Project Leader

WAKASUGI Ryuhei, Faculty Fellow

Overview

Notable research topics in the field of international economics include the growth of foreign direct investment, expansion of overseas production and outsourcing; technology licensing and the protection of intellectual property rights; the trade expanding effects of FTAs; and, the effectiveness of trade restrictive measures based on tariffs and anti-dumping actions. These issues have already been analyzed in the context of trade theory, theory of the firm and contract theory. However, not enough has been done in empirical examination. This applies to Japan as well as to other countries. The purpose of this project is to quantitatively analyze current issues in the above topics based on international trade data by commodity industry-level data and firm-level data for Japanese firms. In addition, we will quantitatively assess the effects of policies and systems, and discuss the implications for trade and industrial policies.

Major Research Results

RIETI Discussion Papers

• "Cross-regional Variations in Offshore Outsourcing Choices: Evidence from firm-level data" (TOMIURA Eiichi, ITO Banri and WAKASUGI Ryuhei)
• "Offshoring and Productivity: Evidence from Japanese Firm-level Data" ( ITO Banri, WAKASUGI Ryuhei and TOMIURA Eiichi)
• "International Strategic Alliances for Local Market Entry: Direct Launches versus Marketing Alliances in Pharmaceuticals" (TAKECHI Kazutaka)
• "International Trade in Cultural Goods: Survey and Prospects" (TANAKA Ayumu)

Project Leader

KAWASE Tsuyoshi, Faculty Fellow

Overview

Subsidies are widely used throughout the world as a standard tool for the achievement of domestic policy goals. However, subsidies can create distortions in resource allocation as seen in the impact of export subsidies on international trade. For this reason, subsidies are subject to regulation under the WTO Subsidies and Countervailing Measures (SCM) Agreement and Agriculture Agreement. Since the establishment of the WTO, more than 30 adjudications have been handed down on the issue of subsidies by WTO Panels and Appellate Body. Moreover, the number of subsidy-related disputes referred to the WTO is expected to increase with the expiration of provisions temporarily suspending the application of related agreements ("Peace Clause"). This project has the following three objectives: to research the interpretations and applications of relevant rulings made under the SCM Agreement and Agriculture Agreement; to examine the problems that may exist in the subsidy systems of Japan and Japan's major trading partners from the perspective of the WTO Agreement; and to gain insight into how Japan can develop its subsidy and countervailing duty systems while assuring compliance with the WTO Treaty.

Project Leader

THORBECKE, Willem, Senior Fellow

Overview

This year's research seeks to understand Asian production networks and Asia's trade with the rest of the world. It also considers policy measures to promote recovery and bring stability to East Asia. Some of the work involves presenting an analytical description of production networks and investigating how exchange rate changes and changes in income in the rest of the world affect Asian trade. For example, one policy implication is that exchange rate stability in East Asia would be desirable because exchange rate volatility would interfere with the slicing up of the value-added chain. Another policy implication is that East Asian countries should stimulate demand domestically to reduce their exposure to a slowdown outside of the region. Some of the work looks at previous agreements between world leaders to resolve global imbalances and to promote recovery. Other work considers how Federal Reserve monetary policy can be effective in the face of changes in inflation. Finally, the work considers a new development model for China and East Asia. The question is whether East Asia can be an engine of growth for the world economy, given that demand in Western economies has collapsed. The evidence indicates that if East Asia shifts to a domestic demand-led growth model, it could contribute significantly to growth in the rest of the world.

Major Research Results

RIETI Discussion Papers

• "Can East Asia be an Engine of Growth for the World Economy?" (THORBECKE, Willem)
• "The Effect of Exchange Rate Changes on China's Labor-Intensive Manufacturing Exports" (THORBECKE, Willem and Hanjiang ZHANG)
• "Monetary Policy Surprises and Interest Rates: Choosing between the Inflation-Revelation and Excess Sensitivity Hypotheses" (THORBECKE, Willem and Hanjiang ZHANG)
• "The Effect of Exchange Rate Volatility on Fragmentation in East Asia: Evidence from the Electronics Industry" (THORBECKE, Willem)

