Shujiro Urata

Competitiveness, FDI and technological activity in East Asia

The objective of this study is to examine the degree to which foreign direct investment (FDI) and technological activity have contributed to export competitiveness and economic growth in East Asia. The links between export competitiveness and its main contributory factors, namely FDI and domestic technological effort which include research and development (R&D), learning-by doing, adaptation and copying have not yet been fully explored. The ways in which these links are forged differ among countries. Some countries have placed less emphasis on FDI and the presence of transnational companies (TNCs), relying instead on building domestic technological capacity through R&D efforts, adaptation and so on. Some others have depended largely on TNC presence for their technology development and upgrading. These differences in the strategies adopted by countries in their technology development pose two important questions. They are: (i) what are the most effective ways in which technology transfer could take place through FDI? And (ii) how to adopt alternative ways of technology development in lieu of FDI?

The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-sized Enterprises (in Japanese)

Japanese manufacturing small and medium enterprises (SMEs) have actively undertaken Foreign Direct Investment (FDI) in Asia since the mid-1980s. FDI contributes to economic growth of the FDI recipient countries, as it brings in not only financial resources for investment but also technologies and managerial know-how, which are important factors for promoting economic growth. Recognizing these benefits of receiving FDI, policy makers in developing countries have formulated various strategies to attract FDI. This paper examines the factors in the host countries that would attract FDI by Japanese SMEs. Our results show the importance of both supply-side and demand-side factors in the recipient countries for attracting FDI by Japanese SMEs. Supply-side factors include abundance of low-wage labor, availability of well-developed infrastructure, and good governance of the host government, while an important demand-side factor is the presence of sizable local market. In addition, Japanese SMEs regard industrial agglomeration, which has a element of both supply and demand factors, as an important factors making FDI decision. Supply-side factors are found to be important for attracting Japanese FDI in developing countries, while demand-factors play a role in attracting Japanese FDI in developed countries. A comparison of the results for SMEs to those for large firms reveals that SMEs are more sensitive to the conditions in the host countries in making their FDI decision. In particular, SMEs regard the availability of low-wage labor, well-developed infrastructure, and industrial agglomeration as important elements much more than large firms. High sensitivity of SMEs to local economic conditions in their decision on FDI location may be explained by their limited availability of financial and human resources and high dependence on overseas production in their business. In light of these findings, we conclude that countries interested in hosting FDI have to provide a very attractive business environment.

Fulfilling the export potential of small and medium firms

List of Contributors. 1. Supporting the Export Activities of Small and Medium Enterprise (SME) B. Levy, et al. 2. Technical, Marketing and Financial Support for Indonesias Small and Medium Industrial Exporters A. Berry, B. Levy. 3. The Support System for Small and Medium Exporters in Japan M. Itoh, S. Urata. 4. Korean SMEs and Their Support Mechanisms Linsu Kim, J.B. Nugent. 5. Colombias Small and Medium Exporters and Their Support System A. Berry, J.F. Escandon. 6. Comparative Analysis of SME Support Systems B. Levy, et al. 7. Implications for Theory, Policy and Future Research J.B. Nugent, et al. References. Index.

The influence of increased foreign competition on industrial concentration and profitability

This paper uses the Chilean manufacturing censuses of 1967 and 1979 to examine the effects of the Chilean reforms in the mid~1970s on market structure and performance. The reforms substantially increased the concentration in industry and substantially reduced profitability. These outcomes are interpreted in the light of hypotheses about the effect of potential entrants on market structure and on the pricing behavior of incumbents. Next, a cross-sectoral simultaneous equations model of structure and performance is estimated to isolate the contribution of import and export shares to cross-sectoral variations in concentration and profitability and to test for structural change between the two censuses. The analysis confirms that the liberalization of trade changed the way import and export shares determined profitability and supports the import discipline hypothesis.

