II-(1) Triangular trade pattern and intra-industry vertical specialization
9. Study Group on the Internationalization of Japanese Business
Leading Fellow(s)
Overview
Around the mid-1980s, Japanese corporations began actively advancing overseas through direct investment. This direct investment by Japanese businesses not only brought about dramatic changes in the behavior patterns of Japanese companies but also had a major impact on the Japanese economy and on the Asian economies that were the recipients of heavy investment. As an increasingly large number of free trade agreements are expected to be established in East Asia, Japanese business is likely to accelerate its expansion in East Asia.
This study will shed light on the current state of Japanese business activity overseas and analyze the economic effect of this activity on both Japan and the rest of East Asia by using microdata such as METI Basic Survey of Japanese Business Structure and Activities, and Basic Survey of Overseas Business Activities. The findings should provide information that will be helpful in the formulation of the trade and investment policy, as well as domestic policy in Japan and the rest of East Asia.
Major Research Results
RIETI Discussion Papers
Reconsidering the Effects of Intranational and International R&D Spillovers on Productivity Growth: Firm-level Evidence from Japan (KIYOTA Kozo)
International Intrafirm Transfer of Management Technology by Japanese Multinational Corporations (URATA Shujiro, MATSUURA Toshiyuki and Yuhong WEI)
Employment of MNEs in Japan: New Evidence (KIYOTA Kozo and MATSUURA Toshiyuki)
Competition with Imports from Low- and Lower-Middle-Income Countries and its Impact on the Growth of Japanese Companies: Empirical Analysis Based on Micro-Data of the "Basic Survey of Japanese Business Structure and Activities" (ITO Keiko)
10. Empirical Analysis of the Trading Structure Changes in East Asia under the Modularization of Product Architecture
Leading Fellow(s)
Major Research Results
RIETI Discussion Papers
II-(2) Searching for effective adjustments to global imbalances
11. Liberalization of Trade in Financial Services and the Effectiveness of Capital Regulation in China
Leading Fellow(s)
Overview
Having become a member of the World Trade Organization, China is now in the process of opening up its financial sector to foreign competition. Owing to the nature of the banking business, the transactions of foreign banks will have a direct impact on the patterns of capital movement in China and, consequently, on the effectiveness of China's capital management. Indeed, the emerging conventional wisdom is that the entry of foreign banks into the market will weaken the effectiveness of the current capital-management system and bring about de facto capital-account convertibility.
This project aims to study this issue from a policy vantage point. It will begin by using China as a case study to examine the relationship between trade liberalization of financial services and its impact on domestic financial liberalization and capital management in the host country. Next, it will empirically analyze the effectiveness of China's current system of capital management by examining the conditions of interest rate arbitrage with respect to the returns on assets in China and Hong Kong.
The insight obtained from this study's empirical analysis should shed light on future adjustments and the institutional design of China's foreign-exchange system as the region moves toward economic integration.
Major Research Results
RIETI Discussion Papers
II-(3) Relations between exchange regimes and domestic institutional development
12. The Optimum Exchange Rate Regime for East Asia
Leading Fellow(s)
Overview
It is important for East Asian countries to adopt a managed floating exchange rate regime in order to maintain sustainable growth avoiding another costly crisis. We regard that a basket, band system to be a most robust system for East Asian countries, since that would ensure stability in the real effective exchange rate, allowing sufficient flexibility. Some countries have already shifted to such an exchange rate regime, and some others need to reform their regimes. Many studies have been completed and many proposals have been put forward in the wake of the Asian currency crisis, but practices have not been reformed sufficiently. It is also shown in this project that East Asian countries coordinate and cooperate on exchange rate policy. However, a consensus has yet to emerge among scholars and policymakers with regard to the specifics of cooperation. In this project, a common currency basket is defined as a desirable system in the long-term run; and then the ideal form of such a basket system is explored and proposed. An indicator of deviations from such a basket is developed, and a road map during transition to a common basket is proposed.
