Can the Japanese Agri-food Sectors Survive by Promoting their Exports?:A General Equilibrium Analysis with Farm Heterogeneity and Product Differentiation

Manufacturing industries have attracted research attention regarding roles of firm heterogeneity and product differentiation in the new new trade theory. Agricultural sectors also produce new goods by product differentiation through breeding, food processing, quality-upgrading, and branding. In reaction to the recent globalization, the Japanese government has sought strategies to promote its domestic agri-food sectors by means of product differentiation and export promotion. This computable general equilibrium study examinesthe relevance of thesepolicies by simulating hypothetical trade liberalizationin agriculture and/or food. We show that agricultural trade liberalization would not increase Japans agricultural exports but would increase food exports; and that food trade liberalization would promote food exports. Both types of liberalization would increase domestic production in agri-food sectors through agri-food linkages and variety effects. This finding affords evidence of the relevance of product differentiation strategy through food processing and exportation, but not of agricultural export promotion strategy.