Project Leader

SAWADA Yasuyuki, Faculty Fellow

Overview

International discussions on development aid have come to a major turning point. This reflects the transition from aid for economic growth to direct aid for poverty reduction, from project-based aid to budget support aid, from loan-centered to debt reduction aid and grants, and from bilateral to multilateral aid. The aim of this Project implemented during fiscal 2006-08 was to systematically identify the differences in the macroeconomic impact of aid in Asia and Africa based on available evidence, and to measure the impact of the aid allocation behavior of donors and the effectiveness of technical assistance. Using the results obtained from this research, we will pursue the following objectives during fiscal 2009:

• (1) Basic research on developing insurance schemes to manage and cope with disaster risks through international cooperation; and
• (2) Clarification of the cause and effect relationship in the impact of aid on promoting economic growth.

Major Research Results

RIETI Discussion Papers

• "On the Role of Policy Interventions in Structural Change and Economic Development: The case of postwar Japan" (Julen ESTEBAN-PRETEL and SAWADA Yasuyuki)
• "Aid Allocation across Sectors: Does aid fit well with recipients' development priorities?" (KASUGA Hidefumi)
• "Is Aid Allocation Consistent with Global Poverty Reduction?: A cross-donor comparison" (SAWADA Yasuyuki, YAMADA Hiroyuki and KUROSAKI Takashi)
• "Impacts of Aid-Funded Technical Assistance Programs: Firm-level evidence from the indonesian foundry industry" (TODO Yasuyuki)

International Workshop

• "Aid and Economic Development" (Japanese)

Project URL

• "The Foreign Aid Governance" (Japanese)

Project Leader

ITO Takatoshi, Faculty Fellow

Sub-Leader

OGAWA Eiji, Faculty Fellow

Overview

This project takes the position that the adoption of a common currency basket constitutes a desirable and highly promising choice for the Asian region in the future. Given this point of departure, this project focuses on matters linked directly to policy, such as foreign exchange policies and monetary policy management leading up to a transition to a common currency basket, and the desired composition and structure of the basket. One of the research products of this project is the Asian Monetary Unit (AMU) Data, which has been posted on the RIETI website since September 2005 and is being visited from Japan and overseas (1288 average monthly visits during fiscal 2008). Among various issues emerged from the above themes, we have researched the pass-through problem or the impact of currency fluctuations on domestic prices, and the problem of the invoicing currency or the choice of the currency of denomination in export and import trade. In addition to conventional methods based on macroeconomic models, we did microeconomic analysis during fiscal 2007 featuring interviews with Japanese-affiliated companies concerning their foreign exchange strategies (invoicing currency, risk management) in export and import trade. For fiscal 2008, the project aims to obtain microeconomic and macroeconomic results pertaining to the optimal currency basket and the pass-through and invoicing currency problems, and to use these in formulating policy recommendations that are consistent with administrative needs.

Major Research Results

RIETI Discussion Papers

• "Currency Invoicing and Foreign Exchange Risk Management: A Case Study of Japanese Firms" (ITO Takatoshi, KOIBUCHI Satoshi, SASAKI Yuri, SATO Kiyotaka, SHIMIZU Junko, HAYAKAWA Kazunobu, and YOSHIMI Taiyo)

Project URL

• AMU and AMU Deviation Indicators

Project Leader

JINJI Naoto, Faculty Fellow

Overview

"Trade and the environment" and "food safety and trade" have emerged as critical issues in international trade. The purpose of this project is to approach these issues from the perspectives of both economics and law and to conduct comprehensive and interdisciplinary research. The following research will be conducted in the area of trade and the environment: empirical study on the effects of trade liberalization on the environment; theoretical study on illegal logging; and, theoretical study on voluntary corporate environmental action. The following research will be conducted in the area of food safety and trade: legal and economic analysis of the application of provisions of the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement); case studies on WTO disputes related to the SPS Agreement. In addition, the consumer benefits of food safety regulations will be estimated in the case of Japan's BSE countermeasures.

