Most recent papers:

• Estimating Compensation of Employees Based on Taxation Data.
  Hiroyuki Fujiwara, Yasutaka Ogawa.
  Japanese Economic Review. October 10, 2017
  In this paper, we develop a novel approach to estimate the compensation of employees as a portion of Japan's gross domestic income. The methodology is characterized by its extensive use of comprehensive taxation data, and all data used is publicly available. Our estimates turn out to be larger than the numbers in the official statistics, and the difference has been widening in recent years. In addition, the discrepancy of the two estimates for net lending/borrowing between non‐financial and financial transactions accounts (in theory, they should be the same) shrinks when the former is recalculated based on our estimates, both for households and for corporations.

  October 10, 2017   doi: 10.1111/jere.12158   open full text
• Macroeconomic Interdependence Between a Stagnant and a Fully Employed Country.
  Yoshiyasu Ono.
  Japanese Economic Review. September 28, 2017
  This paper presents a two‐country two‐commodity dynamic model where one country achieves full employment and the other suffers from secular stagnation of aggregate demand. Own and spillover effects of changes in preference, productivity and policy parameters are examined. Parameter changes that improve the stagnant country's current account, such as a reduction in government purchases, a decrease in foreign aid and an improvement in productivity, raise the relative price of the home commodity. Consequently, home employment shrinks, deflation worsens and consumption decreases. The terms of trade for the full‐employment country deteriorate. Thus, income and consumption decrease in both countries.

  September 28, 2017   doi: 10.1111/jere.12156   open full text
• Effect of Bank Mergers on Client Firms: Evidence from the Credit Supply Channel.
  Heather Montgomery, Yuki Takahashi.
  Japanese Economic Review. September 25, 2017
  This study investigates the effects of bank mergers on client firms. A rich panel of data detailing firm borrowing from individual banks enables controls for demand‐side effects to isolate the effect of bank mergers on the supply of credit. The impact of bank mergers on other firm outcomes (growth in total borrowing, distance to default and investment) is also examined. A merger announcement by a firm's main bank results in a contraction in credit supply from the merging bank. Firms are not able to compensate for the reduced credit supply from the main bank, so overall borrowing also declines.

  September 25, 2017   doi: 10.1111/jere.12157   open full text
• Basic and Applied Research: A Welfare Analysis.
  Kunihiko Konishi.
  Japanese Economic Review. August 04, 2017
  This study constructs a variety expansion growth model that integrates basic research to analyse its effects on household welfare. In our model, the research sector consists of applied and basic research components. The former creates blueprints and expands the variety of goods available for consumption, whereas the latter adds to the public‐knowledge stock. The analysis yields several results. First, the steady‐state welfare‐maximizing level of basic research is below the steady‐state growth‐maximizing level. Second, a consideration of the welfare effects during the transition path suggests that marginal changes in the level of basic research can increase household welfare even at its steady‐state welfare‐maximizing level. Third, by using data from Japan, we calibrate the model and find that an increase in basic research spending raises household welfare.

  August 04, 2017   doi: 10.1111/jere.12154   open full text
• Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model.
  Cheng‐Wei Chang, Ching‐Chong Lai, Juin‐Jen Chang.
  Japanese Economic Review. August 03, 2017
  This paper sets up a monopolistic competition model featuring the returns to production specialization. Some novel results are derived from the analysis. First, the effect of a fiscal stimulus on consumption may be positive or negative, depending crucially upon whether the production function is characterized by increasing or decreasing returns to production specialization. Second, following a fiscal expansion, increasing returns to specialization lead to a positive linkage between real wages and aggregate output, while decreasing returns to specialization result in a negative relationship between real wages and aggregate output. Third, a fiscal expansion may raise social welfare, provided that the degree of increasing returns to production specialization is sufficiently large.

  August 03, 2017   doi: 10.1111/jere.12155   open full text
• Social Status, Labour Market Frictions and Endogenous Growth.
  Hung‐Ju Chen, Dongpeng Liu, Xiangbo Liu.
  Japanese Economic Review. July 14, 2017
  This paper develops an endogenous growth model that incorporates wealth‐enhanced preferences for social status and labour market frictions to investigate the role of social status in determining unemployment and long‐run growth. We show that the increase in the desire for social status reduces the unemployment rate, but its effect on long‐run growth is unclear. We then calibrate our model to the US economy and find that an increase in the desire for social status lowers the unemployment rate and enhances the economic growth rate in the long run.

  July 14, 2017   doi: 10.1111/jere.12153   open full text
• Employment Status Persistence in the Japanese Labour Market.
  Jess Diamond.
  Japanese Economic Review. June 07, 2017
  The growth of non‐standard employment has become a cause for concern for policy‐makers trying to boost output and keep unemployment low while also maintaining job security. This paper estimates a dynamic unobserved effects model using the Keio Household Panel Survey, an individual‐level panel data set, to investigate the effects on future employment opportunities of employment in Japan's non‐standard employment and regular employment sectors. I find strong evidence of persistence within the labour market, suggesting that past employment experience has a significant impact on future labour market outcomes.

  June 07, 2017   doi: 10.1111/jere.12148   open full text
• Lethal Effects of Pollution and Economic Growth: Efficiency of Abatement Technology.
  Asuka Oura, Yasukatsu Moridera, Koichi Futagami.
  Japanese Economic Review. May 30, 2017
  The accumulation of pollution negatively impacts human health. Extreme increases in pollution, in particular, may have lethal implications for human beings, and, indeed, all living organisms. This paper thus devises a new model of economic growth that takes into account these lethal effects of accumulated pollution via a pollution threshold to show two key results. First, if an abatement technology is relatively inefficient, there exists a stationary steady state in which consumption and pollution stop growing. Second, if the abatement technology is sufficiently efficient, there exists a path along which pollution decreases at an accelerating rate until it finally reaches zero. In this case, consumption grows at a constant rate.

  May 30, 2017   doi: 10.1111/jere.12151   open full text
• Retailer Market Concentration, Buyer‐Size Discounts and Inflation Dynamics.
  Mayumi Ojima, Junnosuke Shino, Kozo Ueda.
  Japanese Economic Review. May 12, 2017
  This study considers the macroeconomic effects of retailer market concentration and buyer‐size discounts on inflation dynamics. During Japan's “lost decades”, large retailers enhanced their market power, thus increasing the exploitation of buyer‐size discounts in the procurement of goods. We incorporate this effect into an otherwise standard New Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that these developments led to a deflation of approximately 0.1% annually.