Major Research Results
RIETI Discussion Papers
Pass-Through of Exchange Rate Changes and Macroeconomic Shocks to Domestic Inflation in East Asian Countries (ITO Takatoshi, Yuri N. SASAKI and SATO Kiyotaka)
AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates (OGAWA Eiji and SHIMIZU Junko)
Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through (ITO Takatoshi and SATO Kiyotaka)
The Chinese Yuan after the Chinese Exchange Rate System Reform (OGAWA Eiji and SAKANE Michiru)
On Determinants of the Yen Weight in the Implicit Basket System in East Asia (ITO Takatoshi and ORII Keisuke)
Chinese Exchange Rate Regimes and the Optimal Basket Weights for the Rest of East Asia (SHIOJI Etsuro)
Adopting a common currency basket arrangement into the 'ASEAN plus three' (OGAWA Eiji and KAWASAKI Kentaro)
Analysis of China's Exchange Rate Reform (ITO Takatoshi )
13. The New Global Imbalances: Their Impact on East Asia and the Appropriate Policy Response
Leading Fellow(s)
Overview
This project will examine the role that East Asia can play in resolving the new global imbalances. Large United States current account deficits, massive U.S. borrowing from the rest of the world, and the financing of this borrowing by East Asian monetary authorities is likely to prove unsustainable. This project will focus on the role that exchange rate adjustments can play in correcting these imbalances, and will use econometric analysis to examine the impact of exchange rate changes on current account balances and East Asian production networks.
The project will also consider how changes in fiscal policy and other types of expenditures affect saving-investment balances in the U.S. and East Asia and will analyze the impact of these changes on external balances.
Major Research Results
RIETI Discussion Papers
II-(4) Exploring compatibility between free trade and environment
14. Current Status of and Prospects for the Multilateral Trade System
Leading Fellow(s)
Overview
The tremendously slow progress in "the Doha Development Agenda", a new round of World Trade Organization (WTO) negotiations can be taken as signifying a resurgence of protectionism and regionalism on the one hand and countries' flagging interest in maintaining and strengthening the multilateral trade system on the other.
This project will attempt to illuminate the current situation in which the sustainability of the multilateral trade system has weakened. It will then seek to construct the framework of a new multilateral trade system and examine the WTO's various relevant policy issues, keeping in mind Japan's potential medium-and long-term contribution to such a system.
More specifically, the team will begin with a general analysis and discussion of the multilateral trade system's current situation and issues, using the methodologies of three fields in the social sciences: international economics, international politics, and international law. Next it will explore individual issues, including the interface between regional economic zones and the WTO, the participation of civil society in the WTO, the process by which trade policy is formulated and adopted in Japan, the problem of implementation in the WTO's dispute settlement mechanism, and the issue of greater participation in the WTO system by developing countries. It will also suggest a prescription for the resolution of these problems and propose directions for Japan's participation in the round.
Major Research Results
Economic Policy Analysis Series
RIETI Discussion Papers
New Developments on Investor-Versus-State Arbitration and their Implications: Impact of "Legalization" of Investment Treaties (KOTERA Akira)
The Implementation Issue under the WTO Dispute Settlement Procedure - Procedural factors and proposals for improvement (KAWASE Tsuyoshi)
Transparency and International Investment Treaties - Definition and responses (KOTERA Akira)
RIETI Policy Symposium
15. Trade and the Environment
Leading Fellow(s)
Overview
How to reconcile trade interests and environmental interests is a major issue for international commerce. Yet almost no progress has been made in WTO rule-making in this area despite years of debate, and although political and legislative settlement is preferable, juridical settlement is more and more the rule. With this in mind, this study will sort out and analyze the various issues and viewpoints with respect to trade and the environment and offer a set of proposals concerning the adoption of new rules.
In terms of methodology, the project will being by considering what measures would be most desirable from an economic viewpoint, then discuss from a legal standpoint what sort of interpretation of WTO provisions should be adopted in order to realize these measures, and what legislative measures (negotiating proposals) should be adopted if interpretation of existing provisions proves insufficient.
