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Abstract:
Productivity convergence among countries has been investigated extensively with mixed results. This paper extends the analysis to the firm level to shed light on the debate of convergence or non-convergence. We find productivity convergence among firms widely in Japan, in both manufacturing industries and non-manufacturing ones. We obtain these results taking explicit account of exiting firms as a source of selection biases. The convergence rate is much faster among firms than countries. We also find that there are substantial differences among industries in the convergence speed. IT industries that heavily rely on technological progress show faster rates of convergence.

Firm-level productivity, convergence, technology diffusion, selection bias

Abstract:
This paper reconsiders the law of comparative advantage (Deardorff, 1980, 1994) from an empirical point of view. I show that not only net exports valued at autarky prices but also those valued at free trade prices are needed to test the law of comparative advantage when trade is not balanced. This result brings into question the empirical success of the test of comparative advantage that Bernhofen and Brown (2004) have applied to Japan. I propose a more general test that is consistent with both balanced and unbalanced trade and apply it to Japan. The law of comparative advantage does not necessarily hold in Japan once trade imbalance is taken into account.

Law of Comparative Advantage, Trade Imbalance

Abstract:
Are U.S. exports different from China's exports? If so, how? This paper attempts to answer this question, focusing on the quality, variety, and overlap of their products. Using product-level manufacturing import data from Japan, I find that the exports of China and the United States are similar in terms of variety. More than 85 percent of U.S. export products to Japan are commonly exported from China. However, U.S. exports are different from China's exports in terms of quality. A comparison with the European Union (EU) shows that U.S. exports are similar to EU exports in terms of both quality and variety when compared to China's exports. These results suggest that quality matters. Both the EU and the United States are better endowed with the factors needed to produce quality or are relatively more productive in producing quality products than China.

Product Quality, Product Variety, China, United States, Japan

Abstract:
This paper attempts to examine the impact of an East Asia FTA on trade patterns in East Asia by using a multi-sector computable general equilibrium model. The model used in this analysis is the standard GTAP model and GTAP database developed by Hertel (1997) and his colleagues of Purdue University. Our findings are summarized as follows: First, the impacts of an East Asia FTA on GDP and welfare of member countries are generally positive, while the impacts on non-members are negative. Second and surprisingly, the FTA does not seem to affect much on the patterns of comparative advantage or intra-industry trade. Third, production of the sectors with a comparative advantage increases. Fourth, unexpectedly exports of protected sectors increase, reflecting a shift in incentives from domestic sales to export sales. Finally, an East Asia FTA will promote regionalization in East Asia but it will not necessarily promote regionalization in AFTA.

Abstract:
This paper utilizes micro-panel data for firms located in Japan and examines differences in corporate performance between foreign-owned and domestically-owned firms in the 1990s. We find that foreign-owned firms not only reflect superior static characteristics, but also achieve faster growth. Moreover, foreign investors appear to invest in firms that may not be immediately profitable, but those that are potentially the most profitable in the future. There is also no evidence that foreign investor is foot-loose. These imply that foreign investors bring useful firm-specific assets into the Japanese market, which may work as an effective catalyst for necessary structural reform.

Abstract:
In analyzing the relationship between factor endowments and sectoral per-capita output (the path of development), Schott (2003) showed empirically that the number of cones was neither one nor three but two, and that all countries fall into one of these two cones. This is a puzzle because it is inconsistent with large wage variations across economies. This paper attempts to solve this puzzle, introducing complete and incomplete specialization into a multiple-cone model. Empirical results reveal that factor endowments can explain Heckscher-Ohlin specialization and the wage variations across economies at the same time once the multiple-cone model allows the complete specialization.

Paths of Development, Complete Specialization, Multiple Cones, Factor Price Equalization, Intra-industry Heterogeneity, Wage Variations, Japan

Abstract:
In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this paper examines the impact of the changes in the real exchange rate and its volatility on FDI. Examining Japan's FDI by industries, we found that the depreciation of the currency of the host country attracted FDI, while the high volatility of the exchange rate discouraged FDI. Our results suggest the need to avoid over-valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract FDI.

Abstract:
We use the Michigan Model of World Production and Trade to assess the economic effects of the US bilateral FTAs negotiated with Central America, Australia and Morocco. The model covers 18 economic sectors in each of 22 countries/regions and is based on version 5.4 of the GTAP database for 1997 together with specially constructed estimates of services barriers and other data on sectoral employment and numbers of firms. The distinguishing feature of the model is that it incorporates imperfect competition in the manufacturing and services sectors, including monopolistic competition, increasing returns and product variety. The modelling focus is on the effects of the bilateral removal of tariffs on agriculture and manufactures and services barriers. Rules of origin and other restrictive measures and the non-trade aspects of the FTAs are not taken into account due to data constraints. The computational results indicate that the benefits of bilateral FTAs for the United States and partner countries are rather small in both absolute and relative terms, and that far greater benefits could be realised if the United States and its FTA partners adopted unilateral free trade and especially if multilateral free trade was adopted by all countries/regions in the global trading system.

Abstract:
We have used the Michigan Computable General Equilibrium (CGE) Model of World Production and Trade to calculate the aggregate welfare and sectoral employment effects of the menu of US-Japan trade policies. The menu of policies encompasses the various preferential US and Japan bilateral and regional free trade agreements (FTAs) negotiated and in process, unilateral removal of existing trade barriers and global (multilateral) free trade. The welfare impacts of the FTAs on the United States and Japan are shown to be rather small in absolute and relative terms. The sectoral employment effects are also generally small but vary across the individual sectors depending on the patterns of the bilateral liberalisation. The welfare effects on the FTA partner countries are mostly positive though generally small, but there are some indications of potentially disruptive employment shifts in some partner countries. There are indications of trade diversion and detrimental welfare effects on non-member countries for some of the FTAs analysed. In comparison to the welfare gains from the US and Japan bilateral FTAs, the gains from both unilateral trade liberalisation by the United States, Japan and the FTA partners, and from global (multilateral) free trade are shown to be rather substantial and more uniformly positive for all countries in the global trading system. The US and Japan FTAs are based on hub and spoke arrangements. We show that the spokes emanate out in different and often overlapping directions, suggesting that the complex of bilateral FTAs may create distortions of the global trading system.

Abstract:
This article presents a new simple econometric framework for the estimation of individual firms’ markup over their marginal cost, taking account of firm heterogeneity, demand-driven cyclical price changes, and the limited availability of firm-level information. The framework is applied to study markup of Japanese firms in manufacturing and wholesale/retail trade for 1994-2002. The results indicate that, on average, the Japanese markets become more competitive in the 1990s than before even in non-manufacturing industries. We also find sizable heterogeneity and non-negligible pro-cyclicality in the markup of the Japanese firms.

Abstract:
A number of studies have revealed that the effect of industrial policy on productivity growth is negative. Is this because industrial policy fails to control the activities of firms, or because it can effectively control them? This paper attempts to answer these questions, using firm-level data from the cotton spinning industry in Japan for the period 1956–64. It has been determined that industrial policy cut two ways during this period. Industrial policy effectively controlled the output of cotton spinning firms, which contributed to the establishment of a stable market structure during the period. On the flip side, such policy constrained the reallocation of resources from less productive large firms to more productive small firms. Combined with the negative productivity growth in large firms during this period, industrial policy resulted in negative industry productivity growth.

Industrial Policy, Regulation, Reallocation, Productivity Growth, Endogeneity