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Physical and Human Capital Deepening and New Trade Patterns in Japan

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  • Kyoji Fukao
  • Keiko Ito

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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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 04002.

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Length: 60 pages
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:eti:dpaper:04002

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  1. 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.
  2. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
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  6. 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).
  7. 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," Hi-Stat Discussion Paper Series d03-19, Institute of Economic Research, Hitotsubashi University.
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  14. 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.
  15. Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003. "Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia," Discussion Paper Series a434, Institute of Economic Research, Hitotsubashi University.
  16. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
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  18. 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, vol. 105(433), pages 1505-18, November.
  19. 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.
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Cited by:
  1. Kimura, Fukunari & Obashi, Ayako, 2011. "Production Networks in East Asia: What We Know So Far," ADBI Working Papers 320, Asian Development Bank Institute.
  2. Kyoji Fukao & Toshihiro Okubo, 2004. "Why Has the Border Effect in the Japanese Market Declined?: The Role of Business Networks in East Asia," Hi-Stat Discussion Paper Series d03-24, Institute of Economic Research, Hitotsubashi University.
  3. 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.
  4. Nobuaki Yamashita, 2008. "The Impact of Production Fragmentation on Skill Upgrading: New Evidence from Japanese Manufacturing," Departmental Working Papers 2008-06, The Australian National University, Arndt-Corden Department of Economics.
  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 2008-27, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  6. 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).
  7. 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).
  8. 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.

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