Do export promotion agencies increase exports?

In this paper, we examine the role of export promotion agencies (EPAs) in promoting exports from Japan and Korea. Looking at two home countries enables us to tackle endogeneity issues by controlling for both country-pair time-invariant characteristics and importing country time-varying characteristics. Our empirical results indicate that the coefficients of the EPA dummy are similar in size to those of the FTA dummy. This implies that establishing an EPA office in a country is equivalent to signing an FTA with that country. In addition, we find that EPA’s effects are larger for manufactured products than non-manufactured products. Finally, the EPA effect is larger for low income trade partners than for high income trade partners.

Production networks in the Asia-Pacific region : facts and policy implications

Production networks have been extensively developed in the Asia-Pacific region. This paper employs two micro-level approaches, case studies and econometric analysis, using JETRO's firm surveys which investigate Japanese affiliates operating in Southeast Asia. These two approaches found that production networks have extended, involving suppliers, across various nations in the Asia-Pacific region, and that production bases in host and home countries have different roles. A home country serves as a headquarters with services such as R&D, international marketing, and financing. A high tariff policy in a host country may foster domestic industries through the expansion of procurement from domestic suppliers, either indigenous or foreign, but it may discourage a country from becoming an export platform.

Transport modal choice by multinational firms : firm-level evidence from Southeast Asia

We examine transport modal decision by multinational firms to shed light on the role of freight logistics in multinational activity. Using a firm-level survey in Southeast Asia, we show that foreign ownership has a significantly positive and quantitatively large impact on the likelihood that air/sea transportation is chosen relative to truck shipping. This result is robust to the shipping distance, cross-border freight, and transport infrastructure. Both foreign-owned exporters and importers also tend to use air/sea transportation. Thus, our analysis presents a new distinction between multinational and domestic firms in their decision over transport modes.

Does the use of multiple FTAs force firms to raise local input share? : evidence of the spaghetti bowl phenomenon

This paper empirically investigates the firm-level relationship between the local input share and the number of used FTAs by employing the data on FTA utilization in Japanese affiliates in ASEAN. As a result, we do not find a robust linear relationship. However, affiliates using a large number of FTAs (seven or eight) have an extremely higher share of local inputs. This result might be interpreted as the first evidence of the “spaghetti bowl phenomenon”.

Selection and utilization of the early harvest list : evidence from the Free Trade Agreement between China and Taiwan

In this paper, we conducted an empirical investigation into the determinants of FTA utilization in exports from Taiwan to China. To do this, we first estimated the selection equation to see what kinds of products are included in the early harvest list. As a result, we found that Taiwan includes products with a medium magnitude of benefits from tariff removal in the early harvest list. Taiwan also includes products for which ASEAN countries have better access to the China market. We then estimated the equation for the determinants of FTA utilization by introducing an inverse of the Mills ratio estimated in the selection equation. The findings are that, as usual, the FTA rates are more likely to be utilized for products with a larger tariff margin. In addition, some rules of origin are found to be relatively restrictive in terms of discouraging trade.

Firms' use of FTA schemes in exporting and importing : is there a two-way relationship?

In this paper, we examine the roles of firm size in the use of FTA schemes in exporting and importing. Also, it is investigated as to whether FTA users in importing (exporting) are more likely to use FTA schemes in exporting (importing). To do that, we employed a unique survey in which the detailed information on FTA use is available for Japanese affiliates in ASEAN. Our findings are summarized as follows. First, firm size matters in the use of FTA schemes only in exporting, not in importing. Second, the past experience of FTA use in exporting (importing) does not help firms use the FTA schemes in importing (exporting). Thus, it is necessary to assist firms to use FTA schemes in exporting even if they are already using FTA schemes in importing.

Impacts of FTA utilization on firm performance

The international export and investment activities of firms have been widely studied by scholars. In particular, prior studies have focused on two main hypotheses about firms engaged in international activities such as exporting and investing abroad; namely, self-selection of more productive firms into international activities and learning-by-doing international activities. This paper is the first study that explores these hypotheses in regard to firms’ use of free trade agreements (FTAs). We first estimate the propensity score for firms’ use of FTA schemes, and find that larger firms are more likely to participate. Then, by conducting matching analysis using the propensity scores, we find that the use of FTA schemes does not change employment in firms, but does result in more local inputs used and increased exports.

Geographical simulation analysis for logistics enhancement in Asia

This paper presents a simulation of the reduction of several components in trade cost for Asia and examines its impact on the economy. Our simulation model based on the new economic geography embraces seven sectors, including manufacturing and non-manufacturing sectors, and 1,715 regions in 18 countries/economies in Asia, in addition to the two economies of the US and the European Union. The geographical course of transactions among regions is modeled as determined based on firms’ modal choice. The model also includes estimates of some border cost measures such as tariff rates, non-tariff barriers, other border clearance costs, transshipment costs and so on. Our simulation analysis for Asia includes several scenarios involving the improvement/development of routes and the reduction of the above-mentioned border cost. We have shown that the contribution of physical and non-physical infrastructure improvements conducted together is larger than the sum of the contribution by each when conducted independently.

