[Show abstract][Hide abstract] ABSTRACT: In this paper, we examine the role of export promotion agencies (EPAs) in promoting exports from Japan and Korea. Looking at two home countries enables us to tackle endogeneity issues by controlling for both country-pair time-invariant characteristics and importing country time-varying characteristics. Our empirical results indicate that the coefficients of the EPA dummy are similar in size to those of the FTA dummy. This implies that establishing an EPA office in a country is equivalent to signing an FTA with that country. In addition, we find that EPAâ€™s effects are larger for manufactured products than non-manufactured products. Finally, the EPA effect is larger for low income trade partners than for high income trade partners.
The Developing Economies 09/2014; 52(3). DOI:10.1111/deve.12048 · 0.15 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: Unlike most existing studies, this paper examines the location choices of MNEs in developing countries. Specifically, we investigate the location choices of Japanese MNEs among East Asian developing countries by estimating a four-stage nested logit model at the province level. Noteworthy results of location elements are as follows. As is consistent with the mechanics of cheap labor-seeking FDI, Japanese MNEs are more likely to invest in locations with low income and low tariff rates on products from Japan. Also, accessibility to other locations and/or ports matters in attracting Japanese MNEs because it is crucial in importing materials and exporting their products. In addition, WTO membership and bilateral investment treaties are important because these contribute to the settlement of trade and investment disputes, which is more likely to be necessary in developing countries.
Journal of Asian Economics 08/2014; DOI:10.1016/j.asieco.2014.05.002
[Show abstract][Hide abstract] ABSTRACT: In this paper we examine the role of investment promotion agencies (IPA) in promoting outward foreign direct investment (FDI) from Japan and Korea. Looking at two home countries enables us to control for both country-pair time-invariant characteristics and host-country time-varying characteristics. Our empirical results suggest that home-country IPA tend to be more effective in promoting outward FDI in politically risky host countries. However, this finding depends on whether the home-country firm is listed or unlisted. More specifically, we find that the positive effect of home-country IPA on outward FDI in politically risky countries is limited to unlisted home-country firms, which tend to be less productive.
Asian Economic Journal 06/2014; 28(2). DOI:10.1111/asej.12030 · 0.30 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: In this paper, we empirically investigate the effect of diagonal cumulation on free trade agreement (FTA) utilization by exploring Thai exports to Japan under two kinds of FTA schemes. While the one scheme adopts bilateral cumulation, the other scheme does diagonal cumulation. Comparing trade under these two kinds of FTAs, we can examine the effect of diagonal cumulation without relying on not only the variation in cumulation rules across country pairs but also the variation across years. In short, our estimates do not suffer from biases from time-variant elements and country pair-specific elements. As a result, our estimates show around 4% trade creation effect of diagonal cumulation, which is much smaller than the estimates in the previous studies (around 15%).
Journal of the Japanese and International Economies 06/2014; 32. DOI:10.1016/j.jjie.2013.12.005 · 0.40 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: This study investigates the determinants of overseas research and development (R&D) and the influences of various aspects of localization on affiliates' R&D intensity. Using a dataset of Taiwanese multinational enterprises (MNEs) in China, the empirical estimations find that MNEs with a larger firm size, more R&D expenditure, and a higher outward foreign direct investments intensity tend to undertake R&D. Host regions' characteristics, particularly market size and R&D resources, do matter for attracting MNEs to conduct R&D locally. Crucially, affiliates' R&D intensity is related to the degree of localization. The degree of market localization and localization of the R&D network has a positive association with affiliates' R&D intensity. From the perspective of R&D policy, a country with healthy R&D infrastructures helps attract the establishment of R&D labs of MNEs.
R& D Management 05/2014; 45(2). DOI:10.1111/radm.12059 · 2.51 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: The scope of recent regional trade agreements (RTAs) is becoming much wider in terms of including several provisions such as competition policy or intellectual property. This paper empirically examines how far advanced, non-conventional provisions in RTAs increase trade values among RTA member countries, by estimating the gravity equation with more disaggregated indicators for RTAs. As a result, we find that the provision on competition policy has the largest impacts on trade values, following that on government procurement. Our further analysis reveals that the more significant roles of these two provisions can be also observed in the impacts on the intensive and extensive margins.
