Good Deflation/Bad Deflation and Japanese Economic Recovery

Many economists dismiss the role of positive supply shocks as a cause of Japan's deflation. Indeed, they attribute the long delay in Japan's recovery to the mistaken view that Japan's deflation reflects an acceleration of technological progress. Whatever the current situation in Japan, however, economic history certainly suggests that technological progress can go hand in hand with general deflation. Conducting a VAR analysis using very detailed information about the components of Japan's consumer price index, this paper finds that short-run shocks to Japan's relative price structure persist in the long run. Given this finding, it is possible to conclude that such shocks are real in origin and reflect technological change. As no effort has yet been completed to show the full extent to which technological change is driving short-run relative price change in Japan compared with other factors, and the full extent to which relative price changes are driving aggregate price change compared with other factors, the policy implications of these findings are unclear. What is clear is that it is a mistake to dismiss out of hand the possibility that technological shocks are playing an important role among other forces in Japan's current deflation.

Dispute Settlement at the WTO and the Dole Commission: USTR Resources and Success

At the time the Uruguay Round Agreements were passed by Congress, particular concern was expressed about their implications for U.S. national sovereignty. Concern was sufficiently great that the Clinton Administration committed its support to the creation of a commission that would review each adverse decision against the United States by the WTO. The commission was designed such that the outcome of its review process might trigger a serious Congressional consideration of U.S. withdrawal from the WTO. While the so-called Dole Commission was never created, the Congressional controversy surrounding the ratification of the Uruguay Round Agreement has led to particular concern with USTR performance at the WTO. Curiously, enhanced Congressional concern has not gone hand in hand with more resources for USTR. Over the 1990s, USTR has rarely asked for, and, until 2000 has not received additional resources for its work. The analysis here shows that if the USTR is concerned not only about the number of cases it wins but also about its rate of success, having more resources may have an ambiguous impact on the USTR's rate of success. Depending on how relatively promising are the additional cases that may yet be brought by USTR to the WTO, and how usefully additional resources may be applied to existing cases, it is possible that more resources can lower USTR's success rate. This is true, though for different reasons, when explicit allowance is made for the response by the other party to the dispute to a USTR commitment of additional resources. More resources cannot explain the increased use that the USTR has made since the WTO was established, because until recently USTR has received no additional resources. Rather, a more predictable DSM may have encouraged more rather than fewer cases to be brought to the WTO in preference to further efforts at extra-WTO bilateral settlements.

Trade Policy Issues and Policy Options for Japan and the United States: Introduction and Overview

Introduction and Overview of the Symposium.

Japan's Lost Decade: Origins, Consequences, and Prospects For Recovery

Chapter Abstracts

Differentiated Products, Economies of Scale and Access to the Japanese Market

For much of the past thirty-face years Japan has imported a remarkably small share of the manufactured goods it consumes. This distinctive trade structure is regularly cited by policy makes as evidence that, despite the absence of formal barriers, foreign manufacturers are systemically denied access to the Japanese market. Alternative explanations of Japan's distinctive trade structure are possible. Using specifications directly derived from traditional models of comparative advantage, Japan's distinctive inter-industry trade structure can be largely explained by Japan's equally distinctive pattern of factor endowments. Scarcely any reference needs to be made at all to distinctive Japanese government trade policies. Japan's participation in intra-industry trade in manufactures is also distinctively low. Traditional models of comparative advantage do not explain intra-industry trade. Such trade can be explained, however, if allowance is made for product differentiation and economies of scale. While traditional models of comparative advantage explain net trade as a linear function of factor endowments, with intra-industry trade models gross trade in imports and exports can still be a function of factor endowments. Indeed, if expressed as a share of GNP, gross imports are still a linear function of factor endowments. Using this framework, it can be shown that Japan's intra-industry trade, like Japan's inter-industry trade, does conform to international patterns. The removal of the remaining distinctive Japanese barriers, both formal and informal, to the import of manufactures, while highly desirable from a diplomatic standpoint, may have little impact on Japanese trade structure.Research Seminar in International Economics, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/100950/1/ECON396.pd