FINANCIAL DISTRESS AND INDUSTRY STRUCTURE: AN INTER-INDUSTRY APPROACH TO THE LOST DECADE IN JAPAN

This paper proposes a novel approach to investigating the propagation mechanism of balance sheet deterioration in financial institutions and firms, by extending the input–output analysis. First, we use a unique input–output table augmented by firm size dimension. Second, we link the input–output table with the balance sheet conditions of financial institutions and firms. Based on Japanese input–output tables, we find that the lending attitude of financial institutions affected firms’ input decision in the late 1990s and the early 2000s. Simulation exercises are conducted to evaluate the effects of changes in the lending attitude toward small firms as favorable as that toward large firms on sectoral allocations. We find that output was increased for small firms and reduced for large firms. The change in output was non-negligible, about 5.5% of the initial output of each sector. In particular, it exceeded 20% in textile, iron and steel and fabricated metal products.     

Response of Asset Prices to Monetary Policy under Abenomics

In this paper, I investigate the causes of the recent sharp response of the yen and Japanese stock prices to the discussion of, and the subsequent implementation of bold monetary easing by the Bank of Japan as demanded by Prime Minister Abe. I present statistical evidence that the response of the two asset prices have indeed been unusually large relative to the past experience with nonconventional monetary policy (NCM) even after allowance is given for the rise in global economic activity and asset prices. I also point out that the rally has been led by speculative trading by foreign investors, while domestic investors have largely stayed on the sidelines. I discuss possible reasons for such foreign investor behavior. Simply put, the unprecedented political pressure raised hopes of the adoption of bold measures by the Bank of Japan. I discuss, however, the possibility that the room for further action by the Bank is quite limited apart from what might be called a targeted helicopter drop of money. I also point out the possibility that investor behavior may have not been based on economic fundamentals. The asset price volatility since April 2013 is interpreted in the light of such discussions.     

Bifurcation and sunspots in the continuous time equilibrium model with capacity utilization

In the present paper, we construct a continuous time model of economic growth with positive externalities and with variable capacity utilization, and study the global equilibrium paths in this model. If there is a homoclinic orbit or a periodic solution in this model, equilibrium is globally indeterminate. We show that positive externalities can yield multiple steady states, a one-parameter family of homoclinic orbits, and a two-parameter family of periodic solutions. It is also shown that there exists a sunspot equilibrium in this model.     

Working and Training: A Nonlinear Dynamic Analysis of Human Capital Development

We tend to think of workers completing their education and then entering the workforce, where they will gradually develop their skills. In fact, however, a worker's career may be characterized not only by this gradual buildup of job-related skills but also by recurrent education, i.e. the phenomenon whereby a worker alternates between earning-intensive periods and training-intensive periods along his career path. In this study, we build a dynamic optimization model of earning/training decisions of a worker in which these patterns of his career path can be explained in an integrated manner.     

Competitive equilibrium cycles

Sufficient conditions on the structure of technology that give rise to robust periodic cycles in stocks, outputs, and relative prices in a stationary, fully competitive economy with an infinitely lived representative agent are given. The results are first derived in the context of a general intertemporal model of accumulation that has been used in the turnpike literature. These results are then applied to a two-sector neoclassical model of production, and sufficient conditions giving rise to robust periodic cycles are obtained in terms of relative capital intensities of the two sectors.     

Skill formation systems: A Thai-Japan comparison

This paper compares skill formation systems on the shop floor of the car battery manufacturing industry in Thailand and Japan through a series of intensive interviews with foremen in three firms: indigenous Thai, indigenous Japanese, and Thai-Japanese joint venture. This study finds similarities in the basic character of skill formation systems in the two countries, which have often been thought to be particular to Japan. Naturally, large differences are identified in the extent to which the systems are implemented. This implies general applicability of the Japanese skill formation systems, which are the core of Japanese management systems.     

A theory of heterogeneous city growth

We consider an economy with three cities producing different outputs. Two cities produce intermediate goods, a type 1 city producing an intermediate “agricultural” good with capital and labor only, and a type 2 city producing an intermediate “industrial” good with capital, labor, and human capital. A type 3 city produces the final good which is obtained from the two intermediate goods and labor. The asymmetric introduction of human capital allows us to prove that the three cities experience, at equilibrium, heterogeneous endogenous growth rates which are proportional to the growth rate of human capital. We show that the “industrial” type 2 city is characterized by the larger growth rate while the “agricultural” type 1 city experiences the lower growth rate, and thus the type 3 city is characterized by a growth rate which is a convex combination of the two former growth rates. This implies that the relative size in terms of output of the “agricultural” city decreases over time. This property allows us to recover the empirical fact that most non‐agricultural production occurs in growing metropolitan areas. But, simultaneously, as we prove that total labor employed in each city is proportional to the total population, the relative population size distribution of cities is constant over time, as shown in empirical studies.     

Impact of RTA and PTA on Bangladesh’s Export: Application of a Gravity Model

As part of its growth strategy, Bangladesh instituted a trade liberalization process in the early 1990s which gained momentum in later years. Trade grew from 24.4 to 45% of GDP between 1980–81 and 2007–08, an indicator of increased liberalization as well as the growing importance of the external sector in Bangladesh. Apart from its unilateral liberalization, Bangladesh participates in three different regional trade agreements (RTAs): the South Asian Free Trade Agreement (SAFTA), the Asia Pacific Trade Agreement (APTA) and the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation Free Trade Area (BIMSTEC FTA). In addition, Bangladesh signed preferential trade agreements (PTAs) with the member countries of the Developing 8 (D8). Because of the growing importance of RTAs, this study investigates their contribution to the export flows from Bangladesh using the gravity model that has become the primary tool for estimating the trade effects of regional integration. Regression results of bilateral exports for 40 countries from 1992–2009 indicate two crucial aspects. Firstly, all the RTAs consistently maintained statistically significant negative signs, except the BIMSTEC FTA and SAFTA, which showed insignificantly positive and insignificantly negative effects respectively. Secondly, the intensity of negative effects and the level of significance have shown a declining trend as the status of those blocs has changed from political or economic cooperation agreements to preferential agreements and from preferential agreements to free trade agreements. Thus, the intensity of tariff liberalization and the degree of sectoral coverage seem to be the important determinants of the RTAs’ performance. Therefore, experts expect that full-fledged implementation of FTA provisions and the elimination of all tariff and non-tariff barriers might result in a higher degree of integration.     

Balance sheet deterioration and credit allocations: Japanese evidence from the short-term economic survey of enterprises

This study is an empirical attempt to investigate the effects of balance sheet deterioration of Japanese firms and banks in the 1990s on credit allocation using the short-term economic survey of enterprises. This survey contains a unique item: proportion of firms perceiving the lending attitude as severe. After developing a theoretical model to link this item with the balance sheet conditions of borrowers and lenders, we estimate the relationship derived from the model. We find that credit was reduced when the balance sheet of firms and banks deteriorated. The effects are notably large for non-manufacturing industries.