Major Research Results

RIETI Discussion Papers

• "Does Trade Liberalization Reduce Pollution Emissions?" (MANAGI Shunsuke, HIBIKI Akira and TSURUMI Tetsuya)

Publications

• "Food Security" (Written by YAMASHITA Kazuhito)
• "Food Safety and Trade: World trade organization agreement on the application of sanitary and phytosanitary measures" (Written and edited by YAMASHITA Kazuhito)

Project Leader

URATA Shujiro, Faculty Fellow

Overview

In recent years, there has been a rapid increase in the number of free trade agreements (FTAs) in which trade is liberalized between designated countries. While FTAs expand the level of trade between member countries, they are very likely to divert and suppress trade with non-members. FTAs affect the economies of member and non-member countries through these two effects. The purpose of this project is to examine the impact of FTAs on trade and domestic economic activities by undertaking pre- and post-FTA analysis. Pre-FTA analysis is based on data from the period prior to the establishment of a FTA and features the running of simulations using general equilibrium models. Post-FTA analysis is based on actually observed data and uses gravity models to examine the determinants of bilateral trade. This project covers the FTAs established by Japan and other FTAs established throughout the world. For Japan's FTAs, the project also analyzes the level of use of the FTA by firms. Drawing on the results of these analyses, this project aims to determine the impact of FTAs on trade and domestic economic activities, and to provide useful information for the design of FTA policies by the Japanese government.

Project Leader

SHIRAISHI Takashi, Faculty Fellow

Overview

The emergence of China as an economic powerhouse has been transforming the regional order in East Asia, particularly in the areas of economy, politics and security. The project will address the question of how to manage these transformations. Project members will examine Japan's and other countries' engagement with China from the "realist" (which emphasizes balance of power politics) and "liberal" (which emphasizes economic interdependence and institution-building) perspectives. The project will underline the importance of balancing regional cooperation for managing the regional transformations.

Major Research Results

RIETI International Seminar

• "The Future of U.S.-China Economic Relations"

Project Leader

KOTERA Akira, Faculty Fellow

Sub-Leader

MATSUMOTO Kayo, Fellow

Overview

Foreign investments are exposed to considerable risk, depending on factors such as the conditions in the recipient countries. Among these risks, those (political and social risks) that may cause business failure as a direct result of acts by the recipient country need to be addressed through a public framework, and in recent years investment agreements have been attracting attention as a type of public framework. Of particular note is that the procedure for resolving disputes between investors and states (investment agreements arbitration) provided in investment agreements functions as real investor protection. In our research we will analyze the legal principles of arbitration awards and will study legal protection for overseas investment. The analysis of legal principles will have considerable implications for the drafting of the investment-related provisions in future investment agreements or economic partnership agreements that Japan concludes in the future. At the same time, it will serve as a reference for company management when choosing investment targets or investment methods. In addition, this will influence the design of investment insurance schemes offering similar functions.

Major Research Results

RIETI Discussion Papers

• "Fair and Equitable Treatment' in Investment Treaties: Function of general provisions" (KOTERA Akira)
• "Categories of Rulings on Compensation and Reparation in the International Investment Arbitration : A tentative reclassification of cases" (TAMADA Dai)
• "Regulations and Indirect Expropriation: Major criteria for deciding indirect expropriations in investment treaty arbitration" (MATSUMOTO Kayo)
• "International Investment Arbitration and Parallel Proceedings: Focusing on regulation and coordination under national law" (NAKAMURA Tatsuya)
• "Breach of Contracts in Investor-State Arbitration Based on International Investment Agreements" (HAMAMOTO Shotaro)
• "Objections to Jurisdiction and their Settlement in International Investment Arbitration" (IWATSUKI Naoki)
• "Types of Foreign "Investor" and "Investment" Covered by Arbitral Jurisdiction" (ITO Kazuyori)
• "Attribution of Conduct to a State in Investment Disputes: Conditions under which a state is responsible for the conduct of local governments, para-statal entites and public corporations" (NISHIMURA Yumi)
• "Incentive Design of Investment Treaty Arbitration Procedures" (SHIMIZU Takashi)
• "Applicable Laws in ICSID Arbitration: Direct Application of International Law and its Implications" (KOMETANI Kazumochi)
• "State of Necessity as an Economic Safeguard Clause under Investment Treaties: Limitations and Implications as Seen in the Argentine Economic Crisis Cases" (KAWASE Tsuyoshi)

RIETI International Seminar

• "Investment Risk and International Investment Agreements"

