Why Japan Lost Its Comparative Advantage in Producing Electronic Parts and Components

         
Author Name Willem THORBECKE (Senior Fellow, RIETI)
Creation Date/NO. May 2019 19-E-035
Research Project East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances
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Abstract

Japanese electronic parts and components (ep&c) exports fell in value after the Global Financial Crisis (GFC) while Taiwan and South Korea's ep&c exports soared. This paper reports that the yen appreciation between 2007 and 2011 reduced yen ep&c export prices by 28 percent. This paper also finds that yen appreciations led to small declines in ep&c export volumes and, together with NT dollar depreciations, to large decreases in Japanese semiconductor stock prices. The strong yen caused yen export prices after the GFC to tumble relative to yen production costs, decimating profits. Plummeting profits in turn hindered Japanese ep&c firms from investing enough in capital and innovation to compete with nimble rivals.