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Trade Adjustments to Exchange Rate Changes by Japanese Manufacturing MNEs: Intra-firm and arm's length transactions

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  • ANDO Mitsuyo
  • KIMURA Fukunari

Abstract

This paper examines how Japanese manufacturing multinational enterprises (MNEs) adjust to exchange rate changes. Using the micro-data of Japanese manufacturing MNEs from 1994 to 2010, we find that exports tend to respond to exchange rate changes, in particular when wholly or majority-owned affiliates are dominant among their foreign affiliates and when intra-firm trade ratios are higher. Moreover, the responsiveness to exchange rate changes is higher for intra-firm exports than for total exports. The results suggest that Japanese manufacturing MNEs with greater foreign operations under their own corporate control would more fully absorb shocks of exchange rate movements by adjusting intra-firm transactions. We do not find such tendencies for imports, however. Our results also show that, among all manufacturing sectors, the exporting/importing responsiveness is lower in the electric machinery sectors and higher in the transport equipment sectors due to different types of international division of labor. Furthermore, our results show that the size of the firm does not matter in terms of the responsiveness for total exports, although it does for intra-firm exports only.

Suggested Citation

  • ANDO Mitsuyo & KIMURA Fukunari, 2013. "Trade Adjustments to Exchange Rate Changes by Japanese Manufacturing MNEs: Intra-firm and arm's length transactions," Discussion papers 13023, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:13023
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    File URL: https://www.rieti.go.jp/jp/publications/dp/13e023.pdf
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    References listed on IDEAS

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    1. Mitsuyo Ando & Fukunari Kimura, 2005. "The Formation of International Production and Distribution Networks in East Asia," NBER Chapters,in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 177-216 National Bureau of Economic Research, Inc.
    2. Hayakawa, Kazunobu & Kimura, Fukunari, 2009. "The effect of exchange rate volatility on international trade in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 395-406, December.
    3. Kimura, Fukunari & Ando, Mitsuyo, 2005. "Two-dimensional fragmentation in East Asia: Conceptual framework and empirics," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 317-348.
    4. Auboin, Marc & Ruta, Michel, 2011. "The relationship between exchange rates and International Trade: A review of economic literature," WTO Staff Working Papers ERSD-2011-17, World Trade Organization (WTO), Economic Research and Statistics Division.
    5. Auboin, Marc & Ruta, Michele, 2013. "The relationship between exchange rates and international trade: a literature review," World Trade Review, Cambridge University Press, vol. 12(03), pages 577-605, July.
    6. Bruce Kogut & Nalin Kulatilaka, 1994. "Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network," Management Science, INFORMS, vol. 40(1), pages 123-139, January.
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