  May 12, 2017   doi: 10.1111/jere.12150   open full text
• Real Indeterminacy of Stationary Monetary Equilibria in Centralized Economies.
  Kazuya Kamiya, So Kubota, Kayuna Nakajima.
  Japanese Economic Review. March 27, 2017
  We show that real indeterminacy of stationary equilibria, by which the set of stationary equilibria is a continuum and the real allocation varies among equilibria, may arise in some general equilibrium models with fiat money. The conditions under which such equilibria arise are: (i) each household optimally saves a constant amount of money; and (ii) at least two households face different budget constraints. We present various models, including a decentralized money search model and a centralized model with a monopoly firm, to explain how these conditions lead to real indeterminacy. Finally, we present a policy that uniquely implements any desirable outcome.

  March 27, 2017   doi: 10.1111/jere.12145   open full text
• Innovation and Employment Growth in Japan: Analysis Based on Microdata from the Basic Survey of Japanese Business Structure and Activities.
  Kyoji Fukao, Kenta Ikeuchi, Young Gak Kim, Hyeog Ug Kwon.
  Japanese Economic Review. March 27, 2017
  This study, using microdata from the Basic Survey of Japanese Business Structure and Activities, empirically examines the relationship among innovation, labour hoarding and employment growth at Japanese firms from 1991 to 2010. The main findings are as follows. First, the labour force of many firms in Japan is above the optimal level (labour hoarding). Second, labour hoarding is more serious among larger firms. Third, firms do not adjust employment instantaneously; if they have surplus labour in the current period, they will gradually reduce it. This is consistent with the theoretical model on employment adjustment that we propose. Fourth, all else being equal, firms’ conducting R&D are more likely to increase employment. Fifth, while we observe a negative correlation between firms’ total factor productivity growth and employment, total factor productivity growth through innovation has a positive impact on employment. Finally, in the manufacturing sector, product innovation, which we proxy by R&D expenditure, has a positive impact on employment, while in the nonmanufacturing sector, process innovation, which we proxy by capital investment, has a positive effect on employment.

  March 27, 2017   doi: 10.1111/jere.12146   open full text
• Agency Contracts, Noncommitment Timing Strategies and Real Options.
  Keiichi Hori, Hiroshi Osano.
  Japanese Economic Review. March 27, 2017
  Given that an owner lacks the ability to commit to his or her timing decisions under a manager's hidden action, we consider the optimal design of the contract and the owner's optimal timing decisions. Using a real options approach, we show that, compared with the full commitment case, a higher (lower)‐quality project is launched later than (at the same time as) the first‐best case, whereas the replacement of the manager is (is not necessarily) made later if the hidden‐action problem is severe enough (is not severe enough). Severance pay may serve to minimize the compensation for the manager's loss of corporate control.

  March 27, 2017   doi: 10.1111/jere.12144   open full text
• Intergenerational Wealth Elasticity in Japan.
  Kohei Kubota.
  Japanese Economic Review. March 15, 2017
  This study estimates the intergenerational wealth elasticity using original Japanese survey data and assesses factors explaining the intergenerational wealth elasticity, such as income, educational level, bequests and preferences. The age‐adjusted elasticity of child wealth with respect to parental wealth ranges from 0.266 to 0.367, and transition matrices indicate that the intergenerational transmission of wealth persists more strongly in the tails of the distributions. The correlation between parent and child wealth mainly stems from income, education and bequests, which jointly constitute 63.9% of the wealth elasticity.

  March 15, 2017   doi: 10.1111/jere.12142   open full text
• Effects of Anticipated Fiscal Policy Shock on Macroeconomic Dynamics in Japan.
  Hiroshi Morita.
  Japanese Economic Review. March 06, 2017
  This study investigates the effects of fiscal policy on macroeconomic dynamics in Japan with a particular focus on the effects of anticipated fiscal policy shock and the recent policies of Abenomics. We identify anticipated fiscal policy shock by combining excess stock returns for the construction industry and the vector autoregressive model with robust sign restrictions derived from a theoretical model. The primary result is that GDP and consumption respond positively to anticipated fiscal policy shock. In addition, the result of the historical decomposition that focuses on the period of Abenomics reveals that anticipated fiscal policy shock positively contributes to consumption dynamics.

  March 06, 2017   doi: 10.1111/jere.12140   open full text
• Privatization Neutrality Theorem: When a Public Firm Pursues General Objectives.
  Kojun Hamada.
  Japanese Economic Review. February 27, 2017
  This paper examines the privatization neutrality theorem when a public firm pursues general objectives other than welfare maximization. This theorem states that when the government gives firms optimal subsidies, welfare is exactly the same before and after privatization. However, we present a seemingly paradoxical result. When a public firm incorrectly assumes that subsidies change the welfare size, privatization is necessarily welfare neutral, whereas when the public firm correctly recognizes that subsidies only bring about income redistribution, without affecting welfare, the situations in which neutrality holds are limited.

  February 27, 2017   doi: 10.1111/jere.12143   open full text
• When do we Start? Pension reform in ageing Japan.
  Sagiri Kitao.
  Japanese Economic Review. February 15, 2017
  Japan is faced with rapid demographic ageing and fiscal challenges. This paper simulates pension reform to reduce the replacement rate by 20% and raise the retirement age by 3 years gradually over a 30‐year period. We consider three scenarios with different points in time to initiate reform in 2020, 2030 and 2040, respectively. A delay would suppress economic activities, lowering output by up to 4% and raising tax burden by more than 8% of total consumption. Delaying reform implies a transfer of costs of demographic ageing to the young and deteriorates the welfare of future generations by up to 3% in terms of consumption equivalence.

  February 15, 2017   doi: 10.1111/jere.12135   open full text
• Focused Information Criterion for Series Estimation in Partially Linear Models.
  Naoya Sueishi, Arihiro Yoshimura.
  Japanese Economic Review. February 09, 2017
  This paper proposes a focused information criterion for variable selection in partially linear models. Our criterion is designed to select an optimal model for estimating a focus parameter, which is a parameter of interest. We estimate the model using the series method and jointly select the variables in the linear part and the series length in the nonparametric part. A Monte Carlo simulation shows that the proposed focused information criterion successfully selects the model that has a relatively small mean squared error of the estimator for the focus parameter.

