Jota Ishikawa

Trade liberalization and strategic outsourcing

This paper develops a theory of strategic outsourcing that arises due to trade liberalization. With trade liberalization, a domestic firm may choose to purchase the intermediate good from a more efficient foreign producer, who also competes with the domestic firm in the final-good market. This can result in higher prices for both the intermediate and final goods. Although trade liberalization in the final product would lower the price of the final good, it could cause the price of the intermediate product to either increase or decrease, depending on the characteristics of the final products. Therefore, in the presence of strategic outsourcing, trade liberation can have ambiguous effects on consumer prices, depending on the relative tariff reductions for intermediate and final goods.

Rent-shifting export subsidies with an imported intermediate product

This paper argues that export subsidies aimed at shifting rents from foreign to domestic producers of a final good may also serve to shift rents to foreign firms supplying an intermediate good, weakening the incentive for the subsidy. By contrast, assuming Cournot competition for both the final and intermediate goods, this second layer of rent-shifting between final and intermediate good firms can strengthen the argument for an export subsidy if intermediate good firms are domestic. The domestic welfare implications of alternative rent-shifting policies (a production subsidy and an import tariff) at the intermediate good stage are also considered.

Backfiring tariffs in vertically related markets

Abstract This paper examines the effects on the domestic economy of domestic tariffs imposed on an intermediate good or a final good in vertically related markets which are characterized by Cournot oligopolies. Tariffs could lead a foreign firm to enter or exit from the domestic final-good market. Some of our results are counter-intuitive. It is particularly shown that tariffs on the intermediate good which induce the entry could harm domestic intermediate-good producers and/or benefit domestic final-good producers; and that tariffs on the final good which induce the exit could harm both domestic intermediate-good and final-good producers.

Economic Integration and Rules of Origin Under International Oligopoly

Free trade agreements (FTAs) have rules of origin (ROOs) to prevent tariff circumvention by firms of nonmember countries. This article points out that in imperfectly competitive markets, ROOs have another role overlooked in the existing literature. Instead of focusing on the impacts of ROOs in the intermediate-good markets, we draw our attention to the final-good markets to examine the effects of ROOs. We find that under some conditions, ROOs benefit both firms at the expense of consumers. Under some other conditions, ROOs benefit the firm producing outside the FTA and hurt the firm producing inside the FTA.

Learning by doing, changes in industrial structure and trade patterns, and economic growth in a small open economy

Abstract This paper presents a simple dynamic model which allows for changes in both industrial structure and trade patterns during the process of economic growth. Learning by doing in the producer-service sector is the source of endogenous growth. Interesting interdependences between economic growth and the structure of the economy are obtained: economic growth is accompanied by changes in industrial structure and comparative advantage, while changes in industrial composition of the manufacturing sector accelerate economic growth. Furthermore, this paper analyzes the relationship between economic growth and the endowment structure, and the effects of two types of technology transfers on economic growth.

Tariffs and Technology Transfer through an Intermediate Product

We examine the relationship between tariffs and technology transfer from the North to the South in an oligopolistic model. Technology is embodied in a key component which only the North firm can produce. Interestingly, a decrease in the tariff on the final good as well as an increase may induce technology transfer. If the South subsidizes the final-good production or imports of the intermediate good, technology transfer is also facilitated. However, the welfare effects are different between tariffs and subsidies. Our analysis suggests that the South should take pro-competitive policies to induce technology transfer and enhance welfare.

FDI in Post-Production Services and Product Market Competition

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. A foreign firm faces a higher cost to perform such services than its domestic rival because of the lack of proximity to customers. We explore an international duopoly model in which a foreign firm can reduce its cost for post-production services by foreign direct investment (FDI), or alternatively can outsource such services to its domestic rival. Trade liberalization, if not accompanied by liberalization of service FDI, can hurt domestic consumers and decrease world welfare, but the negative welfare impacts can be mitigated and eventually turned into positive ones as service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is limited compared to the substantial progress already made in trade liberalization.

Strategic Foreign Direct Investment in Vertically Related Markets

By using a simple North-South trade model with vertically related markets, this paper draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether the North firm strategically undertakes FDI in the presence of technology spillovers depends on the South firms capacity to absorb the Norths technology. When capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers. We also explore the Souths policy measures to attract FDI. Our analysis suggests that the Souths very tight intellectual property rights (IPR) protection may benefit neither side.

STAY OR LEAVE? CHOICE OF PLANT LOCATION WITH COST HETEROGENEITY

Using a two-country model, we examine location choices by two domestic firms when they serve only the domestic market and their cost structures differ. The findings indicate that whether the firm that has a greater incentive for foreign direct investment is more or less efficient depends on the differences in domestic and foreign marginal costs, trade costs, and the presence of fixed costs. Plant locations may not be uniquely determined. In particular, a small change in trade costs may reverse plant location. Moreover, a decrease in transport costs in the presence of foreign direct investment may deteriorate domestic welfare.

Scale Economies in Factor Supplies: International Trade, and Migration

This paper incorporates externalities generated by human capital into the Heckscher-Ohlin-Samuelson framework to examine the patterns of international trade and migration. Individuals endowed with different levels of human capital choose to become either unskilled or skilled workers. National scale economies with respect to human capital play an important role in endogenously determining these factor supplies and yield a number of interesting patterns of trade and migration. Migration could reinforce comparative advantage. Both skilled and unskilled workers could migrate in the same direction.