Project Leader

WATANABE Tsutomu, Faculty Fellow

Sub-Leader

UESUGI Iichiro, Consulting Fellow

Overview

(1) Research project on financial and industrial networks

• This project focuses on inter-firm as well as bank-firm networks, empirically examines their development over time, and evaluates their impact on economic activities including firm performance. We employ a unique firm-level database that identifies inter-firm and bank-firm networks for analysis. Current research interest of the project members is on the changes in these networks incurred by the recent economic downturn with a focus on: the effect of government interventions in the credit market on bank-firm relationships, the efficiency of the decision making process of financial institutions, and the impact of credit scoring loans which have been introduced by major financial institutions.

(2) Research project on price and wage dynamics

• The inflation rate in Japan was close to zero even during the bubble period in the late 1980s but has remained below zero since the latter half of the 1990s. This clearly suggests that the nature of the inflation process has changed in a manner that has made high inflation less likely than in the 1960s and 70s. The purpose of this project is to study the causes and implications of such a change in the inflation process. The key idea is that a decline in the inflation rate at the macro level should be closely related to changes in firms' microeconomic behavior. Based on this understanding, we will employ high frequency scanner data to investigate changes in firms' price setting behavior, and then look into its implications for the Phillips curve relationship. This year we will focus on the analysis of deflation over the last ten years using micro price data.

Major Research Results

RIETI Discussion Papers

• "Do Banks Have Private Information? Bank screening and ex-post small firm performance" (HOSONO Kaoru and XU Peng)
• "Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan" (HOSONO Kaoru)
• "Residential Rents and Price Rigidity: Micro structure and macro consequences" (SHIMIZU Chihiro, NISHIMURA Kiyohiko G. and WATANABE Tsutomu)
• "Customer Relationships and the Provision of Trade Credit during a Recession" (TSURUTA Daisuke)
• "Employment and Wage Adjustments at Firms under Distress in Japan: An analysis based upon a survey " (ARIGA Kenn and KAMBAYASHI Ryo)
• "The Current Status of SME Financing under the Financial Crisis: A summary of the Survey on the Status of Transactions between Businesses and Financial Institutions (Feb. 2008) and the Survey on the Status of Transactions between Businesses and Financial Institutions following the Financial Crisis (Feb. 2009)." (UESUGI Iichiro, UCHIDA Hiroshi, OGURA Yoshiyuki, ONO Arito,XU Peng, TSURUTA Daisuke, NEMOTO Tadanobu, HIRATA Hideaki, YASUDA Yukihiro, YAMORI Nobuyoshi, WATANABE Wakou and HOTEI Masaki)

Project Leader

KAWAGUCHI Daiji, Faculty Fellow

Overview

This project covers the following six themes.

• (1) Figuring out the basic facts of Japan's labor markets.
• (2) Analysis of factors affecting the proliferation of non-regular employment.
• (3) Impact of non-regular employment on career development of young people and its welfare implications.
• (4) Theoretical and empirical analysis of the impact of long-term employment systems on corporate productivity.
• (5) Theoretical and empirical analysis of the impact of increased mobility in labor markets on corporate productivity.
• (6) Empirical analysis of the use of non-regular employees based on corporate personnel data.

First, the basic facts of Japan's labor markets in recent years will be figured out using large-scale government statistics. Next, the project will focus on the proliferation of non-regular modes of employment, and will analyze the cause of its increase as well as the impact of this trend on young people's career development and related welfare implications. The project will evaluate how the shortening of the average years of employment caused by non-regular employment affects corporate productivity. Furthermore, the project will verify theoretically and empirically how greater labor mobility reduces employment mismatching and improves productivity. Finally, corporate personnel data will be used in analyzing the use of non-regular employees and their promotion to regular employee status.

