Why Has the Border Effect in the Japanese Market Declined?

Abstract

This paper analyzes the causes of the decline in Japan’s border effect by estimating gravity equations for Japan’s international and interregional trade in four machinery industries (electrical, general, precision, and transportation machinery). In the estimation, we explicitly take account of firms’ networks. We find that ownership relations usually enhance trade between two regions (countries), and also find that we can explain 35% of the decline in Japan’s border effect from 1980 to 1995 in the electrical machinery industry by the increase of international networks. JEL Classification numbers: F14; F17; F21; L14.Gravity Model; Border Effect; Networks.