How serious is the omission of bilateral tariff rates in gravity?

In this paper, using the worldwide dataset of bilateral tariff rates, we explore how serious the omission of bilateral tariff rates in gravity is. Our findings are as follow. Firstly, the omission of bilateral tariff rates seems not to be so serious in terms of omitted-variable biases because the coefficients for the usual gravity variables do not change before or after their inclusion. Secondly, while the widely-used dummy variable of regional trade agreement could not play an alternative role in place of tariff rates, the inclusion of time-invariant pair fixed effects in addition to the time-variant importer fixed effects and exporter fixed effects accounts for the omission of tariff rates. The inclusion of those fixed effects makes the coefficient for bilateral tariff rates insignificant.Developing countries, International trade, Tariff, Gravity, Tariff rates, Free Trade Agreement

Complex Vertical FDI and Firm Heterogeneity: Evidence from East Asia

In this paper we statistically test the validity of the mechanics of complex VFDI in Japanese machinery FDI to East Asia; we do this by estimating a multiple-spatial lag model. From the theoretical point of view, in complex VFDI, the production activity of affiliates in a given country is positively related to that in neighboring countries which have large differences in factor prices with the given country. Our empirical results show that such mechanics of complex VFDI work in Japanese FDI to East Asia, and that they work more strongly in the MNEs with higher productivity. These results have an important implication for the policies of developing countries in attracting FDI.Third-country Effects, Complex VFDI, Spatial Lag Model, East Asia, Foreign Investments

Location choice in low-income countries : evidence from Japanese investments in East Asia

Unlike most existing studies, this paper examines the location choices of MNEs in developing countries. Specifically, we investigate the location choices of Japanese MNEs among East Asian developing countries by estimating a four-stage nested logit model at the province level. Noteworthy results of location elements are as follows. As is consistent with the mechanics of cheap labor-seeking FDI, Japanese MNEs are more likely to invest in locations with low income and low tariff rates on products from Japan. Also, accessibility to other locations and/or ports matters in attracting Japanese MNEs because it is crucial in importing materials and exporting their products. In addition, WTO membership and bilateral investment treaties are important because these contribute to the settlement of trade and investment disputes, which is more likely to be necessary in developing countries.Southeast Asia, China, Japan, Malaysia, Indonesia, Cambodia, Laos, Myanmar, Vietnam, Thailand, Philippines, Foreign investments, Industrial management, Location Choice, Multinational Firms, Nested-logit Model

Multiple preference regimes and rules of origin

This study examines Japan’s preferential imports from three least developed countries (LDCs), i.e., Cambodia, Laos, and Myanmar, from 2013 to 2016. In these trade flows, two preference regimes are available in a ddition to a most favored nation regime: the Generalized System of Preferences (GSP) for LDCs (GSP -LDC) and a plurilateral trade agreement among Japan and ASEAN countries (AJCEP). We empirically exam ine how relaxing the rules of origin in GSP-LDC for knitted apparel in 2015 changed the utilization of the GSP -LDC and AJCEP regimes. Our identification strategy relies on comparisons not only between GSP-LDC and AJCEP but also between knitted and woven apparel. As a result, we found that such relaxation significantly incre ases the share of imports under the GSP-LDC regime out of total imports and reduces the share of imports under the AJCEP regime. We further investigate the main drivers of these changes in the shares

The Choice of Transport Mode: Evidence from Japanese Exports to East Asia

This paper investigates Japanese trade by mode of transport, i.e., air transport versus maritime shipping. Some facts about Japanese machinery exports by mode of transport in the 1990s are examined first. Then it will be shown that products of the machinery sector where international fragmentation prevails are more likely to be exported by air

Measuring fixed costs for firms\u27 use of a free trade agreement : threshold regression approach

In this paper, by employing the threshold regression method, we estimate the average tariffequivalent of fixed costs for the use of a free trade agreement (FTA) among all existing FTAs inthe world. It is estimated to be 3.2%. This global estimate serves as a reference rate in theevaluation of each FTA’s fixed costs