese Int. Economies 21 (1) (2007) 78–105.     

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.

Generational accounting in Korea

This paper reassesses the long-term fiscal position of Korea using generational accounting, modified to reflect special features of the Korean fiscal situation, notably prospective changes in public pension benefits due to the pension system's maturation and increasing expenditure on social welfare programs consistent with convergence to levels in other OECD countries. Our findings suggest that unless policy toward existing generations is substantially altered, future generations will face a heavy fiscal burden. For reasonable growth and interest rate assumptions, the difference between 2000 newborns and those born after 2000 ranges from 60 to 180%. We also find that a substantial part of the fiscal burden on future generations is explained by the long-run budgetary imbalances of public pensions and Medical Insurance. J. Japanese Int. Economies 20 (2) (2006) 234–268.     

International relocation,difference in production costs,and welfare: An analysis based on a two-country model

This paper examines whether or not the globalization of Japanese companies is a problem for the Japanese economy. To examine this, using the theoretical model, the paper examines whether the globalization of home-located tradable goods firms provides a benefit to the home country from the perspective of welfare. Specifically, since globalization is thought to have begun based on the difference in production costs of the home and the foreign country, we examine how an increase of productivity in the foreign non-tradable goods sector, which is the principal factor in the difference in production costs between the two countries, affects the welfare of the home country. We show that such an increase of productivity not only induces enterprise relocation, but also improves the welfare of the home country. In particular, the latter is demonstrated by an increase in the real flow of dividends that results from holding equities in tradable goods firms located abroad, i.e., the improvement in the income account. Hence, since the prediction of the model indicates that the globalization of firms is not a problem, it can be said that the globalization of Japanese firms is not a problem for the Japanese economy.     

Rebalancing in China: A taxation approach

The rebalancing of the Chinese economy is analyzed through a heterogeneous taxation of various types of firms. Based on a two-country dynamic general equilibrium model, the paper applies tax reforms to raise consumption, reduce some firms' overinvestment (overcapacities) and maintain a high level of welfare.To rebalance consumption and investment, taxation may allow reallocating a part of the labor force to firms that are not overinvesting (via business taxes and social security contributions). Moreover, the correction of distortions in production factor costs (capital and labor) is necessary during certain reforms applied in the model; that is, on the one hand, higher credit costs for firms that face soft budget constraints (via financial transactions taxes) and, on the other hand, a catch-up of foreign firms' wages by domestic firms (via social security contributions).These tax reforms bring welfare benefits to households and stabilize the welfare reaction to productivity shocks. Another interesting result is that in this framework, the rebalancing of the domestic demand in China does not require the readjustment of the external financial position. Indeed, the aggregate savings rate remains high and the supply of domestic assets is reduced.Finally, another model proposes a heterogeneous taxation of consumption across home and foreign goods to enhance consumption.     

Heterogeneity in lending and sectoral growth: evidence from German bank-level data

This paper investigates whether heterogeneity across firms and banks matters for the impact of domestic sectoral growth on bank lending. We use several bank-level datasets provided by the Deutsche Bundesbank for the 1996–2002 period. Our results show that firm heterogeneity and bank heterogeneity affect how lending responds to domestic sectoral growth. We document that banks’ total lending to German firms reacts pro-cyclically to domestic sectoral growth, while lending exceeding a threshold of €1.5 million to German and foreign firms does not. Moreover, we document that the response of lending depends on bank characteristics such as the banking groups, the banks’ asset size, and the degree of sectoral specialization. We find that total domestic lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks that are highly specialized in specific sectors responds positively and, in relevant cases, more strongly to domestic sectoral growth.

Part-time workers doing full-time work in Japan

This paper is concerned with the phenomenon of part-time workers performing similar types of jobs to full-time workers in the same workplace. We use data from Japan's Survey on Diversified Types of Employment to answer two questions. First, why are firms increasingly employing part-time workers in jobs traditionally offered to full-time workers? Second, what are the characteristics of the workers taking these jobs? As for the former, it is primarily service sector firms using this new work relationship. Interestingly, there is evidence that manufacturing firms are outsourcing in lieu of hiring domestic part-time workers. On a positive note, we find evidence that part-time workers are screened by firms for full-time jobs. As to the second question, the workers are primarily professionals working long hours. As an aside, based on our data we find no evidence that part-time workers are more likely to be involuntarily employed in full-time jobs than in non full-time jobs. J. Japanese Int. Economies 21 (4) (2007) 435–454.     

Consumer discrimination,duopoly, and black firm entry: The welfare effect of subsidies

Consumer discrimination, to the extent that it lowers expected profit for black owned firms, discourages the entry of new black firms. From a social welfare perspective, consumer discrimination may be welfare reducing, since market output is lower than otherwise. If so, a policy intervention that subsidizes new black firms may improve social welfare. This article presents a simple model of duopoly where consumer discrimination exists with uncertainty, and the only cost of production is a “loss of sales” cost. Given the Nash equilibrium, in which a black and white firm must select a price to charge, conditions are derived for which a profit subsidy to a new black firm increases, decreases, or has no effect on social welfare.     

Domestic interest rate,foreign direct investment,and corruption

It has been argued that foreign direct investment can exert upward or downward pressure on the domestic interest rate depending on foreign investors’ relative weights on internal and external finance with respect to the domestic economy. Additionally, a country’s level of corruption can influence firms’ ability to obtain external finance. We find that across countries a 1 percent increase in FDI inflows (outflows) is more likely to reduce the domestic interest rate by as much as 0.7 (1) percent. This empirical association between domestic interest rates and FDI flows is non-monotonically contingent on a country’s level of corruption.

