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Physical and Human Capital Deepening and New Trade Patterns in Japan

In: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14

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  • Keiko Ito
  • Kyoji Fukao

Abstract

This paper investigates the deepening of the international division of labor and its effect on factor intensities in Japan, mainly focusing on the manufacturing sector. In the first half of the paper, we analyze the factor contents of trade and find that Japan's factor content net-exports of capital and non-production labor grew rapidly while net-exports of production workers fell by a large amount during the period from 1980-2000. Interestingly, the decline in the factor content of net-exports of production workers was almost entirely caused by Japan's trade with China and Hong Kong. According to our decomposition analysis, however, most of the macro-economic change in the capital-labor ratio and the change in the skilled-labor ratio is attributable to a "within-industry" shift rather than a "between-industry" shift. Although we clearly see a drastic increase in VIIT and outsourcing to foreign countries, particularly to Asian countries, our empirical analysis provides only weak evidence that the deepening international division of labor contributes to changes in factor intensities in each industry. Our results suggest that specialization in the export of skilled-labor-intensive products may have contributed to the increase in the relative demand for skilled (professional, technical, managerial, and administrative) labor within industry. However, our results suggest that changes in trade patterns (specialization in capital-intensive production) cannot explain the rapid growth of capital-labor ratios in Japan.

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This chapter was published in:

  • Takatoshi Ito & Andrew K. Rose, 2005. "International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14," NBER Books, National Bureau of Economic Research, Inc, number ito_05-1, January.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0189.

    Handle: RePEc:nbr:nberch:0189

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    1. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
    2. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
    3. Hak K. Pyo & Kwanghee Nam, 1999. "A Test of the Convergence Hypothesis by Rates of Return to Capital: Evidence from OECD Countries," CIRJE F-Series CIRJE-F-51, CIRJE, Faculty of Economics, University of Tokyo.
    4. Katz, Lawrence F. & Revenga, Ana L., 1989. "Changes in the structure of wages: The United States vs Japan," Journal of the Japanese and International Economies, Elsevier, vol. 3(4), pages 522-553, December.
    5. Kyoji Fukao & Hikari Ishido & Keiko Ito, 2003. "Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia," Discussion papers 03001, Research Institute of Economy, Trade and Industry (RIETI).
    6. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2005. "Growth of U.S. Industries and Investments in Information Technology and Higher Education," NBER Chapters, in: Measuring Capital in the New Economy, pages 403-478 National Bureau of Economic Research, Inc.
    7. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jul, pages 53-81.
    8. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
    9. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
    10. Dale W. Jorgenson & Kazuyuki Motohashi, 2003. "Economic Growth of Japan and the United States in the Information Age," Discussion papers 03015, Research Institute of Economy, Trade and Industry (RIETI).
    11. Kyoji Fukao & Tomohiko Inui & Hiroki Kawai & Tsutomu Miyagawa, 2004. "Sectoral Productivity and Economic Growth in Japan, 1970–98: An Empirical Analysis Based on the JIP Database," NBER Chapters, in: Growth and Productivity in East Asia, NBER-East Asia Seminar on Economics, Volume 13, pages 177-228 National Bureau of Economic Research, Inc.
    12. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 907-940, August.
    13. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    14. Greenaway, David & Hine, Robert C & Milner, Chris, 1995. "Vertical and Horizontal Intra-industry Trade: A Cross Industry Analysis for the United Kingdom," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(433), pages 1505-18, November.
    15. Hijzen, Alexander & Görg, Holger & Hine, Robert C., 2003. "International Fragmentation and Relative Wages in the UK," IZA Discussion Papers 717, Institute for the Study of Labor (IZA).
    16. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 367-97, May.
    17. Lionel Fontagné & Michaël Freudenberg & Nicolas Peridy, 1997. "Trade Patterns Inside the Single Market," Working Papers 1997-07, CEPII research center.
    18. Gordon H. Hanson & Robert C. Feenstra, 2000. "Aggregation Bias in the Factor Content of Trade: Evidence from U.S. Manufacturing," American Economic Review, American Economic Association, vol. 90(2), pages 155-160, May.
    19. Davis, Donald R. & Weinstein, David E., 2003. "Why countries trade: Insights from firm-level data," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 432-447, December.
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    Cited by:
    1. Kyoji Fukao & Toshihiro Okubo, 2004. "Why Has the Border Effect in the Japanese Market Declined? The Role of Business Networks in East Asia," Discussion papers 04016, Research Institute of Economy, Trade and Industry (RIETI).
    2. Nobuaki Yamashita, 2008. "The Impact of Production Fragmentation on Skill Upgrading: New Evidence from Japanese Manufacturing," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2008-06, The Australian National University, Arndt-Corden Department of Economics.
    3. Fukunari Kimura & Ayako Obashi, 2011. "Production Networks in East Asia : What We Know So Far," Microeconomics Working Papers 23216, East Asian Bureau of Economic Research.
    4. ANDO Mitsuyo & KIMURA Fukunari, 2007. "International Production/Distribution Networks and Domestic Operations in terms of Employment and Corporate Organization: Microdata Analysis of Japanese Firms," Discussion papers 07063, Research Institute of Economy, Trade and Industry (RIETI).
    5. Ahn, Sanghoon & Fukao, Kyoji & Ito, Keiko, 2009. "The Impact of Outsourcing on the Japanese and South Korean Labor Markets: International Outsourcing of Intermediate Inputs and Assembly in East Asia," CEI Working Paper Series, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University 2008-27, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    6. Elisabeth Kutschka, 2011. "Quality Upgrading, Skill Demand and International Trade: The Case of German Manufacturing," FEMM Working Papers 110022, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    7. ANDO Mitsuyo & KIMURA Fukunari, 2011. "Globalizing Corporate Activities in East Asia and Impact on Domestic Operations: Further evidence from Japanese manufacturing firms," Discussion papers 11034, Research Institute of Economy, Trade and Industry (RIETI).
    8. Fukunari Kimura, 2009. "The Nature and Characteristics of Production Networks in East Asia: Evidences from Micro/Panel Data Analyses," Global COE Hi-Stat Discussion Paper Series gd09-093, Institute of Economic Research, Hitotsubashi University.

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