[Show abstract][Hide abstract] ABSTRACT: This article clarifies the reasons for the recent rapid growth of foreign direct investment (FDI) in developing countries,
particularly Asian countries. For this purpose, we theoretically and empirically examine the mechanics of both horizontal
FDI and vertical FDI (VFDI) to shed light on the role of trade costs. Our empirical analysis using a logit or multinomial
logit model of Japanese firms’ FDI choices reveals that the tariff reduction in Asian countries has lowered the productivity
cutoff for VFDI. This result indicates that since developing countries, particularly Asian countries, have experienced a relatively
rapid decrease in tariff rates, the increase in VFDI through tariff reduction led to the recent surge of FDI in developing
[Show abstract][Hide abstract] ABSTRACT: This paper simulates the reduction of several components in trade cost for Asia. Our sim-ulation model based on the NEG includes seven sectors, including manufacturing and non-manufacturing sectors, and 1,654 regions of 13 countries in Asia. In addition, the currently available routes of highways, railways, sea shipment, and air shipment are incorporated in our model. The course of transactions among regions is modeled as determined by firms' modal choice; firms choose the course with the lowest trade costs. The model also includes the esti-mates of some border cost measures such as tariff rates, non-tariff barriers, other border clearance costs, transshipment costs, and so on. In short, our simulation model is a comprehensive one for examining the impacts of broadly-defined trade costs. Our simulation analysis for Asia con-tributes to illustrating more clearly the powerfulness of the NEG in the CGE analysis on the trade cost reduction. It includes several scenarios of the improvement/development of routes and the reduction of the above-mentioned border cost.
[Show abstract][Hide abstract] ABSTRACT: This paper empirically investigates two areas of changes in firm behavior and performance at home before and after investing abroad. The first is the type of foreign direct investment (FDI): horizontal FDI or vertical FDI. The second is the firm's domestic activities of interest: production activity and non-production activity. From a theoretical standpoint, the impact of outward FDIs differs not only by type, but according to the firmfs activities. By exploiting two types of firm-level data that enable us to distinguish between production and non-production activities, our work provides a detailed picture of the intra-firm changes in behavior and performance that occur as a result of globalizing production.
Japan and the World Economy 08/2013; 27. DOI:10.1016/j.japwor.2013.03.006 · 0.34 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: In this paper we empirically examine the determinants on utilization of the Korea–ASEAN Free Trade Agreement (KAFTA) by employing a database provided by the Korea Customs and Trade Development Institute. We find that, although three effects, namely preferential margin (margin effect), rules of origin restrictiveness (ROO effect), and average export volume (scale effect), contribute to determining the utilization of the FTA, the scale effect has the greatest impact. Our results suggest that, since firms with relatively small volumes of trade are usually small and medium-size enterprises (SMEs), policy assistance for reducing administrative costs should be geared toward SMEs. Our results further indicate that policymakers should also try to negotiate more extensive tariff reductions on products not only where MFN rates are high but also where shipments are large.
World Trade Review 07/2013; 13(03):499-515. DOI:10.1017/S1474745613000323 · 1.08 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: This paper empirically investigates the firm-level relationship between the local input share and the number of used FTAs by employing the data on FTA utilization in Japanese affiliates in ASEAN. As a result, we do not find a robust linear relationship. However, affiliates using a large number of FTAs (seven or eight) have an extremely higher share of local inputs. This result might be interpreted as the first evidence of the â€œspaghetti bowl phenomenonâ€.
[Show abstract][Hide abstract] ABSTRACT: There is a large and growing empirical literature that investigates the determinants of outward foreign direct investment (FDI). This literature examines primarily the effect of host country characteristics on FDI even though home country characteristics also influence the decision of firms to invest abroad. In this paper, we examine the role of both host and home country characteristics in FDI. To do so, we constructed a firm-level database of outward FDI from Japan, Korea, and Taiwan. Our empirical analysis yields two main findings. First, host countries with better environment for FDI, in terms of larger market size, smaller fixed entry costs, and lower wages, attract more foreign investors. Second, firms from home countries with higher wages are more likely to invest abroad. An interesting and significant policy implication of our empirical evidence is that policymakers seeking to promote FDI inflows should prioritize countries with higher wages.
Global Economic Review 06/2013; 42(2). DOI:10.1080/1226508X.2013.791470 · 0.20 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: In this paper, using the worldwide dataset of bilateral tariff rates, we explore how serious the omission of bilateral tariff rates in gravity is. Our findings are as follow. Firstly, the omission of bilateral tariff rates seems not to be so serious in terms of omitted-variable biases because the coefficients for the usual gravity variables do not change before or after their inclusion. Secondly, while the widely-used dummy variable of regional trade agreement could not play an alternative role in place of tariff rates, the inclusion of time-invariant pair fixed effects in addition to the time-variant importer fixed effects and exporter fixed effects accounts for the omission of tariff rates. The inclusion of those fixed effects makes the coefficient for bilateral tariff rates insignificant.