Project Leader

SHIRAISHI Shigeaki, Senior Fellow

Overview

The aim of this project is to develop effective policy recommendations for improving productivity in the context of economic globalization by interpreting the process of economic globalization to be a multiple game involving the following types of players acting on different sets of principles: (1) firms acting to maximize profits whose behavior can be explained in terms of a "2R-2R model" (cyclical model of "resources and risks as the strategic basis" and "redefinition and relocation as the strategic action") (2) governments acting to maximize national interests based on the principle of realism; and (3) international organizations acting to maximize overall interests transcending the framework of nations based on the principle of liberalism. This framework is used for analyzing current conditions and identifying salient issues in globalization and productivity. Particular attention is paid to cross-border M&As as a specific form of economic globalization, and the reorganization of Europe's electric power and gas industries is analyzed as a case study. This project is conducted jointly with the OECD.

Major Research Results

RIETI Discussion Papers

• "Structure of Economic Globalization: Multiple games among firms, sovereign states, and international organizations" (SHIRAISHI Shigeaki)

RIETI Policy Discussion Papers

• "Background and Mechanism of Reorganization of European Power and Gas Industries: Multiple games among firms, sovereign states, and international organizations" (SHIRAISHI Shigeaki)

Project Leader

OHASHI Hiroshi, Faculty Fellow

Overview

The purpose of this project is to empirically assess and analyze the impact and effect of trade policies on the behavior of firms and structure of industries. Traditional research in this field often assumes the existence of a representative firm and has focused mainly on the evaluation of economic welfare. More recent research attempts to put more emphasis on the aspects of firm heterogeneity while allowing for strategic interactions among firms. In a globalized economy, firms will not necessarily respond passively to trade policies. For instance, it is known that firms will take a strategic approach to influencing policymaking processes. On the other hand, empirical analyses aimed at determining the validity of this theoretical possibility have only been recently started. Against the backdrop of the increased globalization of corporate activities and the expansion and development of East Asian business networks, this project will focus on analyzing firm behavior while empirically evaluating the impact of international trade systems and trade policies.

Project Leader

TOMIURA Eiichi, Faculty Fellow

Overview

In recent years, firms in advanced economies have been increasingly relocating a broad range of operations and functions including R&D activities and manufacturing processes to overseas sites (offshoring). Furthermore, these relocations are not only to divisions within their own multinational corporations but also to unrelated firms (outsourcing). As a result, identifying the current status of cross-border outsourcing has become critically important in formulating Japan's trade policies, regional economic policies and industrial policies. The aim of this project is to undertake an econometric analysis of corporate survey results in order to contribute to an understanding of the offshore outsourcing by Japanese firms, which has an important bearing on Japan's policies. In addition, offshore outsourcing is analyzed with an aim to verify new trade theories.

Project Leader

WAKASUGI Ryuhei, Faculty Fellow

Sub-Leader

TODO Yasuyuki, Faculty Fellow

Overview

Melitz (2003), Helpman et al. (2004) and others have theoretically established that high corporate productivity promotes participation in export and foreign direct investment. In more recent years, Bernard and Jensen (1995, 1999), Bernard et al. (2007) and others have examined the empirical validity of this theory using data from U.S. firms. Mayer and Ottaviano (2007) have conducted comprehensive research on European firms and have helped clarify the relation between corporate productivity and exports and foreign direct investment. The incorporation of corporate heterogeneity in the analysis of international trade constitutes a global trend in research.

While empirical studies of Japanese firms have been undertaken by Head and Ries (2001, 2003), Kiyota and Urata (2005), Tomiura (2007) and others, it cannot be said that sufficient work has been done in this area. The discussion paper entitled, "The Internationalization of Japanese Firms: New Findings based on Firm-Level Data" (WAKASUGI Ryuhei, TODO Yasuyuki, SATO Hitoshi, NISHIOKA Shuichiro, MATSUURA Toshiyuki, ITO Banri, TANAKA Ayumu) represents a comprehensive study in this field. While statistical data have been carefully examined, in-depth empirical analysis and consideration remain to be undertaken. Progress in this research field provides us as a Japanese research group corresponding to the U.S. and European groups with an opportunity to contribute to the international development of new trade theories and empirical studies.