  February 09, 2017   doi: 10.1111/jere.12139   open full text
• Family Policies and Female Employment in Japan.
  Shintaro Yamaguchi.
  Japanese Economic Review. February 05, 2017
  This paper discusses how childcare and parental leave policies affect female employment by reviewing the international evidence and recent papers on Japan. These papers estimate causal effects of policies by exploiting policy changes, which is a more credible identification strategy than those applied in earlier observational studies. The literature on parental leave finds that a more generous leave package tends to delay mothers’ return to work, but it does not have detrimental effects on maternal labour supply in the medium to long run. Some papers also find that provision of job protection for around 1 year can increase maternal employment, but longer job protection has little additional effects. The literature on childcare policies finds that maternal employment does not necessarily increase, because the expansion of childcare may crowd out informal childcare arrangements, such as care provided by grandparents. Findings by recent papers on Japan are largely consistent with the international evidence.

  February 05, 2017   doi: 10.1111/jere.12136   open full text
• Considering Collective Choice: The Route 328 Problem in Kodaira City.
  Toyotaka Sakai.
  Japanese Economic Review. December 12, 2016
  A local referendum was held in Kodaira City, Tokyo on 26 May 2013, but the voting box remained sealed. This was because the voter turnout did not reach the 50% threshold for opening the box. Based on the Rousseauian view on voting, we argue that this hurdle is unjustifiable and further question the adequacy of the local referendum even without such a hurdle. Finally, we examine the use of economic mechanisms for this type of collective choice instead of voting.

  December 12, 2016   doi: 10.1111/jere.12115   open full text
• Do Bank Loans To Financially Distressed Firms Lead To Innovation?
  Minjung Kim, Jungsoo Park.
  Japanese Economic Review. December 12, 2016
  This study scrutinizes the association between a bank loan to a financially distressed firm and technological innovation. Using probit model estimations based on a comprehensive Korean manufacturing firm‐level data set on innovation and bank loans, we first find that a bank loan to a troubled firm with a weak incentive system has no or little effect on innovation. Second, beneficial effects on innovation are observed when the firm has a strong incentive‐based pay system. Third, financially distressed firms with strong incentive systems pursue product innovation rather than process innovation. Finally, the innovation performance of these firms strengthens with more stable financing.

  December 12, 2016   doi: 10.1111/jere.12131   open full text
• The Dynamic Relationship Between Corruption–Inflation: Evidence From Panel Vector Autoregression.
  Seifallah Sassi, Amira Gasmi.
  Japanese Economic Review. December 05, 2016
  This paper aims to explain the mixed causality nexus between corruption and inflation. For that, we apply a panel vector autoregression model on a large sample of 180 countries over the period 1996–2014. Using two corruption indexes and subsample estimations, results provide evidence that the inflation–corruption nexus is bidirectional. The causal effect is more important from corruption to inflation. Interactions remain significant but heterogeneous across subsamples with different income levels. The corruption effect is persistent only in low–middle income economies and its adverse effect on inflation is weaker in high‐income economies. The two‐way relationship between inflation and corruption reflects the inability to control inflation and the situation of the poverty trap in some countries.

  December 05, 2016   doi: 10.1111/jere.12134   open full text
• Job Creation and Destruction: New Evidence on the Role of Small Versus Young Firms in Korea.
  Janghee Cho, Hyunbae Chun, Hongjun Kim, Yoonsoo Lee.
  Japanese Economic Review. December 05, 2016
  Using the Census on Establishments data in Korea, the present study revisits the role of firm age and size to explain aggregate employment dynamics. We confirm the finding of Haltiwanger et al. that no systematic inverse relationship exists between net job growth and firm size once firm age is controlled for. We find that small businesses are driving forces of aggregate employment growth but that such high growth is mostly driven by the entry of very small firms, which is offset by job destructions of a similar magnitude. Moreover, entrepreneurial activity occurs among very small firms, whereas large start‐ups are rarely observed.

  December 05, 2016   doi: 10.1111/jere.12133   open full text
• Aggregate and Firm‐level Volatility in the Japanese Economy.
  Young Gak Kim, Hyeog Ug Kwon.
  Japanese Economic Review. November 28, 2016
  In this paper, we investigate the volatility of sales at the firm and the aggregate level using the longitudinal data set of the Financial Statements Statistics of Corporations (FSSC). The main findings are as follows. First, firm‐level volatility decreased until the mid‐1990s, but then increased again. Second, aggregate‐level volatility steadily decreased until the mid‐1990s and remained low after that. Third, decomposing the total variance of the growth rate of aggregated sales, we find that the divergence between firm‐level and aggregate‐level volatility is caused by the drastic decline and subsequent low level of the covariance of sales growth between different firms and the increase in individual firms' sales volatility.

  November 28, 2016   doi: 10.1111/jere.12132   open full text
• Start‐up Dynamics In Japan: Comparative Evidence From the Dynemp v.2 Database.
  Flavio Calvino, Chiara Criscuolo, Kenta Ikeuchi, Carlo Menon.
  Japanese Economic Review. November 18, 2016
  The present paper describes the patterns of entry and post‐entry growth in the Japanese manufacturing sector over the 2001–2007 period, pointing to similarities and differences with other countries. The paper also presents a detailed characterization of start‐up dynamics at a more detailed (two‐digit) sectoral level within the manufacturing sector. The analysis shows that in Japan the entry and growth of start‐ups contribute relatively little to net job creation, as compared to other countries. The main reasons are a particularly low start‐up rate and a growth rate of surviving new businesses that is among the lowest in the sample of countries analysed.

  November 18, 2016   doi: 10.1111/jere.12130   open full text
• Spatial Cournot competition in a circular city with more than two dispatches.
  Chia‐Hung Sun, Jyh‐Fa Tsai, Fu‐Chuan Lai.
  Japanese Economic Review. November 07, 2016
  This paper investigates spatial Cournot competition in a circular city, where the maximal service range of a vehicle is less than half of the perimeter, and a firm needs to initiate more than two dispatches to serve the whole market. We examine a multi‐stage game of location and transportation mode choices, and the subsequent quantity competition between duopoly firms. The findings reveal that non‐maximum dispersion is the unique location equilibrium when duopoly firms deliver products in different transportation modes or when the transportation mode decisions are made endogenously and the fixed cost of a transportation instrument is relatively high.

  November 07, 2016   doi: 10.1111/jere.12120   open full text
• Bond Supply and Excess Bond Returns in Zero‐Lower Bound and Normal Environments: Evidence from Japan.
  Junko Koeda.
  Japanese Economic Review. November 03, 2016
  We estimate a discrete‐time version of the Vayanos and Vila (2009) preferred‐habitat model, using Japanese government bond yield data. The estimated results indicate that bond excess returns become more sensitive to bond supply in the absence of a zero lower bound constraint unless arbitrageurs become willing to take on more risk.

