Keiretsu and Relationship-Specific Investment: A Barrier to Trade?
Barbara J. Spencer
University of British Columbia (UBC) - Sauder School of Business; National Bureau of Economic Research (NBER)
Larry D. Qiu
The University of Hong Kong - Faculty of Business and Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics
NBER Working Paper No. w7572
This paper develops a model of informal procurement within Japanese keiretsu so as to consider effects on intermediate-good imports, such as auto parts. Parts-suppliers make relationship-specific investments that benefit the auto-maker and prices are determined by bargaining after investment has been sunk. Although this investment raises efficiency, it limits the range of imports to less important parts such as tail pipes and it is possible that no parts are imported, despite lower foreign production costs. Lack of information concerning investment rents combined with counterintuitive effects on imports and Japanese production costs could create unwarranted perceptions of a trade barrier.
Number of Pages in PDF File: 43
Date posted: March 22, 2000