Exports and foreign direct investment by Japanese firms play a highly significant role in economic growth and maintaining income levels. This project draws on the latest results of theoretical studies that suggest that firms are actually heterogeneous and not homogeneous as previously assumed to undertake a thorough analysis of the trade, overseas investment and overseas production activities of Japanese firms with the aim of identifying new ramifications for industrial policies.

Major Research Results

RIETI Discussion Papers

• "The Internationalization of Japanese Firms: New findings based on firm-level data" (WAKASUGI Ryuhei, TODO Yasuyuki, SATO Hitoshi, NISHIOKA Shuichiro, MATSUURA Toshiyuki, ITO Banri and TANAKA Ayumu)

RCEPR-RIETI International Workshop

• "Internationalization of Firms and Trade: A comparison between Japan and Europe"

Project Leader

NAKANISHI Hiroshi, Faculty Fellow

Overview

Events occurring during 2008 and 2009 point to the advent of the most significant juncture in the restructuring of the international order since the end of the Cold War. These events include the launch of a new U.S. administration, changes taking place in China since the Beijing Olympics, and the resurrection of Russian diplomacy in the sphere of its influence. On the other hand, Japan's efforts to restructure its domestic order have lost speed and momentum after the Koizumi reforms, and Japan can be expected to continue to experience turmoil in its internal politics for some time to come. While Japan will have to engage in more fundamental discussions once the internal turmoil has settled, there is a need to analyze the ongoing changes in the international environment and to adopt diplomatic policies that correspond to these changes. This project suggests that the global international order has entered a period of change during 2008 and 2009, and seeks to identify the essential features of this change. The project also considers, on a very fundamental level, the question of how Japanese diplomacy should respond to these changes. Efforts will be made to formulate recommendations on practical policy issues as needed. (We believe that substantial discussion of changes occurring in the East Asian circumstances will become possible after the second half of 2009.)

Project Leader

YAMASHITA Kazuhito, Senior Fellow

Overview

It has been pointed out that environmental problems and international trade are closely linked. In the past, trade disputes related to the "environment and trade" have frequently occurred within the GATT/WTO framework. The GATT panel ruling in the "dolphin and tuna case" was the first GATT ruling ever to be reported on the front page of the New York Times. Environmental groups upset with this ruling took to the streets to demonstrate against globalization. Under pressure from demonstrators, the WTO Ministerial Conference held in Seattle in 1999 ended in failure. As symbolized by these events, environmental groups began to criticize GATT/WTO during the 1990s, claiming that GATT/WTO undermined environmental interests and that trade liberalization leading to economic expansion would further contribute to environmental destruction. During the presidential election, President Obama advocated the adoption of a series of new rules in free trade agreements and for the WTO to prevent companies from gaining competitive power by sacrificing and degrading the environment. It is highly likely that debates concerning the issue of "environment and trade," which have been generally subdued in the past, will emerge as a central issue in WTO negotiations beginning next year. This project will consider "environment and trade" which is one of the key issues in international trade from a comprehensive and interdisciplinary approach, taking into account the perspectives of both law and economics.

Project Leader

KUBO Fumiaki, Faculty Fellow

Overview

The Obama administration faces a number of extremely serious and substantial problems both domestically and in the field of foreign policy. Foreign policy issues start with Iraq and Afghanistan but extend to North Korea, Iran, Israeli-Palestinian relations, and developments in Pakistan. However, these are but a sample of the urgent foreign policy issues facing the Obama administration. The purpose of this project is to elucidate the direction of U.S. foreign and security policies under the Obama administration by focusing on the foreign policy philosophies of policy makers. A review of the foreign and security policy staff of the Obama administration seems to reveal the following at the present time. The most left-leaning elements of the Democratic Party adhering to left and anti-war positions have been basically excluded and the staff is centered on moderates. Moreover, efforts have been made to include moderate Republicans and realists, such as Robert Gates and Brent Scowcroft. The project will aim to develop a fuller understanding of basic foreign policy positions reflected in these appointments. The project will also aim to deepen its analysis of specific policy areas, such as Asia, the Middle East and nuclear non-proliferation.

