Toshihiro Okubo

Tax Reform, Delocation and Heterogeneous Firms

The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important thus allowing us to study the relocation effects of taxes that vary according to firm size. We show that allowing for heterogeneity permits a given tax scheme to have an endogenously different effect on the location decision of small and big firms, with the biggest firms being endogenously more likely to relocate in reaction to high taxes. We show that a reform which flattens the tax-firm-size profile can raise tax revenue without inducing any relocation.

Does International Trade Really Lead to Business Cycle Synchronization? A Panel Data Approach

This paper re-estimates the correlation between trade and business cycle synchronization. Different from other previous studies, we employ long-run GDP and trade data and use the GDP cross-correlation index a la Cerqueira and Martins (2009) rather than over-time cross-correlations. We find a positive impact of trade on business cycle synchronization particularly in the current wave of globalization, although the inter-war period sees negative impacts. The current economic integration and currency unions also positively affect business cycle synchronization.

Heterogeneous quality firms and trade costs

There is increasing empirical evidence that vertical product differentiation is an important determinant of international trade. However, the economic literature so far has solely focused on the case in which quality trade stems from differences between countries. No studies investigate the role of quality trade between similar economies. This paper first develops a simple theoretical trade model that includes vertical product differentiation in a heterogeneous-firm framework. The model yields three main predictions for trade between similar economies. First, exported goods are of higher quality than goods sold on the domestic market. Second, larger economies have on average higher export qualities compared with smaller economies. Third, with increasing trade costs higher quality goods are exchanged. For all three effects, strong empirical support is found using detailed export trade data of the United States and 15 European Union countries.

Intra-industry Trade, Reconsidered: The Role of Technology Transfer and Foreign Direct Investment

This paper investigates novel determinants of intra-industry trade (IIT) of late 1990s Japanese trade. Our empirical analysis shows that IIT is increased not only by the similarity of GDP and factor endowment but also by technology transfer via Japanese FDI. In particular, the current high proportion of Japanese IIT with Asian countries can be explained by technology transfer (licensing between headquarters and overseas affiliates) via FDI.

Antiagglomeration Subsidies with Heterogeneous Firms

This paper studies anti-agglomeration subsidies in a core-periphery setting when firms are heterogeneous in labour productivity, focusing on the effects of a relocation subsidy on firm location in various tax-financing schemes (local versus global). We discuss how a subsidy can enhance welfare and average productivity in the periphery. As a result we find that a subsidy proportional to profits can induce the relocation of high productivity firms and thus increase welfare and average productivity in the periphery. Concerning tax-financing schemes, a local tax financing scheme has an optimal level of subsidy.

WHICH FIRMS ARE LEFT IN THE PERIPHERY? SPATIAL SORTING OF HETEROGENEOUS FIRMS WITH SCALE ECONOMIES IN TRANSPORTATION

This paper introduces scale economies or density economies in transportation in a trade and geography model with heterogeneous firms. This relatively small change to the standard model produces a new pattern of spatial sorting among firms. Contrary to the existing literature, our model produces the result that firms of intermediate productivity relocate to the large core region, whereas high and low productivity firms remain in the periphery. Trade liberalisation leads to a gradual relocation to the core, with the most productive firms remaining in the periphery.

Skew Productivity Distributions and Agglomeration: Evidence from Plant-Level Data

Okubo T. and Tomiura E. Skew productivity distributions and agglomeration: evidence from plant-level data, Regional Studies. This paper empirically examines how the shapes of plant productivity distributions vary across regions based on Japans manufacturing census. It focuses on the skewness to examine the asymmetry by estimating the gamma distribution at the plant level. By linking the estimated shape parameters with economic geography variables, it is found that the productivity distribution tends to be significantly left skewed, especially in cores, regions with diversified industrial compositions, regions with weak market potential and in agglomerated industries. These findings suggest that agglomeration economies are likely to accommodate heterogeneous plants with wide ranges of productivities.

On the impact of competition on trade and firm location

We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two-way trade, through one-way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one-way trade, the relocation of firms changes their attitude toward export.

Environmental Product Standards in North-South Trade

Consumption is one channel through which the environment is damaged. To protect the environment, various product standards have been introduced across the world. This paper uses a new economic geography framework to explore the effects of environmental product standards on environment in a North–South trade model. It examines the situation in which the North unilaterally introduces an environmental product standard. Specifically, those products that do not meet the standard are not allowed to be sold in the Norths market. It is found that such a standard may worsen the Norths environment but improve the Souths environment as a result of firm relocation.

'By a Silken Thread': Regional Banking Integration and Pathways to Financial Development in Japan's Great Recession

How do financial development and financial integration interact? We focus on Japan’s Great Recession after 1990 to study this question. Regional differences in banking integration affected how the recession spread across the country: financing frictions for credit-dependent firms were more severe in less integrated prefectures, which saw larger decreases in lending by nationwide banks and lower GDP growth. We explain these cross-prefectural differences in banking integration by reference to prefectures’ different historical pathways to financial development. After Japan’s opening to trade in the 19th century, silk reeling emerged as the main export industry. The silk reeling industry depended heavily on credit for working capital but comprised many small firms that could not borrow directly from larger banks. Instead, silk merchants in Yokohama, the main export hub for silk, provided silk reelers with trade loans. Many regional banks in Japan were founded as local clearing houses for such loans, and regional banks continued to account for above-average shares in lending in the formerly silk-exporting prefectures long after the decline of the silk industry. Using the cross-prefectural variation in the number of silk filatures in 1895 as an instrument, we confirm that the post-1990 decline was worse in prefectures where credit constraints were tightened through low levels of banking integration. Our findings suggest that different pathways to financial development can lead to long-term differences in de facto financial integration, even if there are no formal barriers to capital mobility between regions, as is the case in modern Japan.