Harmful Effects of Import Restrictions and Non-Market Measures

The administration of U.S. President Donald Trump imposed import tariffs of 25% on steel and 10% on aluminum under Section 232 of the Trade Expansion Act of 1962 on the grounds that steel and aluminum imports are impairing national security by weakening the domestic industries and released a plan to slap a 25% tariff on Chinese products worth $50 billion under Section 301 of the Trade Act of 1974 for what it sees as intellectual property infringement by China. The United States’ unilateral actions are unacceptable under WTO rules, even though the existing WTO rules are deemed insufficient as rules governing multilateral trade activities including those involving China in terms of correcting distortions in the global market and protecting intellectual property rights. Trying to solve a bilateral trade conflict by power with no judge to referee is a recipe for an economic tailspin, prompting retaliation from the other party, causing a contraction in trade not only between the two conflicting parties but also across the world, resulting in a loss in global economic welfare. All trading countries, including the United States and China, should work to improve the functioning of the market mechanism by eliminating non-market measures and enhancing intellectual property protection under a set of multilateral trade rules, in order to prevent the United States from taking unilateral import restrictions and its trade partners, such as China, from taking retaliatory measures

The Effects of Stronger Intellectual Property Rights on Technology Transfer: Evidence from Japanese Firm-level Data

It is noteworthy that intra-firm technology transfer has grown rapidly in recent years as a major part of international technology transfer. This paper presents empirical analysis of the effect of stronger Intellectual Property Rights (IPRs) on technology transfer from parent firm to its subsidiaries in foreign country. The results of empirical test, based on the firm-level panel data of Japanese MNCs' foreign subsidiaries, present that the stronger protection of IPRs has a positive effect on the promotion of intra-firm technology transfer after controlling market specific factors in the host countries as well as parent-subsidiary firm specific factors. They are consistent with our theoretical prediction and also the results of the previous studies based on US firm-level data.Intellectual Property Rights, Technology Transfer, Multinational Firms, FDI

Globalization and International Economic Strategy (Japanese)

This publication is in Japanese. Neither an English translation of the publication nor an English abstract is available.

Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates.

We examine the impact of buyer-supplier relationships within business group on capital goods trade in the context of foreign direct investment by buyer firms and capital goods producers. A simple model in which cost-reducing relationship specific investments are underlying business group ties suggests that 1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing Japanese exports 2) if the establishment of overseas affiliates by business groups firms attracts FDI by their capital goods suppliers, the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms in 1996 provides broad support for these predictions and demonstrates a sizeable impact of buyer-supplier ties in business groups on trade. Affiliates of member firms of horizontal and vertical business groups with supplier ties exhibit a greater propensity to import from Japan, but this impact is mitigated or transformed into a smaller import propensity if the groups’ capital goods producers have substantial manufacturing investments abroad.multinational firms; imports; capital goods; FDI; business groups;

Welfare Enhancing Capital Imports

This paper provides a model to consider the conditions under which an acceptance of foreign capital is welfare enhancing in a multi-commodity multi-factor framework. Contrary to the pessimistic conventional wisdom of capital imports and welfare, we provide a justification for the acceptance of foreign capital and the diversification of industrial structure in developing countries. A sufficient condition for the acceptance of foreign capital to be welfare enhancing is that all domestic factors move into the new export sector in equal proportion to the endowments of factors.foreign capital, export sector, tariff revenue, welfare

Intra-firm Technology Transfer and R&D in Foreign Affiliates: Substitutes or Complements? Evidence from Japanese Multinational Firms

R&D in foreign affiliates and technology transferred from their parent firms are important potential drivers of productivity in host countries. In this paper we examine the simultaneous impact of local R&D and intra-firm international technology transfer on productivity growth in foreign affiliates. We estimate a dynamic productivity model on a large sample of Japanese manufacturing affiliates worldwide in 1996-1997 and 1999-2000. We find that both affiliate R&D and intra-firm technology transfer contribute to productivity growth, while technology transfer exhibits decreasing marginal returns. The two sources of technology are complements: use of one source of technology increases the marginal impact of the other.R&D, technology transfer, multinational firms

Firm Heterogeneity and the Choice of Internationalization Modes: Statistical Evidence from Japanese Firm-level Data

This paper examines how productivity heterogeneity affects the sorting of export and foreign direct investment (FDI) of Japanese firms in North America and Europe. The statistical analysis based on the firm-level data of 12,000 Japanese firms presents new and interesting results: the ranking of productivity corresponds to the mode of internationalization from export to FDI; the productivity of Japanese firms with exports to North America is similar to the productivity of firms with exports to Europe, and the productivity of Japanese FDI firms in North America is also similar to the productivity of FDI firms in Europe; and further the productivity of firms internationalizing in both North America and Europe is remarkably higher than that of firms internationalizing in either North America or Europe, regardless the modes of internationalization, export or FDI. These results conclude that the internationalization modes of Japanese firms in North America and Europe are completely consistent with the theoretical prediction of the HMY model and the fixed costs are critical for determining their choice of internationalization modes.

Factors Determining the Mode of Overseas R&D by Multinationals: Empirical Evidence

The large expansion of MNCs' overseas R&D is noteworthy. This paper investigates the factors affecting the expansion of support-oriented R&D and knowledge sourcing R&D by using qualitative data which indicate the modes of R&D conducted at a plant site and a laboratory. The empirical results suggest that (1) the export propensity of affiliate firms, relative abundance of human resources for R&D, and accumulated technological knowledge have a positive effect on both the modes of R&D at a plant site and a laboratory, and (2) the stronger enforcement of intellectual property positively affects the expansion of knowledge sourcing R&D. These results show that not only firm-specific but also country-specific factors positively affect the overseas expansion of R&D.

Firm Heterogeneity and Different Modes of Internationalization: Evidence from Japanese Firms

This paper examines how differently productivity heterogeneity of firms sorts their export and foreign direct investment (FDI) between North and South as well as between single and multiple destinations. The empirical examinations based on 12,000 Japanese firm-level data present new findings; the rank of productivity differently sorts the internationalization modes between North (North America and Europe) and South (East Asia); the productivity of firms internationalizing in both North America and Europe is remarkably higher than that of firms internationalizing in either North America or Europe, regardless the modes of internationalization, export or FDI, even if the productivity of firms internationalizing in North America is similar to the productivity of firms in Europe. This paper confirms that the difference in wage rate or fixed costs causes different modes of internationalization from the standard theoretical prediction based on the Helpman-Melitz-Yeaple model.productivity-cutoff, export, FDI, North, South, East Asia

How Do Exporters Respond to Exogenous Shocks: Evidence from Japanese Firm-Level Data

This study investigates how exporters respond to an exogenous shock, using the 2012 customer boycott of Japanese products in China that occurred after political conflict over the islands in the East China Sea. By using Japanese firm-level data for 2011-2013 and employing the difference-in-differences method, we conduct an assessment of the boycott. We find that Japanese firms faced a large decrease in exports to China after the 2012 boycott and that the decrease in exports was more pronounced for arm's length exports than intra-firm exports. In addition, the estimation results provide evidence that Japanese firms exporting to China responded to the exogenous trade shock by reducing their number of temporary workers. This finding suggests that trade shocks due to international conflict hit the most insecure workers