Project Leader

KOTERA Akira, Faculty Fellow

Sub-Leader

MATSUMOTO Kayo, Consulting Fellow

Overview

Since trade agreements (i.e. WTO Agreements, economic partnership agreements, international investment agreements, etc.) address trade measures, references to taxation often do not specify what aspects of taxation and tax measures are to be regulated. However, it has become globally recognized that trade agreements have an important regulatory impact on taxation.

The importance of the relationship between trade agreements and taxation becomes evident when a trade agreement is objectively interpreted by a third party. A good example of this is the 1980s dispute concerning the grading of alcoholic beverages that was referred to the General Agreement on Tariffs and Trade (GATT) dispute settlement procedures. The GATT ruling against the established grading practice clearly revealed how GATT regulations can impact domestic taxation. The growing coverage of trade agreements creates increased opportunities for this type of problem.

This problem is further complicated by the existence of bilateral tax agreements. Trade agreements frequently contain provisions for exemption from certain matters covered by tax agreements (as in the case of the General Agreement on Trade in Services [GATS] and Japan's economic partnership agreements). When exemptions are not stipulated, a series of other issues may arise, which go beyond how to modify domestic measures, how to make adjustments between the provisions contained in trade agreements and tax agreements. One of these issues is how to coordinate the dispute settlement procedures of the two types of agreements.

With these issues in mind, small-scale study sessions will be organized with the participation of legal scholars and specialists specializing in the fields of international law, international economic law, tax laws, EU laws, etc. On occasion, researchers from the field of economics will also join the sessions.

Project Leader

SHIRAISHI Shigeaki, Consulting Fellow

Overview

Thus far, this project has examined economic globalization as a multiple game and has identified its realities and challenges with the intent of developing effective policy recommendations for productivity improvement in the context of economic globalization. Building on these results, we will study the specific developments in the re-organization of European electric power and gas businesses through cross-border M&A from the perspective of business strategies. In addition, while taking into account the responses of the European Commission and member states to these developments, we will examine what may be considered to be a desirable framework for such rules. This project will be undertaken jointly with the OECD/IEA.

Project Leader

YASHIRO Naomitsu, Consulting Fellow

Overview

The remarkable development of globalization in corporate activities, together with the integration of international capital markets, has brought substantial globalization and diversification to a country's economy and industrial structure. Recent researches in Japan and in many other countries clarified that global activities such as export or foreign direct investment are actually concentrated to a small group of firms. Moreover, a significant disparity in productivity and other measures of performance exists between these firms and those whose activities are restricted to the domestic market. Given its shrinking population, Japan will have to achieve high levels of productivity growth in order to remain on par with other advanced countries in terms of economic growth. It is widely recognized that promoting the globalization of corporate activities constitutes a critical policy issue in realizing this scenario. The purpose of this project is to clarify the mechanism through which the globalization of corporate activities contributes to economic growth and shapes economic and industrial structure into a more competitive state, and to derive policy recommendations based on the findings. The project will undertake a survey of the latest research results and will also involve theoretical and empirical analysis.

Project Leader

SHIBOTA Atsuo, Senior Fellow

Overview

In the past, the Japanese business community tended to view China and its rapidly expanding economy as a threat. However, this is now being replaced by the view that the vitality of the Chinese economy can be effectively utilized to energize Japanese firms. The economic ties between Japan and China are being strengthened and Japanese-affiliated firms are upgrading the level of their commitment to China. But this implies that Japanese-affiliated firms will become increasingly susceptible to events and changes occurring in the Chinese economy. With this in mind, Japanese-affiliated firms are becoming keenly aware of China-related risks even as they increase their business exposure to China.

The purpose of this project is to survey such current conditions in Japan-China economic relations from the perspective of foreign direct investment. First, developments in Japan-China investment will be surveyed in chronological order, followed by an analysis of Japanese foreign direct investment in China during 2007 and 2008. Next, Japan's position in China's total incoming foreign direct investment will be examined and a number of issues pertaining to foreign direct investment in China will be examined. Finally, we intend to make some projections concerning the future of Japan-China investment relations and will review some specific matters on the Chinese side that need to be understood in order to ensure smooth implementation of investment activities by Japanese-affiliated firms in China.

Major Research Results

Symposium

• "The 8th Japan-China Economic Conference" (Japanese)