  November 03, 2016   doi: 10.1111/jere.12117   open full text
• Distributional preference in Japan.
  Keigo Kameda, Miho Sato.
  Japanese Economic Review. October 25, 2016
  Using experiments developed by Engelmann and Strobel (), this study investigates distributional preference in Japan. We find that just over half the people in the study have a maximin preference, approximately 7 to 19% have an efficiency preference, approximately 8% have a self‐interest preference, and approximately 18% chose the allocation that would reduce the payoff to the rich and the poor, given that her/his payoff would remain constant. The last preference could be interpreted as what is referred to as “malice”, “deep envy” or a “feeling of vulnerability” in behavioural economics and cross‐cultural psychology.

  October 25, 2016   doi: 10.1111/jere.12112   open full text
• Is GDP a Relevant Social Welfare Indicator? A Savers–Spenders Theory Approach.
  Emmanuel Thibault.
  Japanese Economic Review. October 19, 2016
  The use of GDP as the main index of progress and welfare of a country has been the subject of a long debate among economists. Using and extending the savers–spenders theory, we analyse the theoretical relationship between GDP and the welfare of a society. This analysis is undertaken using several different overlapping generations models which all take into account the great heterogeneity of consumer behaviour observed in the data (different labour supply choices, different degrees of altruism and/or different degrees of impatience to consume). The results indicate that GDP (per capita) is often a relevant index and is always a decent social welfare indicator.

  October 19, 2016   doi: 10.1111/jere.12116   open full text
• Portfolio optimization using dynamic factor and stochastic volatility: evidence on Fat‐tailed errors and leverage.
  Tsunehiro Ishihara, Yasuhiro Omori.
  Japanese Economic Review. September 20, 2016
  The portfolio optimization problem is investigated using a multivariate stochastic volatility model with factor dynamics, fat‐tailed errors and leverage effects. The efficient Markov chain Monte Carlo method is used to estimate model parameters, and the Rao–Blackwellized auxiliary particle filter is used to compute the likelihood and to predict conditional means and covariances. The proposed models are applied to sector indices of the Tokyo Stock Price Index (TOPIX), which consists of 33 stock market indices classified by industrial sectors. The portfolio is dynamically optimized under several expected utilities and two additional static strategies are considered as benchmarks. An extensive empirical study indicates that our proposed dynamic factor model with leverage or fat‐tailed errors significantly improves the predictions of the conditional mean and covariances, as well as various measures of portfolio performance.

  September 20, 2016   doi: 10.1111/jere.12114   open full text
• Location Choice of Multinational and Local Firms in Vietnam: Birds of a Feather Flock Together?
  Chih‐Hai Yang, Chung‐Yueh Chiu, Meng‐Wen Tsou.
  Japanese Economic Review. August 15, 2016
  Vietnam enacted the Enterprises Act in 1999, leading to a sharp increase in the number of registered enterprises. Meanwhile, foreign direct investment (FDI) into the country continued to increase in the 2000s. Thus, this paper examines the location choice of multinational and local firms in Vietnam. We adopt the mixed logit model to conduct an empirical analysis of the possible interaction of neighbouring regions and attracting FDI. Using firm‐level data for the period 2000–2005, the results show that most provincial characteristics exert similar influences on foreign and domestic entrants, except for wage rates, which exhibit an opposing effect. The agglomeration of FDI entices foreign and domestic firms to locate in the same region, whereas the agglomeration of local firms is less relevant to the location choice of all firms. The spatial interdependence effect of attracting investment is particularly relevant to local entrants. Provinces with more foreign (domestic) firms reveal a complementary (competition) effect on the attractiveness of their neighbouring provinces.

  August 15, 2016   doi: 10.1111/jere.12110   open full text
• Do the Rich Save More in Japan? Evidence Based on two Micro Data Sets for the 2000s.
  Masahiro Hori, Koichiro Iwamoto, Takeshi Niizeki, Fumihiko Suga.
  Japanese Economic Review. August 02, 2016
  Using two household surveys, this paper investigates whether the saving rates of richer households are higher than those of poorer households in Japan. We construct a number of proxies for lifetime wealth, including those original to this study, and find marginally positive correlations between saving rates and lifetime wealth for working age households. We further find that the relationship between saving rates and lifetime wealth differs depending on the life stage of individual households. Older households with higher lifetime wealth appear to be dissaving to some extent, which is more or less consistent with the lifecycle model of consumption.

  August 02, 2016   doi: 10.1111/jere.12107   open full text
• Endogenous Market Structure and Technology Licensing.
  Chin‐Sheng Chen.
  Japanese Economic Review. July 26, 2016
  This paper analyses the optimal licensing strategy of a licensor firm that competes with potential licensee firms in an industry with endogenous entry. The optimal licensing strategy of the licensor firm is to have zero royalty and positive fixed fees, which is a result that sharply contrasts with the existing literature whereby licensor firms tend to charge positive royalties to their rival licensees. Under the optimal licensing strategy, the licensor firm and the licensee firms are active in the market, but not the non‐licensed firms. This equilibrium market structure is socially desirable if the fixed production cost is not too small.

  July 26, 2016   doi: 10.1111/jere.12111   open full text
• Bayesian Estimation of Entry Games with Multiple Players and Multiple Equilibria.
  Yuko Onishi, Yasuhiro Omori.
  Japanese Economic Review. July 26, 2016
  Entry game models are often used to study the nature of firms' profits and the nature of competition among firms in empirical studies. However, when there are multiple players in an oligopoly market, the resulting multiple equilibria have made it difficult in previous studies to estimate the payoff functions of players in complete information, static and discrete games without using unreasonable assumptions. To overcome this difficulty, the present paper proposes a practical estimation method for an entry game with three players using a Bayesian approach. Some mild assumptions are imposed on the payoff function, and the average competitive effect is used to capture the entry effect of the number of firms. Our proposed methodology is applied to Japanese airline data from the year 2000, when there were three major airline companies, ANA, JAL and JAS. The model comparison is conducted to investigate the nature of strategic interaction among these Japanese airline companies.

  July 26, 2016   doi: 10.1111/jere.12108   open full text
• Resale Price Maintenance by Japanese Newspapers.
  David Flath.
  Japanese Economic Review. July 19, 2016
  In Japan, newspapers enjoy a special exemption from antimonopoly prohibitions against resale price maintenance (suppliers' stipulations that bar downstream firms from price discounting). However, if a newspaper company does stipulate retail prices, it is required to set uniform prices throughout Japan. Econometric analysis here shows that Japanese newspaper subscription prices are far below the levels that would maximize joint profit, given the newspaper content. The authorized resale price maintenance seems to have a motivation other than cartelization.

