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Why Has the Border Effect in the Japanese Machinery Sectors Declined? The Role of Business Networks in East Asian Machinery Trade

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  • Kyoji Fukao
  • Toshihiro Okubo

Abstract

This paper analyzes the impact of firm networks on Japan's national border effect. We estimate gravity equations using data on Japan's international and interregional trade in four machinery industries (electrical, general, precision and transportation machinery). The machinery sector is the most important manufacturing sector for exports and outward foreign direct investment (FDI) in Japan. By taking into account international as well as interregional firm networks, we find that ownership relations usually enhance exports from parent firms to establishment. Consequently we can explain 15% (7%, 1% and 0.5%) of the decline in Japan's border effect from 1980 to 1995 in precision (transportation, general electrical) machinery sector by the increase of international networks.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd11-197.

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Date of creation: Aug 2011
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Handle: RePEc:hst:ghsdps:gd11-197

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Keywords: Gravity model; Border effect; Firm networks; Fragmentation;

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  1. Okubo, Toshihiro, 2004. "The border effect in the Japanese market: A Gravity Model analysis," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 1-11, March.
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  20. Hideshi Itoh, 2006. "The Theories of International Outsourcing and Integration : A Theoretical Overview from the Perspective of Organizational Economics," Microeconomics Working Papers 21891, East Asian Bureau of Economic Research.
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