A Theory of Exchange Rates and the Term Structure of Interest Rates

This paper defines the concepts of indirect and direct risk premium effects and analyzes their properties in an exchange rate model. In the model, these effects are endogenously determined in a rational expectations equilibrium. For the effect of an interest rate shock, they have the opposite signs and the indirect risk premium effect can dominate the direct risk premium effect under reasonable parameters. This means that domestic short‐term bonds and foreign bonds are complements in the model even though domestic long‐term bonds and foreign bonds are substitutes. This model, focusing on the indirect risk premium effect and on the term structure of interest rates, can be combined with a small sample bias approach to explain stylized facts about the forward premium anomaly, which is found for short‐term interest rates, but not for long‐term interest rates.     

On the determinants of foreign ownership shares: Evidence from US firms' joint ventures in Japan

It is often argued that firms' foreign expansion is motivated by economies of scale in information-based intangible assets. Since these assets are combined with local factors in real production, their owner often has to deal with local factor owners' opportunistic behavior such as siphoning of skills which reduces the return on intangibles to the original owner. Local factor owners' agency behavior can also reduce a subsidiary's profit. Maintaining ownership mitigates the former type of opportunistic behavior, while ceding ownership reduces the latter type. Hence there is a non-linear relationship between ownership and the cost of control. In this paper we present a model that incorporates these aspects of a joint venture ownership. In our model the share in a joint venture of a foreign parent firm with a superior technology is determined such that its marginal cost of control is set equal to the marginal benefit it derives from a joint venture. We assume that, because of the uniqueness and mobility of its intangible factor, the foreign partner has more bargaining power than its local counterpart regarding the ownership of their joint venture and that the local partner is less concerned than its foreign counterpart about the problems of agency and property rights protection because of its geographic and cultural proximity to the joint venture. As a consequence, the foreign partner is able to exert its preference for its ownership share in the joint venture. Our theoretical results allow a decomposition of ownership share into components explained by the cost of control and by the profitability of a joint venture. Our empirical results using data on technology-based US firms' subsidiaries in Japan are consistent with our model predictions. In particular, the fraction of ownership share explained by the cost of control relative to the fraction explained by intrinsic profitability is higher for industries that rely more heavily on intangible assets, as expected from the model.     

Technological Constraints,Firm Heterogeneity,and Location Choice of Multinational Enterprises

This paper aims to examine the relationship between the location choices of multinational enterprises and their productivity considering the North–South differences in regard to technological constraints. We find that home firms with the highest level of productivity choose to undertake foreign direct investment (FDI) in the developed countries and they choose to export to, rather than do FDI in, developing countries. This result explains why not many high tech industries exist in developing countries. Using Japanese firm level data, we also confirm that Japanese high tech firms tend to undertake FDI in developed countries, but hesitate to invest in developing countries empirically.     

Endogenous trade policy: Political struggle in the growth process

This paper develops a dynamic theory that accounts for the evolution of trade policy, underlying internal class conflicts, and output growth performance. Analysis of political responses to the distributional effects of international trade reveals that economies with a comparative advantage in manufacturing may reach a developed stage through the ebb and flow of protectionism. This nonmonotonic evolution of trade policy is consistent with the historical experience of Western Europe over the last few centuries.     

A Model of Welfare Enhancing Capital Imports

This paper proposes a model of welfare enhancing capital imports in a multi‐dimensional framework. Contrary to the pessimistic conventional wisdom of capital imports and welfare, a justification is provided for the acceptance of foreign capital in developing countries.     

Foreign direct investment,international trade,and firm heterogeneity

We present an asymmetric model with firm heterogeneity and foreign direct investment (FDI) from a developed country to a developing country. We found that the successful entry firms could be sorted from highest to lowest according to productivity as reimport firms, FDI firms, export firms, and domestic firms. We also found that FDI decreases (increases) the gross national income of the developed (developing) country, but it can either increase or decrease the world income according to the level of the relative propensity to spend. In addition, we demonstrated that FDI influences welfare through variations in average price, national income, and the number of types of goods.     

Japanese episodic long swings in economic growth

Prior to World War II Japanese economic growth was characterised by episodic ‘long swings,’ low frequency fluctuations in economic growth averaging about 20-25 years in duration. At the aggregate level, these inter-period growth variations dominated both shorter-term fluctuations and longer-term trend acceleration. The paper describes the long swings of the Japanese economy and re-evaluates conventional explanations.