  July 19, 2016   doi: 10.1111/jere.12101   open full text
• Price and Quantity Competition in a Differentiated Duopoly With Network Compatibility Effects.
  Tsuyoshi Toshimitsu.
  Japanese Economic Review. July 16, 2016
  We consider the efficiency of price and quantity competition in a network products market, where we observe product compatibility with network externalities (hereafter, network compatibility effects). In particular, if network compatibility effects between firms are sufficiently asymmetric, the Cournot equilibrium is more efficient than the Bertrand equilibrium in terms of larger consumer, producer and total surpluses. Then, we consider an endogenous choice of the strategic variables, price and quantity. If the degree of network compatibility effects of the rival firm is larger (smaller) than the degree of product substitutability, then choosing prices (quantities) is a dominant strategy for the firm. Thus, if the network compatibility effects of both firms are larger (smaller), the Bertrand (Cournot) equilibrium arises. Furthermore, if the network compatibility effects between the firms are sufficiently asymmetric, the firm with a larger (smaller) network compatibility effect than a certain level of product substitutability chooses quantities (prices). In this case, the Cournot–Bertrand equilibrium arises, which is less (more) efficient than the Cournot equilibrium in terms of consumer (producer) surplus.

  July 16, 2016   doi: 10.1111/jere.12109   open full text
• Exchange Rate Predictability in Finite Samples.
  Hsiu‐Hsin Ko.
  Japanese Economic Review. June 06, 2016
  The goal of the present study is to re‐examine the exchange rate predictability with an approach that accounts for the negative effect of the finite‐sample estimation error on forecast accuracy in the in‐sample test. We consider various exchange rate models and find that despite the presence of significant population‐level predictive content in the exchange rate model, the coefficients of the predictive variables could be small enough that, with the available sample, they are estimated so imprecisely that a random walk model can be expected to forecast at least as well as the exchange rate model.

  June 06, 2016   doi: 10.1111/jere.12097   open full text
• The Well‐Being of Elderly Survivors after Natural Disasters: Measuring the Impact of the Great East Japan Earthquake.
  Saki Sugano.
  Japanese Economic Review. June 02, 2016
  The Great East Japan Earthquake of 11 March 2011 had a devastating impact on the north‐eastern part of Japan. In the quasi‐experimental situation, using panel data collected 6 months after the earthquake, the present study examines the causal effects of the disaster on both the economic and psychological well‐being of elderly survivors affected by the earthquake and tsunami. The results by difference‐in‐difference estimation show that there was a significant impact on expenditure and employment, but little significant impact on subjective well‐being or health. The impact on well‐being and health of survivors may have been mitigated by the early economic recovery.

  June 02, 2016   doi: 10.1111/jere.12103   open full text
• Effects of Informal Caregivers' Health on Care Recipients.
  Michio Yuda, Jinkook Lee.
  Japanese Economic Review. June 02, 2016
  Informal care is increasingly important in countries undergoing population ageing. Previous research has discussed how the long‐term care system may affect the behaviours of informal caregivers but has not paid much attention to how changes in caregivers' circumstances, particularly their health, affect those receiving their care. Using the Japanese Study of Aging and Retirement, we empirically examine how caregivers' health condition may affect the elderly parents receiving their care. We find empirical evidence that declining caregivers' health adversely affects care recipients' health. We see such links between informal caregivers and their in‐laws, demonstrating that these effects go beyond genetic influences.

  June 02, 2016   doi: 10.1111/jere.12102   open full text
• Does Retirement Change Lifestyle Habits?
  Hiroyuki Motegi, Yoshinori Nishimura, Kazuyuki Terada.
  Japanese Economic Review. June 02, 2016
  This study examines the effects of retirement on lifestyle habits to determine the relationship between retirement and health. Looking at panel data from the Japanese Study of Aging and Retirement, fixed effects with time effects methods are used to account for the endogeneity of retirement. We then apply the fixed effects with time effects instrumental variable methods, after checking that the endogeneity of retirement is excluded by using the Durbin–Wu–Hausman test. Basic pension eligibility age is the instrumental variable. Our results reveal that elderly Japanese people reduce their drinking and increase their walking, frequency of heavy exercise, and sleep time on weekdays after retirement. However, sleep time on holidays and smoking and appear unchanged. Only elderly Japanese women increase their frequency of light exercise after retirement.

  June 02, 2016   doi: 10.1111/jere.12104   open full text
• Are Japanese Men of Pensionable Age Underemployed or Overemployed?
  Emiko Usui, Satoshi Shimizutani, Takashi Oshio.
  Japanese Economic Review. June 02, 2016
  We investigate how Japanese men aged 60–74 adjust their workforce attachment after beginning to receive a public pension. Men who were employees at 54 gradually move to part‐time work or retire after beginning to receive pension benefits; those who continue working tend to be underemployed. Men self‐employed at 54, however, neither reduce their working hours nor retire, tending to be overemployed. In contrast, US men retire or become part‐timers when they first claim social security; those who continue working are unlikely to be either overemployed or underemployed. Therefore, unlike US men, Japanese men are not choosing the optimal pensionable age and labour hours to maximize their intertemporal utility.

  June 02, 2016   doi: 10.1111/jere.12094   open full text
• Public Pension Benefits Claiming Behaviour: new Evidence from the Japanese Study on Ageing and Retirement.
  Satoshi Shimizutani, Takashi Oshio.
  Japanese Economic Review. May 24, 2016
  The present study explores public pension claiming behaviour among the Japanese elderly. First, we perform financial simulations, estimate expected utility and depict the typical patterns of pension benefits over a lifecycle. We show that a beneficiary's optimal retirement age depends on that beneficiary's mortality risk, discount rate, initial wealth and risk attitude. Second, we use individual‐level data from the Japanese Study on Aging and Retirement (JSTAR) to empirically examine the determinants of claim timing. We find evidence that most of the factors examined in the simulation are, indeed, significantly associated with early claiming among wage earners of pension benefits.

  May 24, 2016   doi: 10.1111/jere.12100   open full text
• Appraising Unhappiness in the Wake of the Great East Japan Earthquake.
  Fumio Ohtake, Katsunori Yamada, Shoko Yamane.
  Japanese Economic Review. May 20, 2016
  Considering the case of the Great East Japan Earthquake, we use the experienced‐utility approach to appraise the psychological distress from disaster‐related news. We take advantage of the serendipitous timing of our original nationwide weekly panel survey that became a fitting resource for the investigation of subjective well‐being in the immediate aftermath of the earthquake. Although all of Japanese society was affected, we found geographical heterogeneity between the affected areas (Sendai and Tokyo) and the unaffected areas in terms of mental costs. Our finding reminds us of the focusing effect (Kahneman et al., ; Dolan and Kahneman, ) as captured by Schkade and Kahneman () in the maxim “Nothing in life is quite as important as you think it is while you are thinking about it”.