Major Research Results

RIETI Discussion Papers

• "Is Minimum Wage an Effective Anti-Poverty Policy in Japan?" (KAWAGUCHI Daiji and MORI Yuko)

Project Leader

TSURU Kotaro, Senior Fellow

Overview

The Japanese economy experienced a fifteen-year period of adjustment following the collapse of the bubble economy. As it now attempts to take off toward new frontiers, Japan needs to adopt organizational and institutional designs that will heighten and promote the potential growth and the process of innovation. In so doing, as a more essential requirement for the improvement of corporate innovation and therefore corporate performance, it is important to fundamentally review corporate organizational structures, the status of human resources, and the systems and institutions that function as the infrastructure of markets. This project starts by focusing on corporate mergers and acquisitions, which intensify in recent years, to more fully examine the following questions:
(1) What are the motives and intent of M&A activities? and
(2) Are the initially anticipated effects of M&A realized, and does corporate performance actually improve after the completion of corporate reorganization?
In addition, countermeasures to hostile take-over bids and their implications will also be analyzed.

Major Research Results

RIETI Discussion Papers

• "Mergers, Innovation, and Productivity: Evidence from Japanese manufacturing firms" (HOSONO Kaoru, TAKIZAWA Miho and TSURU Kotaro)
• "Do Mergers Improve Corporate Performance? Analysis of corporate activities based on joint RIETI/METI survey" (TAKIZAWA Miho, TSURU Kotaro and HOSONO Kaoru)

Project Leader

YAMAUCHI Naoto, Faculty Fellow

Overview

Given the advent of an aging society with a declining population, plus major structural changes in the form of globalization and the intensification of international competition, in order to maintain economic vitality and to keep the size of the public sector within a scope that is sustainable, it is essential to implement reform toward establishing "small government." Our research activities will include the categorization of the forms of public-private partnership (PPP) such as private finance initiative (PFI), the designated administrator system, and market testing; the conduct of quantitative verification of the effects of reductions in fiscal expenditure; and the conduct of analyses of introduction incentives, including by means of surveys of local government bodies and non-profit organizations (NPOs). In this way we will put forward suggestions on how to shape policies for achieving efficient public services in Japan through PPP.

Major Research Results

RIETI Policy Discussion Paper

• "Economic Analysis of Public-Private Partnerships" (YAMAUCHI Naoto, SUZUKI Wataru, MATSUNAGA Yoshiho, HOTTA Satoko, IWATA Kenji ISHIDA Yu and OKUYAMA Naoko)

Project Leader

MIYAJIMA Hideaki, Faculty Fellow

Overview

This project aims to examine the most urgent and crucial issues on corporate governance in Japanese firms. In this project, we will primarily focus on: the causes and effects of increasing foreign institutional shareholders and the unwinding of cross shareholding, redesigning a contingent governance structure following the collapse of the main bank system, clarifying the complementary or substitutional relationship between internal- and external governance, the control over business units or subsidiaries following the introduction of the holding company system, the regulation of financial institutions, and the theoretical reexamination of the complementarity of the various sub systems involved in corporate governance. By examining these topics, we are expecting to comprehensively clarify corporate governance in Japan which is now characterized as the hybridization or rather combination of two different modes of relationships: market-based governance and relationship-based organizational structures. In this project, we also try to address the impact of the world financial crisis on the evolution of corporate governance in Japan. The research results of our team will be published by the end of autumn 2010.

Major Research Results

RIETI Discussion Papers

• "Equity Markets and Institutions: The case of Japan" (Julian FRANKS, Colin MAYER and MIYAJIMA Hideaki)
• "Main Bank Relationships in Japan: From monitoring to risk hedging" (HIROTA Shinichi)
• "Pluralistic Evolution of the Japanese-Style Enterprise System: Toward the Hybrid Model" (MIYAJIMA Hideaki)

Project URL

• Developing the Research Frontier in Corporate Governance Analysis

Project Leader

IWAMOTO Yasushi, Faculty Fellow

Sub-Leader

HASHIMOTO Kyoji, Faculty Fellow

Overview

Faced with the challenges of aging, globalization, global environmental issues and growing disparities, Japan's socio-economic structures are undergoing significant changes that necessitate fundamental reforms in the tax system. With this awareness, this project has utilized developments in tax theory to consider appropriate tax systems that correspond to socio-economic structural changes from a medium- to long-term perspective. During the current fiscal year, the project will expand upon the analysis undertaken in the previous year and will also take up new analytical issues. Specifically, the following critical issues will be considered and research themes will be selected from areas where academic contributions can be made: the relation between social security and taxation in an aging society; capital gains taxation in an environment of economic globalization; and systems of local taxation corresponding to advances in decentralization. Currently, the project has adopted four research themes:

• (1) Analysis of transfer and incidence of corporate taxes.
• (2) Economic impact of tax-based public pension systems: Simulation analysis using multi-sector overlapping generations model.
• (3) Analysis of social security and taxation.
• (4) Local taxation corresponding to changes in socio-economic structures: In light of the relation between local taxes and local allocation taxes.