Impact of diagonal cumulation rule on FTA utilization : evidence from bilateral and multilateral FTAs between Japan and Thailand

In this paper, we empirically investigate the effect of diagonal cumulation on free trade agreement (FTA) utilization by exploring Thai exports to Japan under two kinds of FTA schemes. While the one scheme adopts bilateral cumulation, the other scheme does diagonal cumulation. Comparing trade under these two kinds of FTAs, we can examine the effect of diagonal cumulation without relying on not only the variation in cumulation rules across country pairs but also the variation across years. In short, our estimates do not suffer from biases from time-variant elements and country pair-specific elements. As a result, our estimates show around 4% trade creation effect of diagonal cumulation, which is much smaller than the estimates in the previous studies (around 15%).

Export platform foreign direct investment : theory and evidence

This paper proposes a model that accounts for “export platform” FDI – a form of FDI that is common in the data but rarely discussed in the theoretical literature. Unlike the previous literature, this paper’s theory nests all the typical modes of supply, including exports, horizontal and vertical FDI, horizontal and vertical export platform FDI. The theory yields the testable hypothesis that a decrease in either inter-regional or intra-regional trade costs induces firms to choose export platform FDI. The empirical analysis provides descriptive statistics which point to large proportions of third country exports of US FDI, and an econometric analysis, whose results are in line with the model’s predictions. The last section suggests policy implications for nations seeking to attract FDI.

Harmonization of trade in services by APEC members

This study maps out the degree of services trade liberalization by the APEC members toward achieving a Free Trade Area of the Asia-Pacific (FTAAP) and makes some comparative analyses. The study finds that the commitment level differs greatly between sensitive and less sensitive sectors, and that the commitment level under the ASEAN Framework Agreement (AFAS) package 8 is the highest among the four FTAs studied. It also finds that there are cross-country and sector-wide similarities in the pattern of service sector commitment under and across each of the FTAs; this implies that the shared domestic sensitivities can be overcome by an APEC-wide economic cooperation scheme for enhancing competitiveness (through, e.g., the Trans-Pacific Strategic Economic Partnership Agreement or TPP).

FTA utilization : certificate of origin data versus customs data

This paper empirically examines what kinds of elements affect the gap in free trade agreement (FTA) utilization with regard to customs data and certificates of origin (CoOs) data. We focus on Thai exports to Korea under the ASEAN-Korea FTA in 2011. As a result, we found that the products with the higher demand volatility or those with a larger number of tariff-line products within the same harmonized system (HS) six-digit code have the larger gap. Another important finding is that the difference between the HS version at the time of the FTA negotiation and the current HS version does not have significant association with the gap. These findings have important implications.

Impacts of common rules of origin on FTA utilization

This paper examines empirically the impacts of sharing rules of origin (RoOs) with other ASEAN+1 free trade agreements (FTAs) on ASEAN-Korea FTA/ASEAN-China FTA utilization in Thai exports in 2011. Our careful empirical analysis suggests that the harmonization of RoOs across FTAs play some role in reducing the costs yielded through the spaghetti bowl phenomenon. In particular, the harmonization to "change-in-tariff classification (CTC) or real value-added content (RVC)" will play a relatively positive role in not seriously discouraging firms’ use of multiple FTA schemes. On the other hand, the harmonization to CTC or CTC&RVC hinders firms from using those schemes.

Did the least developed countries benefit from duty-free quota-free access to the Japanese market?

Countries classified as least developed countries (LDCs) were granted duty-free quota-free (DFQF) access to the Japanese market. This study examines the impact of that access and finds that, in general, it did not benefit the LDCs. The construction of concordance tables for Japan's 9 digit tariff line codes enables analysis at the tariff line level, which overcomes a possible aggregation bias. The exogenous nature of DFQF access mitigates the endogeneity problem. Various estimation models, including the triple difference estimator, show that in general the LDCs did not benefit from DFQF access to the Japanese market. The total value of imports from LDCs has been increasing, but the imports granted both zero tariffs and substantial preference margins over non-LDC countries were not successful. These findings suggest that for LDCs the tariff barrier is a relatively small obstacle: Trade is affected more strongly by other factors, such as infrastructure, nontariff barriers, geographic distance, and cultural differences.

How do free trade agreements change import prices? : firm-level evidence from China's imports from ASEAN

The literature has revealed the positive impacts of free trade agreements (FTAs) on export prices by employing product-level trade data. This paper empirically examines the impacts of FTAs on import prices at the firm level. We focus on firm-level imports in China from ASEAN countries by employing China’s firm-product-level trade data. As a result, controlling for firm characteristics and product characteristics, we could not find significantly positive impacts of an FTA’s entry into force on import prices of FTA eligible products. Instead, we found a significant increase in import quantities of FTA eligible products. Thus, at the firm level, the gains from FTAs for exporters may be the increase in export quantities rather than the rise in export prices.