     

Can Import Tariffs Deter Outward FDI?

In this paper we analyze a country's optimal trade policy when its labor market is unionized and firms are footloose. We show that an important objective for governments to use import protection is to prevent their domestic multinationals to go to a non-unionized location abroad and to serve their country from a distance. A domestic government will set a positive tariff to dissuade its multinational from engaging in outward FDI when the additional profits it repatriates, do not compensate for the loss of domestic union rent. To put it differently, we show that when the domestic labor market is unionized, trade liberalisation between countries with similar wage levels is likely to result in domestic welfare losses as a result of outward FDI. Only when wage differences between countries are large enough, can outward FDI improve domestic welfare and optimal tariffs will be zero. JEL Classification Numbers: L13, F23     

Local content protection: specific-factor model for intermediate goods production and market segmentation

We explore the effects of local content schemes in perfect competition as means to protect the domestic intermediate-good production which requires internationally immobile sector-specific factors. We show that local content schemes have no effect for a small country but that they have significant effects for a large country. For a large country, the effects of local content protection depend on (i) whether content protection is imposed on the production undertaken in the home country (production content protection) or on the sales made in the home market (sales content protection) and (ii) whether the home country’s intermediate-good input coefficient is larger than the foreign counterpart or not. The effect on welfare is simple. If local content protection can lower the price of the foreign intermediate good, the home country can improve welfare.     

Corporate diversification,performance, and restructuring in the largest Japanese manufacturers

This article examines the industry diversification of the 142 largest Japanese manufacturers in 1973–1998. We find that sample firms steadily increased diversification. Despite the increase, the relatedness of their business measured in three ways based on the Japanese IO table stayed essentially constant. Regression results show that the average relationship between diversification and firm performance is negative. Firms can mitigate the negative impact of diversification on profitability by confining diversification to industries that are closely related to their main business. However, this effect of relatedness is insignificant for firm value (Tobin's Q), suggesting that the profitability increase due to greater relatedness does not last long. Consistently, a wide range of diversified firms restructured themselves in the late 1990s by divesting business units. J. Japanese Int. Economies 21 (3) (2007) 303–323.     

竞争、生产率外溢与东道国的产业发展

跨国公司是如何影响东道国的产业发展的？产品市场和要素市场的竞争会挤出内资企业，然而对内资企业正的生产率外溢将提高生产率、降低生产成本，从而提高利润。本文构建了一个简单的理论模型考察跨国公司的竞争效应和生产率外溢对东道国产业发展的影响。模型推导及数值模拟的结果表明，跨国公司对内资企业正的生产率外溢使竞争效应减弱，负的生产率外溢则使竞争效应增强；跨国公司出口销售更加有利于东道国的产业发展。     

Do all networks facilitate international commerce? US law firms and the international market for corporate control

This paper estimates the effects of several American law firms' international networks of offices on the total value of overseas mergers and acquisitions (M&A) by US corporations. Nowadays many nations can review proposed mergers and US law firms help clients overcome such regulatory hurdles, effectively greasing the market for corporate control. However, they can also oppose transactions that are inimical to their clients' interests. I present evidence that suggests that Baker & McKenzie—the US law firm with the most overseas offices—has facilitated such transactions, whereas the combined effect of the next five largest American law firms has tended to reduce such M&A. J. Japanese Int. Economies 17 (4) (2003) 520–537.     

Who benefits from household energy transition? A cost-benefit analysis based on household survey data in China

Aiming to alleviate air pollution and carbon emissions from heating, Northern China mandatorily converted household heating energy from coal to electricity (Coal to Electricity), natural gas (Coal to Gas), and clean coal (Clean Coal Replacement). Based on large-scale household survey data in Beijing, this study provides a cost-benefit analysis of the transition program and distinguishes between social and private benefits. The results show that all three programs improve the welfare of society and households. Compared to the Clean Coal Replacement program, Coal to Electricity and Coal to Gas programs provide higher environmental benefits while bringing about larger costs, and thus the benefit-to-cost ratios are lower. We also find that private net benefits are lower than social net benefits, and household satisfaction with the programs is positively determined by private net benefits rather than social net benefits. Furthermore, households with lower income and larger housing areas are more likely to be harmed by the programs by a larger burden from the heating energy transition. These findings call attention to inequity issues during the household energy transition.     

Exchange Rates and Concurrent Leasing and Selling in Durable-Goods Monopoly

Theoretical durable-goods models suggest that a monopolist will prefer to lease rather than sell units of output due to the seller’s commitment problem with potential buyers. However, many monopolistic durable-goods manufactures are commonly observed simultaneously leasing and selling output. We provide a theoretical rationale for this observed behavior in firms engaged in trade with a foreign country. In a simple two-period setting we show that a foreign durable-goods monopolist will concurrently lease and sell output if the expected future exchange rate is lower than the current rate. With this concurrent strategy the firm earns higher profit than a pure rental or sales regime. Additionally, our model provides additional theoretical underpinnings for the empirical finding that increases in expected future exchange rates increase the current sales price of durable products. Finally, our analysis examines the role of product durability in determining exchange rate pass-though to domestic prices.