  May 20, 2016   doi: 10.1111/jere.12099   open full text
• Moment Estimation of the Probit Model with an Endogenous Continuous Regressor.
  Daiji Kawaguchi, Yukitoshi Matsushita, Hisahiro Naito.
  Japanese Economic Review. May 18, 2016
  We propose a generalized method of moments (GMM) estimator with optimal instruments for a probit model that includes a continuous endogenous regressor. This GMM estimator incorporates the probit error and the heteroscedasticity of the error term in the first‐stage equation in order to construct the optimal instruments. The estimator estimates the structural equation and the first‐stage equation jointly and, based on this joint moment condition, is efficient within the class of GMM estimators. To estimate the heteroscedasticity of the error term of the first‐stage equation, we use the k‐nearest neighbour (k‐nn) non‐parametric estimation procedure. Our Monte Carlo simulation shows that in the presence of heteroscedasticity and endogeneity, our GMM estimator outperforms the two‐stage conditional maximum likelihood estimator. Our results suggest that in the presence of heteroscedasticity in the first‐stage equation, the proposed GMM estimator with optimal instruments is a useful option for researchers.

  May 18, 2016   doi: 10.1111/jere.12091   open full text
• Patent Licensing in the Presence of Trade Barriers.
  Kuang‐Cheng Andy Wang, Ching‐Chih Tseng, Wen‐Jung Liang.
  Japanese Economic Review. April 21, 2016
  We develop a two‐country duopoly model to explore the optimal licensing contract for an outsider licensor in terms of fixed‐fee and royalty licensing by taking into account trade barriers when firms produce a homogeneous product and engage in Bertrand competition in each market. The present paper focuses on the interaction between licensing and trade barriers in two international markets. We show that both royalty and non‐exclusive fixed‐fee licensing can be optimal. Furthermore, exclusive fixed‐fee licensing can be optimal, which is a result that is not discussed in the existing literature.

  April 21, 2016   doi: 10.1111/jere.12098   open full text
• Apportionment Behind the Veil of Uncertainty.
  Junichiro Wada.
  Japanese Economic Review. April 21, 2016
  Apportionment of representatives is a basic rule of everyday politics. By definition, this basic rule is a constitutional stage problem and should be decided behind the veil of uncertainty. To bring apportionment closer to quotas, we introduce f‐divergence for utilitarianism and Bregman divergence for consistent optimization. Even in our less restricted condition, we find that we must use α‐divergence for optimization and show that the minimization of α‐divergence induces the same divisor methods that correspond to the maximization of the Kolm–Atkinson social welfare function (or the expected utility function), which is bounded by constant relative risk aversion.

  April 21, 2016   doi: 10.1111/jere.12093   open full text
• International Transmission of the 2007–2009 Financial Crisis: Evidence from Japan.
  Kaoru Hosono, Miho Takizawa, Kotaro Tsuru.
  Japanese Economic Review. April 03, 2016
  We investigate the international transmission of the 2007–2009 financial crisis to Japanese firms by examining both stock returns and changes in operating performance during the crisis. Our results indicate that Japanese firms were affected by the crisis mainly through the trade channel in both stock returns and changes in operating performance. We also find that the liquidity channel played a role in the fall of stock returns in response to the crisis and in the changes in return on assets during the first year of the crisis. We obtain weak evidence for the credit crunch channel and no evidence to support the trade finance channel.

  April 03, 2016   doi: 10.1111/jere.12092   open full text
• Relative Income Position and Happiness: Are Cabinet Supporters Different from Others in Japan?
  Eiji Yamamura, Yoshiro Tsutsui, Fumio Ohtake.
  Japanese Economic Review. April 03, 2016
  During the period of 2001–2006, the Liberal Democratic Party (LDP) adopted a market‐oriented policy under the Koizumi cabinet. Using data covering the Koizumi and first Abe cabinets, the present paper attempts to examine whether the effects of relative income differ between supporters and non‐supporters of the Koizumi cabinet. Key findings are as follows: within the Koizumi cabinet period, a relatively low‐income position is negatively related to happiness for non‐LDP supporters but not for LDP supporters. However, under the period of the first Abe cabinet, the difference in the effect of relative income for LDP supporters and others disappears. These results imply that an expectation of market outcomes leads to a difference in the effect of relative income position on happiness levels.

  April 03, 2016   doi: 10.1111/jere.12090   open full text
• The Chinese Stock Market Does not React to the Japanese Market: Using Intraday Data to Analyse Return and Volatility Spillover Effects.
  Yusaku Nishimura, Yoshiro Tsutsui, Kenjiro Hirayama.
  Japanese Economic Review. March 30, 2016
  In this paper, we use high‐frequency data to explore the effects of return and volatility spillover during periods in which trading hours in China and Japan overlap. Specifically, we utilize 5‐min returns to estimate fractionally integrated asymmetric power autoregressive conditional heteroskedasticity and fractionally integrated exponential generalized autoregressive conditional heteroskedasticity models, then use the models' standardized residuals to employ a cross‐correlation function approach that tests for the degree to which the Chinese and Japanese markets affect each other. Results indicate a unidirectional influence of the Chinese stock market on Japanese markets in terms of return. This result is likely attributable to restrictions on foreign investment in the Chinese market and the lack of diversified international portfolios among individual Chinese investors.

  March 30, 2016   doi: 10.1111/jere.12086   open full text
• An Empirical Study of Interaction‐Based Aggregate Investment Fluctuations.
  Luigi Guiso, Chaoqun Lai, Makoto Nirei.
  Japanese Economic Review. March 29, 2016
  This paper argues that interactions of firms account for a sizable part of fluctuations in aggregate investments without exogenous aggregate shocks. We first establish empirically that the fraction of firms that engage in a lumpy investment follows a non‐normal, two‐sided exponential distribution across region‐year with a panel data set of Italian firms. We then present a simple sectoral model that generates the two‐sided exponential distribution that arises from the complementarity of the firms’ lumpy investments within a region. Calibrated by the firm‐level estimate of complementarity, the model is capable of generating the two‐sided exponential fluctuations observed at the aggregate level.