Project Leader

TSURU Kotaro, Senior Fellow

Overview

In order to study a new "form" for Japan's labor market institutions, and types of reform, we will organize a study group that will conduct theoretical and empirical research from various perspectives such as law, economics and management. While looking broadly at labor market institutions as a whole, we will also look into the interrelationships of each constituent part, and in particular will make suggestions regarding a comprehensive system of labor laws from a standpoint that transcends vertical segmentation and boundaries. When conducting our analysis we will fully embrace international viewpoints and methods of analysis, including experiences from Europe and elsewhere, and will attempt to elucidate the relationships between labor laws and institutions and the labor market and employment systems, and in turn the relationship (including the issue of non-regular employment) with economic performance.

Major Research Results

RIETI Discussion Papers

• "Measuring Social Exclusion of Non Regular Workers in Japan" (KUME Koichi, OHTAKE Fumio, OKUDAIRA Hiroko and TSURU Kotaro)
• "How are Hours Worked and Wages Affected by Labor Regulations?: The white-collar exemption and 'name-only managers' in Japan" (KURODA Sachiko and YAMAMOTO Isamu)

Project Leader

NAKAMURA Ryohei, Faculty Fellow

Overview

Achievement of regional economic autonomy in an open system requires abilities to utilize regional resources (comparative advantage), to attract funds into the region (export power), and to prevent the outflow of funds from the region (circulatory capacity). Furthermore, regional economic innovation is required for sustainable autonomy. Adopting this perspective, this project will conduct research focusing on the following three areas.

• (1) Analysis of regional agglomeration capable of achieving autonomy: The question of how to obtain funds from outside the region will be analyzed by considering the relation between the role of supply-side inputs and technological progress. The externalities of the following three major factors which can facilitate agglomeration will be quantitatively analyzed by using industry statistics and other microdata: "leakage of knowledge," "associative effects" and "sharing of factors."
• (2) Analysis of necessary scale in achieving regional autonomy: The NEG model will be used to examine causal factors in regional disparity undertaken separately for market and supply potential. Furthermore, taking into consideration future possibilities for the adoption of a "doshusei" or regional administrative system, the potential impact of regional integration will be estimated.
• (3) Endogenous resolution of regional disparities: Disparities among regions should be rectified through endogenous resolution based on exchanges of differences derived from comparative advantage between major metropolitan areas and outlying regions rather than relying on the implementation of policies that are exogenous to the region. One source of comparative advantage for the regions would be environmental assets. The project will use the NEG model to undertake simulation analysis and to identify relevant policy implications.

Project Leader

SHISHIDO Zenichi, Faculty Fellow

Overview

A firm is an incentive mechanism among those indispensable capital providers, i.e., shareholders and creditors as monetary capital providers, and management and employees as human capital providers. Markets and laws are two significant aspects of the infrastructure of the incentive bargaining of a firm. It is important to note that the law does not by itself affect the incentive bargaining among those four players, but rather affects it complementarily through markets. Also a specific law, in many cases, would not affect the incentive bargaining independently, but rather complementarily with through laws. The objectives of this project are to reconstruct legal systems such as the enterprise law, which affect the incentive bargaining of a firm, and to stimulate efficient incentive bargaining at the firm level.

