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Keiretsu and Relationship-Specific Investment: A Barrier to Trade?

43 Pages Posted: 22 Mar 2000  

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

Date Written: February 2000

Abstract

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.

Suggested Citation

Spencer, Barbara J. and Qiu, Larry D., Keiretsu and Relationship-Specific Investment: A Barrier to Trade? (February 2000). NBER Working Paper No. w7572. Available at SSRN: https://ssrn.com/abstract=216728

Barbara J. Spencer (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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National Bureau of Economic Research (NBER)

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Larry Dongxiao Qiu

The University of Hong Kong - Faculty of Business and Economics ( email )

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Hong Kong
China

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

School of Economics and Finance
University of Hong Kong
Pokfulam
Hong Kong

HOME PAGE: http://www.bm.ust.hk/~larryqiu/

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