  March 29, 2016   doi: 10.1111/jere.12088   open full text
• Profiteering from the Dot‐Com Bubble, Subprime Crisis and Asian Financial Crisis.
  Michael McAleer, John Suen, Wing Keung Wong.
  Japanese Economic Review. March 29, 2016
  The paper explores the characteristics associated with the formation of bubbles that occurred in the Hong Kong stock market in 1997 and 2007, as well as the 2000 dot‐com bubble of Nasdaq. It examines the profitability of technical analysis (TA) strategies generating buy and sell signals, with and without our proposed trading rules. The empirical results show that, by applying long and short strategies during the bubble formation and a short strategy after the bubble burst, it not only produces returns that are significantly greater than buy‐and‐hold strategies, but also produces greater wealth compared with TA strategies without trading rules. We conclude that these bubble detection signals help investors generate greater wealth from applying appropriate long and short moving average (MA) strategies.

  March 29, 2016   doi: 10.1111/jere.12084   open full text
• Export Experience, Product Differentiation and Firm Survival in Export Markets.
  Tomohiko Inui, Keiko Ito, Daisuke Miyakawa.
  Japanese Economic Review. March 29, 2016
  This paper examines the determinants of firm survival in export markets by explicitly taking into account the impact of firms’ previous export market experience and their product differentiation. Utilizing a 16‐year panel data set for Japanese manufacturing firms, we employ panel probit estimation to examine the likelihood of exit from export markets. The results of our estimations show, first, that the exit probability from export markets decreased over the export duration. Second, the probability of exiting from export markets tended to be lower when firms were more R&D intensive both prior to and after starting exporting. The first result implies that exporting experience plays an important role in firms’ survival in export markets. Our second result implies that firms producing differentiated products likely have a greater incentive to make upfront investments to start exporting, and these investments, in turn, enable such firms to survive in export markets for a longer period.

  March 29, 2016   doi: 10.1111/jere.12083   open full text
• The Certification Role Of Pre‐IPO Banking Relationships: Evidence From IPO Underpricing in Japan.
  Yoshiaki Ogura.
  Japanese Economic Review. March 29, 2016
  We find empirical evidence that pre‐initial public offering (IPO) relationships with commercial banks through lending and investment via their venture capital subsidiaries significantly reduce IPO underpricing in Japan. This findings suggest that a pre‐IPO banking relationship certifies the low risk of an IPO firm. Given the fact that institutional investors are a minority in the allocation of IPO stocks in Japan, this effect is expected to come mainly from reducing either the investors' winner's curse or the signaling incentive of IPO firms, rather than from the reduction in information rent for institutional investors participating in the book‐building process.

  March 29, 2016   doi: 10.1111/jere.12082   open full text
• How Effective are Investment Promotion Agencies? Evidence from China.
  Bin Ni, Yasuyuki Todo, Tomohiko Inui.
  Japanese Economic Review. March 29, 2016
  Using both firm‐level and city‐level data from the Chinese National Bureau of Statistics and unique information on investment promotion agencies (IPA) in China, the present paper evaluates whether IPA affect foreign direct investment (FDI) from the perspective of both intensive and extensive margins; that is, re‐investment by incumbent foreign‐owned firms and total new FDI inflows into the city, respectively. After controlling for potential determinants of FDI and correcting for biases due to endogeneity, we find that, in general, IPA do not necessarily increase FDI in either case. However, IPA are found to promote re‐investment by large foreign‐owned firms. The results imply difficulty in the dissemination of information about the business environment to foreign investors.

  March 29, 2016   doi: 10.1111/jere.12089   open full text
• Panel Asymptotics and Statistical Decision Theory.
  Keisuke Hirano, Jack R. Porter.
  Japanese Economic Review. February 19, 2016
  This paper develops some applications of asymptotic statistical decision theory in econometrics, focusing on settings where the data are organized into groups or cells with heterogeneous parameters. Even if the groups are of different sizes, local asymptotic normality holds under suitable regularity conditions, and this can greatly simplify analysis of different types of econometric problems. We apply these results to the analysis of treatment assignment rules, and to estimators of cell‐specific parameters that employ shrinkage towards parametric models.

  February 19, 2016   doi: 10.1111/jere.12085   open full text
• Misspecification in Dynamic Panel Data Models and Model‐Free Inferences.
  Ryo Okui.
  Japanese Economic Review. September 15, 2015
  This paper discusses the issue of model misspecification and model‐free methods in dynamic panel data analysis. We primarily review existing results, but also provide several new results. When the dynamics are homogeneous, we show that several widely used estimators for panel first‐order autoregressive AR(1) models converge to first‐order autocorrelation, even under misspecification. Under heterogeneity, these estimators converge to the ratio of the means of the first‐order autocovariances and variances. We also discuss the estimation of autocovariances, the estimation of panel AR(∞) models, and the estimation of the distribution of the heterogeneous mean and autocovariances.

  September 15, 2015   doi: 10.1111/jere.12080   open full text
• Intangible Investment and Changing Sources of Growth in Korea.
  Hyunbae Chun, M. Ishaq Nadiri.
  Japanese Economic Review. August 30, 2015
  We examine how intangible investments change the sources of growth in the Korean economy. After constructing a novel industry‐level data set on intangibles, we estimate the contribution of intangible‐intensive industries and other industries to aggregate productivity growth in 1981–2008. The contribution of intangible‐intensive industries to aggregate labour productivity growth has significantly increased, whereas that of other industries has substantially decreased. The increased contribution of intangible‐intensive industries is mainly associated with total factor productivity growth rather than with input growth. This suggests that innovations related to intangible investments in these industries might become a new key source of productivity growth in Korea.

  August 30, 2015   doi: 10.1111/jere.12079   open full text
• Variety‐Controlling Public Policy Under Addiction and Saturation.
  Nobuko Serizawa, Shigeru Wakita.
  Japanese Economic Review. July 19, 2015
  This paper constructs a tractable general equilibrium model for investigating the dissimilar effects of addiction and saturation on consumption and public policy. By introducing an industry‐specific intertemporal consumption externality, we provide clear analytical results that a lump‐sum subsidy for firms can increase welfare in the presence of a negative externality (saturation). A tax can accomplish the same given a positive externality (addiction). Unlike existing studies of cultural goods, these results are not based on assumptions concerning exogenous different preferences across groups, but rather on conventional monopolistic competition and consumption habit formation models in macroeconomics.

