The relation between productivity level and the mode of organization remains on unsolved puzzle in international trade theory. As pointed out by Antràs and Helpman (2004), while some studies indicate that low productivity firms choose to outsource, other studies have derived results to the contrary. This paper attempts to solve the puzzle by taking into account the imperfections of financial markets. If the enforcement level of the financial market in the South country is low, only low productivity firms choose outsourcing in the South. On the other hand, if the enforcement level is sufficiently high in the South country, high productivity firms choose outsourcing in the South and low productivity firms choose integration in the North country. Thus, we demonstrate that the difference in the empirical results of previous studies arises from the different degrees of financial imperfections in the host country. Furtheremore, we extend this model to a multi-country model.
We construct a theoretical model in which an outside technology licenser licenses its superior technology to either a home firm or a foreign firm, both of which are engaged in Cournot competition in the home market. We specifically explore the relationship between cross-border technology licensing and home tariffs when the two firms are asymmetric. Licensing benefits consumers but harms both home and foreign firms regardless of which firm becomes the licensee. The tariff rate affects the choice of the licensee and home welfare. In contrast with the existing literature on international technology licensing, the welfare-maximizing home government may choose such a tariff rate that induces the licenser to license the technology to the foreign firm. The optimal tariff rate may become negative in the presence of licensing. Trade liberalization may lead the licenser to switch the licensee.
This article theoretically examines the effect of an intensified global competition. Since consumers observe product quality imperfectly, inefficient firms are incentivized to supply less valuable goods deceptively, which spreads consumers’ distrust of the market. On the other hand, escaping its negative externality, efficient firms undertake innovation to build trust with consumers. Using a model that describes this market dynamism, this article shows that in some circumstances, the intense competition negatively affects average domestic product quality, social welfare, and, inequality across firms.
This paper examines the endogenous determination of vertical organizationstructure (i.e., vertical integration or separation) when an optimal import tariff is implemented in an import-competing market, where one home firm and one foreign firm engage in price competition under network externalities. The optimal import tariff is higher when the foreign exporting firm is vertically separated than when it is integrated. If firms commit to vertical organization before trade policy, then the foreign firm chooses vertical integration but home firm chooses vertical separation (integration) if network externalities are weak (strong). In addition, the behavior of home firm in a relatively low network externalities is inconsistent with social optimum.
This study develops a model of international trade under monopolistic competition with non-homothetic quadratic preferences that generate variable markups, and analyzes the effects of trade liberalization and domestic competition policies. It is shown that, among others, trade liberalization may decrease firms’ profits in the short run and increases welfare in the long run. It is also shown that, depending on the parameters of the model, the mass of firms under cooperative solution can be higher or lower than the mass of firms under noncooperative solution.
This paper develops a heterogeneous-firm model in which firms in asymmetric countries in terms of sizes and trade costs export and import intermediate goods subject to selection. We show that the elasticity with respect to variable trade costs is greater for intermediate goods than for final goods, mainly due to the extensive margin. Using China Customs data with tariff-gravity data, we empirically assess the impact of tariffs as well as distances on China’s imports and find empirical evidence in support of our prediction of the model.
We develop a simple model of competition policies and trade, where fixed costs are shared within a cartel. The closed economy model shows that entry deregulation can increase the skill premium by increasing firm numbers and decreasing firm size, while an antitrust policy has the opposite effects. The numerical example with two asymmetric countries shows that entry deregulation and antitrust policy in one country, respectively, can increase and decrease the skill premia in both countries; however, the domestic skill premium is changed by a greater percentage than the foreign one. Available U.S. data show that our model seems empirically relevant.
This paper extends the results on trade and welfare obtained in Ohyama(1972) in the case of a traditional world economy with a finite number of goods to those in the case of a world economy over a discrete-time infinite horizon with l∞ the space of all bounded sequences, as the underlying commodity space. The case with l∞ is a typical special case of economies with an infinite number of goods. In this paper, it is shown that the main results obtained in Ohyama(1972) still hold in the world economy over a discrete-time infinite horizon by following the method used in Ohyama(1972). It turns out that Ohyama(1972)’s method is very general in the sense that it also applies to more general cases including world economies with infinitely many goods.
We analyze the relationship between vertical specialization and skilled-unskilled wage inequality by using a monopolistic competition model in which firms can disintegrate their production activities between countries. We develop a new diagrammatic exposition to show that vertical specialization arises, i.e., a country produces final goods by using domestic labor with imported inputs and exports final goods abroad. We show that a country with a larger share of vertical specialization has greater wage inequality.
This paper theoretically examines the monitoring of illegal trade, and restrictions on the legal trade, of secondhand goods and recyclable materials. We demonstrate that (a) a stricter monitoring necessarily decreases the environmental damage of the importing country as far as there are no legal imports of recyclable materials, and (b) a stricter trade restriction on legal imports increases the environmental damage of the importing country if a part of legal imports is recyclable materials and the marginal environmental damage caused by illegal trade is serious. Moreover, we investigate the policy game on the choice of monitoring probabilities between trading countries.
It has been found that population decline may change the properties of growth paths from those in a population-increasing economy in the Solow and semi-endogenous growth models. However, the rates of population decline for such dynamics seem too large given the available empirical data. We show that positive capital-input externalities can reduce such rates of population decline to empirically relevant levels in a semi-endogenous growth model, while the introduction of child rearing costs could play a similar role in the Solow model. The economic implications of child rearing costs are discussed for the Solow growth model with population decline.
Is the growth of emerging economies a benefit or a threat for the rest of the world? Ikema (1969, Oxfod Economic Papers) theoretically demonstrated that a country’s productivity growth normally benefits other countries. Ohyama (1998, Mita Journal of Economics; 2010, Keio Economic Studies) demonstrated that a country’s quality growth may hurt other countries if consumer preference exbihits home bias for quality. Using a multi-country, multi-industry Ricardian model of global value chains allowing quality home bias, this paper estimates the productivity growth and the quality growth of emerging economies during 1995-2007 and quantifies their welfare effects on Japan and other countries.