Major Research Results

Project URL

• Enterprise Law as a Structure for Incentives

Project Leader

TAMAI Katsuya, Faculty Fellow

Sub-Leader

AKAI Nobuo, Faculty Fellow

Overview

Japanese universities have undergone important changes in recent years, such as the incorporation of national universities as independent administrative institutions beginning in April 2005. However, it can hardly be said that all problems have been solved through these institutional reforms. The following are some of the issues and problems that remain to be addressed: the raison d'être of national universities; the interrelation between "education" and "research" and the allocation of resources; the allocation of operating grants and competitive research funds; a framework for university governance conducive to competition and constructive rivalry among national universities; and the management of national university hospitals. These issues not only affect the future of Japan's ivory towers, but also have an important bearing on the future of Japan's economy and society in the 21st century. The purpose of this project is to develop a framework for considering the above issues. Currently, we are engaged in researching the following themes:
(1) Current conditions and outlook for the performance of national universities and the allocation of funds;
(2) Current conditions and issues related to the governance of national universities; and
(3) Universities and local economies.

Major Research Results

RIETI Discussion Papers

• "Evaluation and Allocation of Resources in Higher Education: The Potential and Challenges of Performance-Based Funding " (TANAKA Hideaki)
• "Internal Governance and Financial Operation of National Universities: Does governance reform after incorporation improve university management? " (AKAI Nobuo and NAKAMURA Yoshihiro)
• "Discussion of the Financial Systems of National Universities: Structural analysis of subsidies for operating expenses" (AKAI Nobuo, NAKAMURA Yoshihiro and SENOH Wataru)

Project Leader

YASUDA Takehiko, Faculty Fellow

Overview

The level of entrepreneurial activity in Japan, as measured in terms of the start-up ratio, has increased slightly since the start of the 21st century, but still remains at the lowest level in international comparisons. Given the important link between entrepreneurial activity and innovation, the current situation needs to be rectified as quickly as possible. With this in mind, the government has introduced policy lending programs and various other measures to increase start-ups. Though such policy measures should presumably be based on the information like conditions affecting entrepreneurship and obstacles to the start-ups, not enough is known in Japan compared to the U.S. and Europe due to data constraints. In particular, almost nothing is known about "latent entrepreneurs" whose behavior determines the future level of a country's entrepreneurial activities. The purpose of this project is to investigate the current conditions of entrepreneurs and latent entrepreneurs in Japan. The microdata obtained from the investigation will be used in statistical analysis to determine how the level of entrepreneurial activity can be raised and where current problems and obstacles lie.

Project Leader

ISHIKAWA Jota, Faculty Fellow

Overview

Signatories of the Kyoto Protocol are considering and implementing various policies to achieve their reduction goals. Recently, there has been considerable activity in developing a new framework for after the first commitment period. Representative policies for countering global warming include emissions taxes and emissions quotas. These two policies generally yield equivalent results in a closed economy. However, recent theoretical research indicates that equivalency is not achieved in an open economy (for example, see Kiyono and Ishikawa, 2004 and Ishikawa and Kiyono, 2006). Particularly important is the problem of carbon leakage, which points out that while greenhouse gas reduction policies in one country may reduce that country's emissions, this may indirectly increase emissions in other countries. Furthermore, it cannot be said that adequate theoretical research has been conducted concerning the combination of emissions trading and emissions quotas. While emissions trading systems have been tried on various levels, with the exception of the EU, the establishment of large-scale emissions trading systems has been delayed. The purpose of this project is to examine and to gain new perspectives on issues related to the carbon leakage problem and emissions trading systems particularly within the framework of an open economy.

Project Leader

FURUSAWA Taiji, Faculty Fellow

Overview

It has proven difficult to take effective and concerted international action against global warming because of different interpretations of the mechanisms of global warming and because countermeasures require current generations to "sacrifice" themselves for future generations. Under these conditions, it is not enough for the international cooperative framework to include retaliatory and punitive provisions. Rather, it becomes necessary to maintain an incentive for cooperation by making a moral appeal. Hudec (1990) states that compliance with GATT laws is based on the two factors of "moral and political response to international obligations" and the "threat of retaliatory measures." The purpose of this project is to theoretically explore cooperation promoting systems that are based on the soft and hard imperatives of moral action and retaliation.

As has been pointed out with respect to the Kyoto Protocol, building a mechanism to tackle global warming involves a free-rider problem. Issues related to participation in cooperative initiatives as examined by Maruta and Okada (2005) and Furusawa and Konishi (2008) will be taken into account in developing our model. Environmental policies (such as a carbon tax) and trade policies (such as import tariff) must be simultaneously considered in designing international systems to prevent global warming. A crucial issue in policy choice involves the question of whether optimal contracts will bind both environmental and trade policies or either of the two. The project will also consider these choices in light of Horn, Maggi and Staiger (2006).