Journal of the Japanese and International Economies 03/2013; 27. DOI:10.1016/j.jjie.2013.01.002 · 0.40 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: This paper examines and compares the location choice of Japanese and Taiwanese MNEs in China. Furthermore, we investigate the relationship between location choice and firm characteristics, specifically firms' productivity. Due to Taiwan's linguistic and cultural advantages in China, it is expected that the location choice mechanics are different between Japanese and Taiwanese MNEs. As a result, our main findings are that, while the less productive Japanese firms prefer a location in an area with a larger agglomeration of Japanese affiliates or in an area closer to Japan, the more productive Taiwanese firms prefer a location in an area with a larger agglomeration of Taiwanese affiliates or in an area closer to Taiwan.
[Show abstract][Hide abstract] ABSTRACT: Recent empirical studies which utilize plant- or establishment-level data to examine globalization's impact on productivity have discovered many causal mechanisms involved in globalization's impact on firms' productivity. Since these pathways have been broad, there have been few attempts to summarize the several and detailed mechanisms of self-selection and learning at the same time. This paper examines seven pathways so that the clear-cut consequences of the broad picture of globalization become visible. This strategy is useful for detecting missing links within and across the existing studies as well as for finding possible synergy effects among different mechanisms. Insightful policy implications may be derived from the comprehensive comparisons between the seven different pathways of globalization.
[Show abstract][Hide abstract] ABSTRACT: Inspired by the observed contrasting patterns of geographical distribution of the electric machinery industry in East Asia and Europe, this paper conducts an empirical clarification of the difference in spatial relationships in industry sizes among countries within a region by use of spatial econometric techniques. The results indicate that, while the size of the electric machinery industry in a country is positively correlated with that of neighboring countries in East Asia, there is no significant spatial correlation in Europe. Such a difference in spatial interdependence has important implications for economic development in those regions.
The Developing Economies 12/2011; 49(4):363-381. DOI:10.1111/j.1746-1049.2011.00143.x · 0.15 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: In this paper, by employing the threshold regression method, we estimate the average tariff equivalent of fixed costs for the use of a free trade agreement (FTA) among all existing FTAs in the world. It is estimated to be 3.2%. This global estimate serves as a reference rate in the evaluation of each FTA’s fixed costs.
[Show abstract][Hide abstract] ABSTRACT: In this paper we statistically test the validity of the mechanics of complex VFDI in Japanese machinery FDI to East Asia; we do this by estimating a multiple-spatial lag model. From the theoretical point of view, in complex VFDI, the production activity of affiliates in a given country is positively related to that in neighboring countries which have large differences in factor prices with the given country. Our empirical results show that such mechanics of complex VFDI work in Japanese FDI to East Asia, and that they work more strongly in the MNEs with higher productivity. These results have an important implication for the policies of developing countries in attracting FDI.
Journal of the Japanese and International Economies 09/2011; 25. DOI:10.1016/j.jjie.2011.06.004 · 0.40 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: In this paper, we aim to identify the political and financial risk components that matter most for the activities of multinational corporations. Our paper is the first paper to comprehensively examine the impact of various components of not only political risk but also financial risk on inward FDI, from both long-run and short-run perspectives. Using a sample of 93 countries (including 60 developing countries) for the period 1985-2007, we find that among the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows. In particular, socioeconomic conditions, investment profile, and external conflict appear to be the most influential components of political risk in attracting foreign investment. Among the financial risk components, only exchange rate stability yields statistically significant positive coefficients when estimated only for developing countries. In contrast, current account as a percentage of exports of goods and services, foreign debt as a percentage of GDP, net international liquidity as the number of months of import cover, and current account as a percentage of GDP yield negative coefficients in some specifications. Thus, multinationals do not seem to consider seriously the financial risk of the host country.
The Developing Economies 03/2011; 51(1). DOI:10.1111/deve.12002 · 0.15 Impact Factor
[Show abstract][Hide abstract] ABSTRACT: We examine transport modal decision by multinational firms to shed light on the role of freight logistics in multinational activity. Using a firm-level survey in Southeast Asia, we show that foreign ownership has a significantly positive and quantitatively large impact on the likelihood that air/sea transportation is chosen relative to truck shipping. This result is robust to the shipping distance, cross-border freight, and transport infrastructure. Both foreign-owned exporters and importers also tend to use air/sea transportation. Thus, our analysis presents a new distinction between multinational and domestic firms in their decision over transport modes.
International Economic Journal 01/2011; 27(4). DOI:10.1080/10168737.2012.719920