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State Space Application to Recent Automobile Sector Triangle Trade between Japan and Latin America

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Author Info

  • Nobuaki Hamaguchi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Silvio Miyazaki

    (Escola de Artes, Ciências e Humanidades, University of São Paulo)

  • Leonardo Correia

    (Catholic University of São Paulo, PUC SP)

Abstract

The flow of foreign direct investment (FDI) has the effect of shifting trade patterns, especially those of developing countries. With FDI flow growth, vertical intra-industry trade increases as those production-fragmentation-led investments mature. This relation is readily apparent in the respective automobile sectors of Brazil and Mexico. This paper generates empirical evidence on the vertical intra-industry trade pattern between Japan-Brazil and Japan-Mexico using a state space econometric framework. Results show that Mexico is more integrated into the worldwide production chain than Brazil, where risks such as exchange rate volatility are higher. Results also show how each structure is affected by the 2008 recession and how the difference in the intensity can be regarded as further evidence of how Mexico is advancing more rapidly into the fragmentation process than Brazil is.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2014-05.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2014-05.

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Length: 23 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:kob:dpaper:dp2014-05

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Keywords: Triangle trade ; State space models; Exchange rate volatility; Automobile industry;

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