Project Leader

AKAI Nobuo, Faculty Fellow

Overview

The maturation of society and the diversification of needs have made it necessary for Japan to adopt institutional reforms that will allow local governments to manage their administrative and fiscal systems more efficiently under their own discretion and responsibility. Such reforms require the proper division of functions and roles between central and local governments, governance by the citizens and administrative accountability, and the appropriate re-assignment of functions between the private and public sectors. In this context, ports and harbors constitute infrastructure assets with an important role to play in local economic management. However, this is an area where the division of functions between central and local governments remains ambiguous. Sufficiently flexible administrative and fiscal systems that would allow local governments, acting alone or in cooperation, to manage such facilities under their own discretion and responsibility for the purpose of revitalizing their local economies have yet to be developed.

From a fiscal perspective, ports and harbors have been constructed under the financial supports of the central government's Port Development Special Account. However, to date, no analysis has been undertaken on the following matters: survey of the theoretical treatment of the impact of disbursements from special accounts; detailed review of the financial statements of the Port and Harbor Development Special Account; estimation of the potential redistribution effect of transfers to individual ports and harbors; and the impact of the central government's port and harbor development subsidies on ex-post management efficiency of regional ports and harbors

Adequate accounting indicators have not been developed for the financial accounting of regional ports and harbors. As a result, local citizens have not been provided with a full explanation of how these facilities are managed and operated (lack of accountability). Adequate theoretical and empirical analysis has not been conducted on how lack of accountability and government regulation of ports and harbors impacts modes of ownership, inter-regional cooperation, the operational efficiency of regional ports and harbors, and forward-looking activities of local governments. In this project, we adopt a different approach from past studies to examine various aspects of administrative and fiscal systems that would be conducive to efficient management of regional ports and harbors and to the revitalization of local economies.

Major Research Results

RIETI Discussion Papers

• "Financial Analysis of the Efficient and Effective Development and Operation of Ports and Harbors: Structural analysis of development, regulation and operation" (AKAI Nobuo, UEMURA Toshiyuki, SAWANO Koichiro, TAKEMOTO Toru and YOKOMI Muneki)

Project Leader

KAWAHAMA Noboru, Faculty Fellow

Sub Leader

OHASHI Hiroshi, Faculty Fellow

NISHIGAKI Atsuko, Senior Fellow

Overview

Over the past few years, interest in competition policy based on the enforcement of anti-monopoly laws has grown very rapidly throughout Asian countries and other parts of the world. Faced with a new market environment characterized by economic globalization, countries throughout the world are being forced to radically change their positions on competition policy and the management of such policies based on competition laws. In the case of Japan, the role of the competition policy is becoming increasingly important because maintaining economic vitality under conditions of declining fertility and an aging population requires the promotion of innovation through the full utilization of market competition. The purpose of this project is to examine the competition policy in an environment where globalization and innovation have gained critical importance. This project will comprehensively examine the competition policy from the perspectives of law, economics and government administration, while taking into account related developments in other countries.

Project Leader

MURAMOTO Tsutomu, Faculty Fellow

Sub Leader

YOSHINO Naoyuki, Faculty Fellow

Overview

The purpose of this project is to examine, from a policy perspective, how risk capital can be supplied to small and medium enterprises (SMEs) and local economies during the current financial crisis. Policy evaluation will be conducted with an aim to formulate policy recommendations to the extent possible. With these objectives in mind, the following questions will be analyzed from the perspective of SME-related policies: (1) how can funds be supplied to local economies and to local SMEs in particular? and (2) what should be the source of such funds?

