Toward a World-class Think Tank

From the Study of Economic Development to a Theoretical Pillar of FTAs

Saburi:
First, please tell us about your past research.

Urata:
The focus of my research is in the field of economic development and international economics. There are various factors that contribute to the economic development of nations, and among them, I have been studying how international trade and international investment have contributed to the economic development of each country. Economic development is accompanied by changes in industrial structure. When I was a researcher at the World Bank
(1981-1986), I conducted empirical analyses at the country and industry level on the changes in industrial structure as countries’ economic development shifted from agriculture to more productive manufacturing and then to services. In the 1990s, micro data at the company and the factory level became available, allowing us to look at economic activity in even greater detail. After RIETI was founded in 2001 and I became a Faculty Fellow, I analyzed how the overseas expansion of Japanese companies has affected their productivity growth.

Saburi:
The transformation of industrial structure has been a major mission since the days when the Ministry of Economy, Trade and Industry (METI) was the Ministry of International Trade and Industry (MITI), and even today METI has an Industrial Structure Division. It is very reassuring to have an expert in industrial structure theory as a chairman of RIETI.

In 1993, the World Bank published The East Asian Miracle: Economic Growth and Public Policy. Were you involved in this report as well? As a person in charge of Official Development Assistance (ODA) at that time, I was very encouraged by the report’s high evaluation of Japan’s aid to developing countries, which had been criticized as “tide-aid.”

Urata:
There was a famous economist named Hollis Chenery, who was considered a Nobel Prize candidate. His famous paper was on elasticities among factors of production and referred to as constant elasticity of substitution (CES) production functions, and his coauthors, Kenneth Arrow and Robert Solow, won the Nobel Prize. He was the vice president for development policy at the World Bank and he invited me to join the Bank.

The project leader of The East Asian Miracle was John Page, and I was in the same section of the World Bank with him. At that time, there was an “East Asian miracle debate” at the World Bank, and there were two views: one was that economic growth was achieved because of government support, and the other was that without government intervention, the private sector’s dynamism would have led to more growth. Certainly Japan, South Korea, and Taiwan
are prime examples where the government contributed to economic growth, but in other countries, the quality of the bureaucracy was lower or there was a lot of corruption, so I don’t think the government contributed much.

On the other hand, the effects of Japanese aid, and especially aid related to infrastructure development, which were focused on in The East Asian Miracle, can be explained by economics, and there is no dispute that this was very important for the economic development and economic growth of developing countries.

Saburi:
I heard that you created the theoretical backbone of Japan’s FTAs.

Urata:
I have always conducted my research with a strong interest in policy. As a trend of global trade policy, the General Agreement on Tariffs and Trade (GATT) was established after World War II, under which trade was liberalized on a world-wide scale and the economy developed. However, trade liberalization under GATT began to slow down, and FTAs, which liberalize trade between specific countries, began to flourish around 1990.

In this context, the first country with which Japan concluded an FTA was Singapore. The Japan-Singapore Economic Partnership Agreement (JSEPA) was signed and entered into force in 2002, while the interest of many policy makers and researchers shifted from trade liberalization at the global level to trade liberalization on a bilateral or multi-country basis. My first project at RIETI was also a study on FTAs.

Saburi:
After the experience of negotiating FTAs, Japan is now considered the “standard bearer of free trade.”

Urata:
Former President Trump’s withdrawal from the Trans-Pacific Partnership (TPP) gave Japan an opportunity, and Japan should be commended for seizing the opportunity and playing an important role in maintaining free trade.

ASEAN-Japan Relations and Contribution of ERIA

Saburi:
You have also been conducting research at the Economic Research Institute for ASEAN and East Asia (ERIA, Headquartered in Jakarta). What do you think will happen to Japan’s relationship with Asia and the Asian economy in the future?

Urata:
This year marks the 50th anniversary of friendly cooperative relations between Japan and the Association of Southeast Asian Nations (ASEAN). Ministry of Foreign Affairs (MOFA) and METI prepare to celebrate the anniversary.

ASEAN is an organization created in 1967 by the five countries of Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote peace and political stability among these Southeast Asian nations, which had often been in conflict. Economic cooperation began after political stability was achieved among these countries, and Japan was the first non-ASEAN country to approach it enthusiastically. Japan provided the ASEAN countries with ODA for infrastructure development and human resource development, and private companies actively advanced into the region by taking good advantage of this assistance.

Looking at Japan’s direct investment, the 10 ASEAN member countries have received about twice as much investment from Japan as from China, and ASEAN is the most important region in terms of Japanese companies’ expansion into developing countries. ASEAN
also occupies a very large position for Japan in terms of trade (15% after China), and ASEAN recognizes that its relationship with Japan is very useful for ASEAN’s economic development. In this sense, it can be said that the relationship is a win-win situation.

On the other hand, China is geographically closer to ASEAN than Japan, and some countries are connected by land, so China and ASEAN are very closely linked by rail and road, so despite this win-win situation, China is the main trading partner for ASEAN countries, and not Japan.

Saburi:
Japan and ASEAN are important partners in terms of economic security, but in the past, it has sometimes been said that “Japan was sometimes seen as having a condescending attitude toward ASEAN countries.” Will Japan need to make major changes in its relationship with ASEAN in the future?

Urata:
For ASEAN in the past, foreign companies were from Japan, the U.S. and Europe, but now companies from China, South Korea, Taiwan, and many other countries are active in ASEAN. Competition in the ASEAN market has become that much tougher, and the image of having a condescending attitude should definitely be avoided. There are many ASEAN companies from which Japanese companies can learn valuable lessons.

ERIA, an international organization established on Japan’s initiative in 2008, is an important Japanese contribution to the region. ERIA’s mission is to make an intellectual contribution to the economic development of East Asia, and I believe that ERIA is fulfilling this role effectively and faithfully, as it has a good relationship with the ASEAN Secretariat.

Future aspirations

Saburi:
What are your ambitions for the future?

Urata:
I have participated in RIETI as a faculty fellow and have been impressed by its excellent intellectual network, and I think it is wonderful that RIETI is working aggressively on new themes such as the fusion of humanities and sciences and Evidence-Based Policy Making (EBPM). I believe it is my mission to inherit the path of my predecessors and to play an ever more important role in solving world issues.

I am also very interested in internationalization, and I believe that RIETI is a world-class organization and can aim to enter the top 10 in the ranking of international think tanks.