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Why Has the Border Effect in the Japanese Market Declined?: The Role of Business Networks in East Asia

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  • Kyoji Fukao
  • Toshihiro Okubo

Abstract

This paper analyzes the causes of the decline in Japan’s border effect by estimating gravity equations for Japan’s international and interregional trade in four machinery industries (electrical, general, precision, and transportation machinery). In the estimation, we explicitly take account of firms’ networks. We find that ownership relations usually enhance trade between two regions (countries), and also find that we can explain 35% of the decline in Japan’s border effect from 1980 to 1995 in the electrical machinery industry by the increase of international networks.

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File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2003/pdf/D03-24.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d03-24.

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Date of creation: Mar 2004
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Handle: RePEc:hst:hstdps:d03-24

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Keywords: Gravity Model; Border Effect; Networks;

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References

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  1. Theresa M. Greaney, 2004. "Measuring network effects on trade: are Japanese affiliates distinctive?," Hi-Stat Discussion Paper Series d04-57, Institute of Economic Research, Hitotsubashi University.
  2. 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.
  3. Keiko Ito & Kyoji Fukao, 2005. "Physical and Human Capital Deepening and New Trade Patterns in Japan," NBER Chapters, in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 7-52 National Bureau of Economic Research, Inc.
  4. Eiichi Tomiura, 2003. "Changing Economic Geography and Vertical Linkages in Japan," NBER Working Papers 9899, National Bureau of Economic Research, Inc.
  5. Toshihiro Okubo, 2004. "Intra-industry Trade and Production Networks," IHEID Working Papers 13-2004, Economics Section, The Graduate Institute of International Studies.
  6. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  7. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
  8. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  9. Robert E. Lipsey & Eric D. Ramstetter & Magnus Blomstrom, 2000. "Outward FDI and Parent Exports and Employment: Japan, the United States, and Sweden," NBER Working Papers 7623, National Bureau of Economic Research, Inc.
  10. Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003. "Vertical intra-industry trade and foreign direct investment in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 468-506, December.
  11. Lionel Fontagné & Michaël Freudenberg & Nicolas Peridy, 1997. "Trade Patterns Inside the Single Market," Working Papers 1997-07, CEPII research center.
  12. Karemera, David & Ojah, Kalu, 1998. "An Industrial Analysis of Trade Creation and Diversion Effects of NAFTA," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 400-425.
  13. 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, vol. 114(3), pages 907-940, August.
  14. Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
  15. 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.
  16. Chonira Aturupane & Simeon Djankov & Bernard Hoekman, 1999. "Horizontal and vertical intra-industry trade between Eastern Europe and the European union," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(1), pages 62-81, March.
  17. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
  18. Kyoji Fukao & Goushi Kataoka & Arata Kuno, 2004. "How to Measure Non-tariff Barriers? A Critical Examination of the Price-Differential Approach," Discussion papers 04015, Research Institute of Economy, Trade and Industry (RIETI).
  19. John F. Helliwell, 1995. "Do National Borders Matter for Quebec's Trade?," NBER Working Papers 5215, National Bureau of Economic Research, Inc.
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Cited by:
  1. Toshihiro Okubo, 2006. "Trade Bloc Formation in Interwar Japan --Gravity Model Analysis-- (forthcoming in Journal of the Japanese and International Economies)," IHEID Working Papers 03-2006, Economics Section, The Graduate Institute of International Studies.
  2. Miren Lafourcade & Elisenda Paluzie Hernandez, 2005. "European Integration, FDI and the Internal Geography of Trade: Evidence from Western European Border Regions," Working Papers in Economics 145, Universitat de Barcelona. Espai de Recerca en Economia.

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