Under the existing systems, the supply of risk capital is clearly provided for in locally specific financing programs (relationship banking) in the form of financing and loans for startups. Because certain credit risks cannot be fully covered in indirect financing, efforts have been made to utilize capital funds and hybrid lending (upside return-type financing). However, the scale of these types of funding is extremely small compared to total lending by financial institutions. Under these conditions, it is critically important to analyze the feasibility of supplying risk capital through relationship banking. This project intends to examine the following issues:

1) Verification of local funding needs (defining the concept of "local" and gauging funding needs).
2) Conditions and effectiveness of funding provided by the Organization for SMEs and Regional Innovation.
3) Effectiveness of innovative financing (hybrid financing, securitization, etc.).
4) Government involvement in supporting local start-up businesses (role of the government-affiliated financial institutions, interrelation and competition among local financial institutions, etc.).
5) Methods essential to the development of relationship banking (intellectual assets as soft information, business evaluation of intellectual assets).
6) New types of local initiatives (resident-participatory projects, financial NPOs, nursing care businesses and other schemes for the introduction of private funds).
7) Examination of advanced methods in foreign countries (revenue bonds, etc.).

Project Leader

GOTO Yasuo, Senior Fellow

Overview

The relationship between finance and the real economy has been one of the long-term discussion topics among economists. However, in recent times in particular, this relationship has attracted more attention in view of the impact of financial factors on the real economy. This research project aims to empirically analyze the relationship between finance and the real economy, using time-series data and panel data. In doing so, we will focus on financial stability and the like on the side of finance and medium- to long-term factors associated with economic structures on the real economy side.

Project Leader

NISHIGAKI Atsuko, Senior Fellow

Overview

The political structural reform that took place in Japan in the 90s (election system reform, Diet reform, and administrative reform) was based on the British parliamentary cabinet system (Westminster model). Now, Japan's parliamentary cabinet system is undergoing an overhaul. However, the formation process of the parliament and the legislation process are very different between the Parliament of England and Japan's traditional system. Furthermore, there are differences between the countries' two-house systems such as the role of the Parliament (Diet) and the Cabinet. Therefore, in order to move toward the intended direction of structural reform, we have highlighted the remaining areas of the current political system that still require reform. This project aims to point out the remaining issues and analyze the relation between the political mechanism and the basic structure of the parliamentary cabinet system by examining the constitution.

Project Leader

ISHII Michitoo, Senior Fellow

Overview

With the globalization of economic and financial transactions, the use of aggressive tax planning (ATP) schemes using tax shelters in tax havens has become widespread. Needless to say, for countries across the world, ensuring tax compliance has become a very serious issue both in terms of ensuring tax fairness and safeguarding sound national finances.

The move to seek international cooperation in this area has gained momentum particularly since 2008, following the revelation of cases of unprecedented international tax evasion and the outbreak of the global financial and economic crisis. In a series of international forums, including Group of Eight (G8) and Group of Twenty (G20) summits, as well as the Organization for International Cooperation and Development (OECD), world leaders and delegates have renewed their recognition of the importance of ensuring tax compliance and corporate governance.

As the measures toward achieving that goal, the tax authorities of major countries have come to emphasize the importance of building an "enhanced relationship" with taxpayers that is firmly underpinned by mutual trust and understanding, rather than relying solely on enforcement measures against tax havens and taxpayers. This "enhanced relationship approach" is to improve compliance through the "real time solving" of tax problems in a prior confirmation-and-consent process after securing full disclosure and transparency of underlying transactions. Such an approach has already been adopted by the tax authorities of the United States and some European countries. Their experience has shown that the approach, in addition to contributing to the transparency and efficiency of both tax administration and taxpayers, also helps improve corporate governance through enhanced tax risk management on the part of companies.

In Japan, this poses an important issue that should be considered not only by the administrative authorities but also by the whole society, including companies and individuals as well as financial and capital markets, as part of initiatives for improving compliance, efficiency, and transparency. This research project aims to review and identify the significance of these recent moves toward international cooperation in tax compliance and consider how Japan can and should respond in its policies in the future.

Project Leader

KOGA Chitoshi, Faculty Fellow

Overview

This project aims to establish an optimum disclosure system that ensures accountability of Japanese companies following the adoption of the International Financial Reporting Standards (IFRS). To be specific, in this project, a comprehensive research taking into consideration of both the disclosure system of financial vs. nonfinancial information (rule sector), and the auditing and internal control system (assurance/corporate governance sector) will be conducted to provide a grand design for the optimum disclosure system which best fits the Japanese style of business.