Ryuhei Wakasugi

Vertical Intra-Industry Trade and Economic Integration in East Asia

It is notable that the trade in East Asian countries has increased more than proportionately to the growth of economy. This paper tests the hypothesis that the recent trade expansion is induced by development of international fragmentation of production. This paper constructs an index of vertical intra-industry trade (VIIT) to measure the fragmentation of production, and finds that the share of VIIT has been rising in East Asia as well as in NAFTA and the EU using the gravity equation. It also establishes that a rising share of VIIT is an important factor in explaining the recent expansion of trade with East Asia. The results suggest that an agreement to remove and harmonize institutional impediments among East Asian countries is important for further expansion of trade within the region.

The Effects of Chinese Regional Conditions on the Location Choice of Japanese Affiliates

In the 1990s, Japanese firms rapidly increased the number of locations of their affiliates in China, displaying considerable regional heterogeneity in the abundance of better educated human resources, wage costs, increasing numbers of special economic zones, industrial agglomeration and the enrichment of social infrastructure. This paper employs conditional logit estimations to examine how these heterogeneous factors affect the location choice of Japanese affiliates by correlating Japanese data to data from Chinese provinces and Special Cities. The results reveal that factors related to human resources are more important than the ‘hard’ factors in attracting foreign firms to invest China.

Why are Japanese firms so innovative in engineering technology

Abstract Japanese firms belonging to the electric and electronics industry have been producing a large number of innovations, concentrated in the field of engineering technology and directly related to commercial products. One reason why Japanese firms have such characteristics can be explained by their unique behavior and organization of research and development (R&D). The behavior of the R&D division of Japanese firms is characterized by less independence from other divisions of the firms, a close relationship with other divisions, and concerted behavior to maximize total corporate profits. These are indicated by the fact that R&D funds are allocated flexibly by taking into account the intentions of other operational divisions or the headquarters office, and the fact that there exists a unique career path in a Japanese firm by which R&D personnel do not always stay in the research division, but are frequently assigned to other various divisions as they climb upward. However, these structural and behavioral characteristics of Japanese corporate R&D, which so far have been efficient in applied research and product development, are not adaptable to basic research. Recently Japanese firms are seeking a new R&D organization and management system to solve the problem.

Japan's Foreign Direct Investment

Japans foreign direct investment (FDI) began in the early 1950s but was conducted only on a small scale until the beginning of the 1970s. Until the 1970s, Japans FDI was mainly in the mining sector for resource development, the commercial sector, and the labor-intensive manufacturing sector, directed toward developing countries. With the 1980s came deregulation of the financial sector as well as increased import barriers by major countries in North America and Western Europe, leading to an unprecedented increase in Japans FDI in the finance and manufacturing sectors of these countries. The latter half of the 1980s was another period of a sharp increase in Japans FDI, resulting from the large appreciation of the yen. Japan emerged as one of the top investor countries of the world. Except for resource development, government policies have neither restrained nor promoted FDI directly but have instead aimed at creating a generally favorable business environment in which FDI could be conducted.

Offshoring and Trade in East Asia: A Statistical Analysis*

Japanese shares of export and manufacturing value-added in the global market have declined significantly, whereas those in China have risen sharply. This paper examines how recent increases in offshoring by Japanese firms relates to the changes in the composition of export, the structure of national production, and the international distribution of manufacturing value-added in Japan, China, East Asian countries, the United States, and European countries, on the basis of our original survey of Japanese firms offshoring and the statistics of export and manufacturing production of these countries. It also discusses how the net cost saving of offshoring due to wage differentials and institutional factors will affect the sustainability of Japanese offshoring.

Missing factors of intra-industry trade: Some empirical evidence based on Japan

Abstract A rising share of Japanese intra-industry trade with the Asian countries is puzzling in the light of the modern theory of international trade. This paper examines the similarity in production technology between the trade partners, as well as the similarity of factor endowment, as a determinant of the share of Japanese intra-industry trade. The empirical results, while supporting earlier studies by Helpman, Krugman, and others, provide some new evidence which indicates that the rising share of intra-industry trade may be due to the increase of technological transactions and the expansion of the intra-firm network through foreign direct investment.

Offshore Outsourcing Decision and Capital Intensity: Firm-Level Relationships

In offshore sourcing, a firm chooses outsourcing to independent suppliers or in-sourcing from own foreign direct investment (FDI) subsidiaries. Based on the firm-level data on offshore make-or-buy decision covering all manufacturing industries, this paper compares averages, documents inter-firm distributions, and estimates multinomial logit models of the firms sourcing mode choice. As predicted by previous theoretical models, this paper directly confirms at the firm level that outsourcing firms tend to be substantially labor-intensive compared with firms in-sourcing from the same region, even after the firms R&D intensity, firm size, or industry is controlled for.

Technology policy in Japan: A short review

Abstract This paper examines technology policy in Japan. Following a brief introduction, we review trends in Japanese technology policy: in the 1950s and through to the mid-1960s, the main policy concern was to facilitate the importation of technology. However, in the mid-1960s, the emphasis had shifted to promote domestic R & D, and various policy measures like tax breaks, subsidies and research contracts were employed to encourage R & D in private firms. In the 1970s, public policy became more selective, and R & D on pollution control, energy, space and ocean resources was encouraged. Currently, the policy discussion is centered around the problem of how to enhance Japans technology base in basic technologies in order to promote a shift to high-technology production. The third section examines the various policy measures in detail; preferential tax treatment, subsidies, research contracts, low interest loans, public research institutions, public corporations, and research associations. It is argued that Japanese technology policy worked alongside market forces rather than replacing them with the political process. This approach was successful in the sense that it contributed to the promotion of technological progress and a high rate of economic growth. However, as the promotion of basic research becomes more important, a new approach must be devised. The brief concluding comments discuss current and future problems to be addressed by technology policy in Japan.

Is Japanese foreign direct investment a substitute for international trade

Abstract A major reason of the sharp increase of Japans FDI in manufacturing sector was due to vigorous technological innovation. It enabled Japanese firms to generate a variety of new manufactured products and have exported them to overseas, and also enabled them to transfer old technology to Southeast Asia. Under a dynamic change, Japans FDI and export were not substitute. However, Japans FDI induced by the trade restriction accompanied the decrease of export from Japan. Whether or not FDI and export are substitute should be discussed in the context of dynamic changes in the comparative advantage and the industrial structure.

Offshore Outsourcing and Non‐Production Workers: Firm‐Level Relationships Disaggregated by Skills and Suppliers

Previous studies have established that offshoring firms employ more non-production workers. By using micro-data on Japanese firms, this paper disaggregates non-production workers. The share of skilled non-production workers tends to be high in offshoring firms but that of unskilled non-production workers is not. The share of non-production workers for the management of overseas activities tends to be high in FDI firms and in firms outsourcing to foreign suppliers, but not in Japanese firms outsourcing to offshore suppliers owned by other Japanese firms. These findings suggest that offshoring has different impacts on employment depending on suppliers and the workers skill.