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Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns

  • Jonathan Eaton
  • Akilo Tamura

We apply a modified "gravity model" incorporating measures of factor endow- ments to analyze Japanese and U.S. bilateral trade flows and direct foreign invest- ment positions with a sample of around 100 countries for the period 1985-1990. Country features that our analysis takes into account are population, income, the land-labor ratio, the average level of education, and region. We find that features of a country associated with more trade with either Japan or the United States also tend to be associated with more DFI from Japan or the United States. U.S. economic relations with Japan and Western Europe provide an important excep- tion. Despite U.S. concern about its trade deficit with Japan, we find Japan to be much more open to the United States, not only as a source of imports, but also as a destination for U.S. exports than most countries in Western Europe. Taking other factors into account, however, Western Europe is more open to U.S. direct foreign investment. We also find that a country's level of education tends to increase significantly U.S. interaction of all types with that country, even after correcting for per capita income. Education does not play a significant role in Japanese trade patterns. As factor endowments theory would predict, the United States tends to trade more with densely-populated countries, while Japan tends to import more from sparsely-populated countries. Even after taking into account population, income, factor endowments, and region, there is a substantial degree of "bilateralism" in Japanese and U.S. economic relationships in that the resid- ual correlation among exports, imports, and outward direct foreign investment is much larger than would be the case if these magnitudes were independent across countries.

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Paper provided by Boston University, Institute for Economic Development in its series Boston University - Institute for Economic Development with number 48.

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Date of creation: Jul 1994
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Handle: RePEc:fth:bosecd:48
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  1. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  2. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
  3. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
  4. Robert Z. Lawrence, 1993. "Japan's Different Trade Regime: An Analysis with Particular Reference to Seiretsu," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 3-19, Summer.
  5. Harrigan, James, 1996. "Openness to trade in manufactures in the OECD," Journal of International Economics, Elsevier, vol. 40(1-2), pages 23-39, February.
  6. Gary R. Saxonhouse, 1993. "What Does Japanese Trade Structure Tell Us about Japanese Trade Policy?," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 21-43, Summer.
  7. Drysdale, Peter & Garnaut, Ross, 1982. "Trade Intensities and the Analysis of Bilateral Trade Flows in a Many-Country World : A Survey," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 22(2), pages 62-84, February.
  8. Jeffrey A. Frankel and Shang-Jin Wei., 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers C93-026, University of California at Berkeley.
  9. S. Lael Brainard, 1993. "An Empirical Assessment of the Proximity-Concentration Tradeoff between Multinational Sales and Trade," NBER Working Papers 4580, National Bureau of Economic Research, Inc.
  10. Robert Z. Lawrence, 1991. "How Open is Japan?," NBER Chapters, in: Trade with Japan: Has the Door Opened Wider?, pages 9-50 National Bureau of Economic Research, Inc.
  11. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc.
  12. Leamer, Edward E, 1974. "The Commodity Composition of International Trade in Manufactures: An Empirical Analysis," Oxford Economic Papers, Oxford University Press, vol. 26(3), pages 350-74, November.
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