Major Research Results
RIETI Discussion Papers
16. Trade and Agriculture (Food Safety)
Leading Fellow(s)
Overview
Since the discovery of cases of mad-cow disease, or bovine spongiform encephalopathy (BSE), concern over food safety has risen among Japanese consumers and the nation as a whole. The WTO's SPS agreement was intended to prevent countries from deliberately using sanitary and phytosanitary measures to restrict international trade, but consumers in industrialized countries have criticized the agreement for allegedly putting trade profits before human life and health.
This project will attempt to analyze whether certain types of food import regulations are being used as pretexts for protectionism or are reasonable from the standpoint of food safety (reasonable disparities in regulations stemming from differences in consumer demand as opposed to regulations adopted with the intention of protecting domestic industry). It will also propose changes to trade rules designed to maximize economic welfare in each country while minimizing the impact on trade."
Major Research Results
RIETI Discussion Papers
II-(5) Seeking for effective FTA/EPAs
17. Legal Approaches to Regional Economic Integration
Leading Fellow(s)
Overview
The marked increase in regional economic integration (FTA, EPA, customs unions) since the second half of the 1990s has attracted keen interest in the field of social sciences. However, analysis of the legal aspects of regional economic integration has generally lagged behind. As is the case with WTO, any form of regional economic integration is supported by an enormous volume of legal documents and constitutes a trade "agreement" as mandated under the terms of GATT Article 24. Therefore, legal analysis must provide the core policy tools for analyzing the specific systemic design of an agreement as well as its post-agreement operations. Based on this understanding, this project will undertake a systemic comparison of major regional economic unions to create classifications of legal system designs and to identify the features of these classifications. The results will be used to determine the available options of legal discipline for integration and to show how these contribute to effective economic integration.
Major Research Results
RIETI Discussion Papers
Complementarity between Regional Trade Agreements and Multilateral Trade Liberalization: Economic consideration and future challenges (MUKUNOKI Hiroshi)
Treatment of Technical Standards in Regional Trade Agreements - Some lessons for mutual recognition arrangements (NAIKI Yoshiko)
Competition Policy and Law in Regional Economic Integration (SERYO Shingo)
18. Evaluation of the Quality of FTAs and EPAs
Leading Fellow(s)
Overview
Considering various current trade-related issues, such as the global progress of regionalism, Japan's full-fledged move toward concluding FTA/EPAs, and the slow progress in the WTO Doha Round, it is extremely important to strive toward concluding FTA/EPAs of the highest possible quality. However, FTA/EPAs present a number of serious problems including: (1) WTO compatibility; (2) the "spaghetti bowl" phenomenon of a large number of FTA/EPAs with different rules creating a complex web of disparate regulations, as in the case of rules of origin (ROO); and, (3) problems arising from significant differences in coverage and depth of liberalization among FTA/EPAs. In light of these problems, systematic and mutually comparable indicators will be employed to evaluate the quality of existing FTA/EPAs. The results will be used to develop policy recommendations for achieving higher quality agreements.
Major Research Results
RIETI Discussion Papers
II-(6) Technocrat-government relationships in post-crisis Asia
19. Technocracy in the ASEAN Democracies
Leading Fellow(s)
Overview
The nations of Southeast Asia, particularly Thailand, the Philippines, and Indonesia, have put authoritarian developmentalism behind them; even Malaysia has begun moving toward a softer authoritarianism with the retirement of Prime Minister Mahathir and the inauguration of the Badawi administration. Meanwhile, the technocracies that guided macroeconomic policy and economic development during the years of developmentalism are also undergoing major changes under the impact of democratization and the economic crisis of 1997-1998. This is evident in the collapse of the four-ministry system in Thailand, in the new preeminence of the congress in the budget drafting process in the Philippines, and in major changes in the process for drawing up a national plan and budget in Indonesia since the fall of the Suharto regime.
With these circumstances in mind, this project aims to (1) elucidate the changes in the technocracies of the ASEAN countries, and (2) consider policies for empowering technocracy under these democracies.
Major Research Results
RIETI Discussion Papers
*Title Abbreviation SF: Senior Fellow / F: Fellow / FF: Faculty Fellow / CF: Consulting Fellow