Interconnected communications networks and home market effects

Abstract.  This study develops a model of trade that highlights the effects of the interconnection of country‐specific communications networks as a driving force behind trade in high‐tech products with positive transport costs. By constructing a two‐country model of monopolistic competition with two production factors, it is shown that the locational decisions of firms may magnify the influence of interconnected networks. In a reversal of the standard home market effects, the abundance of unskilled labour in the developing countries can attract high‐tech firms from the developed countries. JEL classification: D43, F12, L13     

Technical change in a bubble economy: Japanese manufacturing firms in the 1990s

An important economic policy issue is to ascertain when and if technical change (TC) is driving measured growth in productivity. Was this the case for Japan during the late 1980s when a massive financial bubble was being formed? This paper addresses this question, after first further developing methods needed for this purpose. The movement of firms’ TC is of particular policy interest to Japan whose economy has been suffering from a prolonged recession for more than a decade since the burst of the bubble in 1990. In the period of time immediately prior to the burst of the bubble, our estimation results show a significant drop in technical progress. What we believe these results reflect is that Japanese manufacturing firms made excessive investments in production inputs in the years when the bubble was being formed. This excessive investment in inputs did not contribute positively to TC and hence the measured productivity and economic growth of the bubble period in the late 1980s was unsustainable.     

Exchange-rate pass-through in Japanese export pricing

Two recent aggregative studies claim to demonstrate that Japanese exporters absorb a proportion of exchange-rate changes in their profit margins; but the estimates of this proportion are dramatically different. This study accounts for the discrepancy, and shows that neither estimate is credible. These results identify incomplete pass-through, conditional on costs, as a transitory consequence of export pricing in currencies other than yen. The only long-run effect of the exchange rate on yen-dominated export prices operates through imported materials prices.     

On the Emergence of Intra-industry Trade

This note explores the determinants of intra-industry trade by extending the standard Chamberlinian-Ricardian monopolistic competition trade model (e.g., Krugman, 1979) to have a continuum of industries (e.g., Dornbusch et al., 1977). It shows that the degree of cross-country technical differences among industries plays an important role as a determinant of trade within each industry.     

Banks and Corporate Control in Japan

Using a large sample of Japanese firm level data, we find that Japanese banks act primarily in the short term interests of creditors when dealing with firms outside bank groups. Corporate control mechanisms other than bank oversight appear necessary in these firms. When dealing with firms in bank groups, banks may act in the broader interests of a range of stakeholders, including shareholders. However, our findings are also consistent with banks "propping up" troubled bank group firms. We conclude that bank oversight need not lead to value maximizing corporate governance.     

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.