Crisis in Japan and the Way Out: A Counterargument to Pessimistic Views

This paper focuses on a review of the present state of, and outlook for the Japanese economy. The paper is composed of three parts. The first describes the interrelation between the crisis-ridden East Asian economies and Japan. I argue that Japan did not cause the Asian currency crisis. The second part describes the current state of the Japanese economy after the bubble burst. I also discuss the medium- and long-term challenges that face the Japanese economy. The third part concentrates on the issue of the "liquidity trap" Japan is experiencing. I argue that the yen's exchange rate is more likely to appreciate than depreciate by pumping liquidity into the economy while interest rates cannot be lowered any further, and therefore a "helicopter money" policy is the only way to induce a positive inflation rate and escape from the liquidity trap.

Exchange Rate Stabilization and IMF High Interest Rate Policy: A Critical Reconsideration Using a Dynamic Model

This paper examines whether the IMF high interest rate policy was suitable for crisis-ridden East Asian economies. Using an "overshoot" model similar to that of Dornbusch's (1976), it shows that this sort of policy might cause an unnecessary deflationary adjusting process and have no effect on containing the real depreciation of exchange rates in the long run. The study also demonstrates that Thai economic data coincides quite well with the model presented here. Finally, it points out that the high interest policy itself might provoke high risk-premium, the existence of which, in turn, justifies the policy. This means that the policy has a self-fulfilling property. In conclusion, a "one-size-fits-all" adaptation of high interest rate policy in a currency crisis is very dangerous in general, and was inappropriate for East Asia. The desirable policy would have been to let currencies depreciate and keep interest rates stable.

Winner-Take-All Contention of Innovation under Globalization: A Simulation Analysis and East Asia's Empirics

This paper sets out to examine how innovation enhances export competitiveness: The proposition that export volume becomes enhanced as more productivity-enhancing innovation is captured by the exporting economy is the focus of this study. From a Schumpeterian perspective, innovation can be characterized by continuous creation and subsequent diffusion of newer technologies on the basis of the exporters' existing capital stock. Then we highlight the theoretical possibility that concentration of innovative activities in a small group of "winner" economies would lead to larger shares of "winner" economies' exports of innovation-active commodities than those commodities for which technology involved is already mature. The world's export data corroborates this theoretical prediction overall, and a focus upon East Asia has revealed the region's increasing resort to technology-intensive commodity sectors, which has presumably been enabled through attracting technology-bearing inward foreign direct investment. Considering the overall gains from innovation, acceleration of full "cycle" of innovation and imitation might be a desirable option.

Trade, Exchange Rates, and Macroeconomic Dynamics in East Asia: Why the Electronics Cycle Matters

Against the background of increasing regional trade and investment, there is growing interest in monetary and macroeconomic policy coordination in East Asia. Although there is a sizable literature on macroeconomic linkages among East Asian countries and the potential merit of policy coordination in the region, the existing studies tend to examine these issues exclusively in terms of macroeconomic variables and do not consider how these aggregate variables are influenced by one prominent feature of a number of East Asian economies: their heavy dependence on the electronics industry. Although active engagement in the global electronics industry has been a powerful growth engine for the Asian countries, it has also left their economies vulnerable to cyclical fluctuations in the world electronics market. As the cycle of the global electronics industry exerts profound impacts on the medium-term dynamics of the Asian economies, it is imperative to take an explicit account of its influence when studying the way in which the regional economies are linked to one another and how this relationship can be altered by a specific policy initiative. We illustrate the importance of this point by examining recent studies on: (1) trade competition between China andother Asian countries and the role of the Chinese renminbi therein; and (2) the effect offluctuations in the yen/dollar exchange rate on the regional economies.

Rules of Origin and Local Content in East Asia

Rules of Origin (RoO) are an integral part of all trade rules. In order to be eligible for Common Effective Preferential Tariffs (CEPT) under AFTA and similar arrangements under the ASEAN-China FTA, a product must satisfy the conditions relative to local content. The paper tries to calculate local content as well as cumulative local content in East Asian economies, with use of the Asian International Input-Output Tables; it also investigates factors of change in local content by applying decomposition analysis. The paper finds that the cumulation rule increased local content of the electronics industry more significantly than local content of the automotive industry, and the contribution of the cumulation rule increased in the period 1990-2000, due to rising dependency on neighboring ASEAN countries and China.

Border Barriers in Agricultural Trade and the Impact of their Elimination: Evidence from East Asia

Abstract: By means of a GTAP based-CGE model, we investigate the impact of the elimination of import tariffs and non-tariff policy barriers (NTPBs) on agricultural trade towards East Asian FTAs. To do that, we first measure the NTPBs by employing a widely-used method derived from the literature on border effects. Next, by adding into the GTAP database our estimates on the NTPBs, which the original GTAP database by its nature does not succeed in incorporating, we compute the impact of the entire elimination of policy barriers (the complete reduction of import tariffs and of NTPBs) on GDP.

Empirical global value chain analysis in electronics and automobile industries :An application of Asian international input-output tables

This study aims to examine the international value distribution structure among major East Asian economies and the US. The mainstream trade theory explains the gains from trade; however, global value chain (GVC) approach emphasises uneven benefits of globalization among trading partners. The present study is mainly based on this view, examining which economy gains the most and which the least from the East Asian production networks. Two key industries, i.e., electronics and automobile, are our principle focus. Input-output method is employed to trace the creation and flows of value-added within the region. A striking fact is that some ASEAN economies increasingly reduce their shares of value-added, taken by developed countries, particularly by Japan. Policy implications are discussed in the final section.

Production Networks and Spatial Economic Interdependence: An International Input-Output Analysis of the Asia-Pacific Region

The Asia-Pacific Region has enjoyed remarkable economic growth in the last three decades. This rapid economic growth can be partially attributed to the global spread of production networks, which has brought about major changes in spatial interdependence among economies within the region. By applying an Input-Output based spatial decomposition technique to the Asian International Input-Output Tables for 1985 and 2000, this paper not only analyzes the intrinsic mechanism of spatial economic interdependence, but also shows how value added, employment and CO2 emissions induced are distributed within the international production networks.

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.

Agglomeration versus Fragmentation:A Comparison of East Asia and Europe

Inspired by the observed contrasting patterns of industrial distribution in East Asia and Europe, this paper conducts an empirical clarification of the difference in spatial relationships among countries within a region for the electric machinery industry by use of spatial econometric analysis. The results indicate that, while production in the electric machinery industry in a country is positively correlated with that of neighboring countries in East Asia, there is no significant spatial correlation in Europe. Such a difference in spatial interdependence has important implications for economic development in those regions.

Intra-regional trade between China, Japan, and Korea : before and after the financial crisis

East Asian economies have been heavily dependent on the U.S. and EU markets, especially for the export of final goods. Therefore, once the financial crisis hit Western economies hard, the East Asian economies lost their major markets.Their production networks then worked to the region's disadvantage and stifled industrial development.This reflects the vulnerability of the East Asian economies which have adopted an export-led growth strategy. Such vulnerability needs to be addressed to prevent future economic crises, as well as to sustain economic growth. This paper examines the trade structure of the three countries-China, Japan, and Korea-before and after the Lehman Shock, and discusses how the three countries should cooperate in addressing imbalances in the trade structure.