Entry of Small and Medium Enterprises and Economic Dynamism in Japan

In examining the evolution of small and medium enterprises in Japan in the postwar period, this paper shows that entry rates for new firms have declined sharply in the last quarter century or so, a trend observed across most sectors of the economy as well as across most firm-size categories. To explain this pattern, the paper investigates the determinants of entry in Japan. Among other factors, it finds that cost disadvantages owing to small scale and the shortage of technical resources are significant deterrents to entry. It also finds that the availability of government-directed credit deters entry which suggests that, in their current form, such credit programs protect incumbents. Among positive factors, it finds that subcontracting opportunities promote entry which suggests that the subcontracting system in Japan is open to newcomers and helps give them a foothold in the economy.

Factor Inputs and Japanese Manufacturing Trade Structure

The Japanese international trade structure in manufactured goods has been analyzed using cross-section regression analysis in which labor, capital, human capital, and energy are regressed on Japanese net exports, exports and imports with the world, OECD and developing countries for 1967 and 1975. Skill and wage differential measures have been utilized for the measuring of human capital. Contrary to the dualism found in earlier studies, the estimated results show that in 1967 Japan exported unskilled labor intensive goods with respect to the developing countries as well as the OECD countries. In 1975 Japan exported capital intensive goods to all regions and imported unskilled labor intensive goods from the world and the developing countries. Skilled labor intensive goods were imported from the OECD countries in both years. Drastic changes between 1967 and 1975 are noted. Japanese exports shifted from unskilled labor intensive goods to capital intensive goods while imports did the opposite. This result conforms to the changes in unskilled labor and capital usage in Japan and her major trading partners.

Technological Progress by Small and Medium Enterprises in Japan

This paper examines various aspects of total factor productivity across different firm sizes in Japan. It shows that larger firms have higher total factor productivity levels and growth than smaller firms. There are, however, some exceptions to this pattern especially in the electric machinery sector where small firms tend to have the edge. The paper also finds that two distinctive characteristics of small and medium firms, the practice of subcontracting and the use of external patents, are positively related to total factor productivity growth while the availability of subsidized public loans is not.

Free Trade Agreements and Domestic Politics: The Case of the Trans‐Pacific Partnership Agreement

What is the role of domestic politics in facilitating or constraining a governments decision to participate in free trade agreements (FTAs)? This paper seeks to answer this question by focusing on the domestic politics in Japan over the Trans‐Pacific Partnership Agreement (TPP). In particular, we ask why the opposition to the TPP encompasses a much broader segment of society than is predicted by trade theorems. We show that a broader protectionist coalition can emerge through persuasion and policy campaigns by the elites, in particular, powerful protectionist interests expending resources to persuade the uncertain public.

Trade and foreign direct investment in East Asia

This paper examines whether changes in exchange rate arrangements have affected monetary independence in East Asian countries after the 1997 Asian crisis. We find that the sensitivity of local to U.S. interest rates has declined for many Asian countries since they adopted floating exchange rate regimes after the crisis. This empirical finding suggests that the choice of exchange rate regime is an important factor for the independence of monetary policy. Floating regimes appear to offer East Asian countries at least some degree of monetary independence after the East Asian crisis.

Anatomy of a balance-of-payments crisis: Application of a computable general equilibrium model to Turkey, 1978-1980

Abstract This paper analyses quantitatively the causes of the foreign exchange crisis in Turkey in the late 1970s through application of a multisector computable general equilibrium (CGE) model. The model incorporates some mechanisms that simulate the actual workings of the foreign exchange market during the turbulent foreign exchange disequilibrium period 1978–1980. It features the simultaneous operation of both quantitative controls and premium rationing schemes. Factors contributing to the foreign exchange crisis are analysed through counterfactual simulations which examine the implications for the Turkish economy of use of a flexible exchange rate, no oil price shock in the 1978–1980 period, and maintaining a constant price-level deflated affective exchange rate. Our results indicate that while exchange rate policy played an important role in bringing about the foreign exchange crisis, the influence of other factors was substancial.