  July 19, 2015   doi: 10.1111/jere.12075   open full text
• New Evidence on Intra‐Household Allocation of Resources in Japanese Households.
  Masahiro Hori, Nahoko Mitsuyama, Satoshi Shimizutani.
  Japanese Economic Review. July 19, 2015
  This paper examines intra‐household allocation of resources to gain insight into family relationships and gender bias in Japanese households. We take the Engel curve approach to examine how adult consumption is affected by the presence of a child, either a boy or a girl, in the family. Empowered by diary‐based high quality spending data from the Family Income and Expenditure Survey, our empirical results show that adult consumption is significantly reduced in households with children; furthermore, gender bias is not observed in total adult expenditures, while responses of adult clothing expenses to the presence of a child are significantly different between a boy and a girl: spending on a father's clothing is reduced when the child is a school‐aged daughter, while spending on a mother's clothing decreases when a school‐aged son is in the home. Our analysis also shows that after the early 2000s girls receive a larger share of spending for children's clothing as well as for high school education than boys.

  July 19, 2015   doi: 10.1111/jere.12076   open full text
• Evidence of Stock Returns and Abnormal Trading Volume: A Threshold Quantile Regression Approach.
  Cathy W.S. Chen, Mike K.P. So, Thomas C. Chiang.
  Japanese Economic Review. July 16, 2015
  This paper presents a capital asset pricing model‐based threshold quantile regression model with a generalized autoregressive conditional heteroscedastic specification to examine relations between excess stock returns and “abnormal trading volume”. We employ an adaptive Bayesian Markov chain Monte Carlo method with asymmetric Laplace distribution to study six daily Dow Jones Industrial stocks. The proposed model captures asymmetric risk through market beta and volume coefficients, which change discretely between regimes. Moreover, they are driven by market information and various quantile levels. This study finds that abnormal volume has significantly negative effects on excess stock returns under low quantile levels; however, there are significantly positive effects under high quantile levels. The evidence indicates that each market beta varies with different quantile levels, capturing different states of market conditions.

  July 16, 2015   doi: 10.1111/jere.12074   open full text
• Trade Liberalization and Environmental Regulation on International Transportation.
  Kenzo Abe, Keisuke Hattori, Yoshitaka Kawagoshi.
  Japanese Economic Review. May 22, 2014
  Incorporating pollution emissions from international transportation into a model of strategic trade and environmental policies, we investigate the effect of trade liberalization and environmental regulation on national welfare and the environment. Our model includes imperfectly competitive markets for international transportation and final products. We find that trade liberalization may reduce each country's welfare unless some level of environmental regulation on international transportation is in place. When international trade is liberalized initially, a mutual increase in the common emission tax rates may improve each country's welfare. However, when international trade is highly protected initially, imposing an emission tax may reduce welfare.

  May 22, 2014   doi: 10.1111/jere.12044   open full text
• Fiscal and Monetary Policies in a Transactions‐Based Endogenous Growth Model with Imperfect Competition.
  Shu‐Hua Chen.
  Japanese Economic Review. May 13, 2014
  This paper's model is capable of explaining the empirical evidence on the mixed growth‐rate effects of fiscal and monetary policies and a nonlinear inflation–growth relation. When monopoly power in the product market is strong/weak, an increase in the money growth rate or the income tax rate promotes/reduces the output growth rate through lowering/raising the equilibrium gross markup and increasing/reducing the net rate of return on capital. The fact that money can generate a positive growth rate effect allows for the appearance of a nonlinear inflation–growth relation. Such a nonlinear relation cannot be caused by changes in the income tax rate.

  May 13, 2014   doi: 10.1111/jere.12043   open full text
• Imported Intermediate Inputs, Firm Productivity and Product Complexity.
  Miaojie Yu, Jin Li.
  Japanese Economic Review. May 05, 2014
  This paper takes product complexity into account to study the impact of imported intermediate inputs on firms. Highly disaggregated Chinese transaction‐level trade data and firm‐level production data from 2002 to 2006 are used to construct firm‐level imported intermediate inputs. After controlling for the endogeneity of imported intermediate inputs and taking industrial imports of final goods into account, the analysis finds that firm productivity increases with increased imported intermediate inputs. The impact of imported intermediate inputs on firm productivity is weaker as firms produce more complex products.

  May 05, 2014   doi: 10.1111/jere.12041   open full text
• Efficiency and Lack of Commitment in an Overlapping Generations Model with Endowment Shocks.
  Koichi Miyazaki.
  Japanese Economic Review. April 17, 2014
  This paper considers a pure exchange stochastic overlapping generations model in which, on each date, an economy faces an aggregate endowment shock. On each date, a young agent and an old agent simultaneously decide how much of their respective endowments to transfer to the other agent; however, a young agent cannot make promises about how much he or she will give when old. In this sense, an economy faces a limited commitment constraint. This paper characterizes an efficient intergenerational risk sharing allocation that satisfies a limited commitment constraint, and also studies the role of money and history in a stochastic overlapping generations economy.

  April 17, 2014   doi: 10.1111/jere.12040   open full text
• Multinational Location Decisions and the Access to Imported Inputs.
  Loretta Fung, Jin Tan Liu, Deborah L. Swenson.
  Japanese Economic Review. April 01, 2014
  Although the influence of agglomeration economies on foreign direct investment location decisions is widely recognized in the literature, the nature of positive externalities is less well understood. This paper examines a particular source, access to specialized imported inputs, by applying a conditional logit model to the location decisions of Taiwanese multinationals in China. Our evidence, based on the 2,918 foreign direct investment projects approved between 1994 to 2006 in conjunction with Chinese customs data, reveals a positive effect of access to imported intermediate inputs and capital goods on the average investment, with effects that vary by industry group, time period and investment stage.

  April 01, 2014   doi: 10.1111/jere.12039   open full text
• Task Content of Trade: A Disaggregated Measurement of Japanese Changes.
  Eiichi Tomiura, Ryuhei Wakasugi, Lianming Zhu.
  Japanese Economic Review. February 19, 2014
  Trade in tasks has been actively examined in recent trade theories, although empirical trade research has a long tradition of measuring the factor content of trade. By linking data on occupations, tasks, labour inputs and international trade, we calculate the “task content of trade” in the case of Japan. Our results show that substantial decreases in the net exports of technical tasks, especially operation tasks, strongly characterize the changes in Japan's international trade during the 1995–2005 period.

  February 19, 2014   doi: 10.1111/jere.12035   open full text
• Firm‐Level Evidence on Productivity Differentials and Turnover in Vietnamese Manufacturing.
  Doan Thi Thanh Ha, Kozo Kiyota.
  Japanese Economic Review. February 19, 2014
  This paper examines the relationship between productivity differentials and firm turnover in Vietnamese manufacturing. We utilize firm‐level data between 2000 and 2009, including the year 2007, when Vietnam joined the World Trade Organization. Our major findings are twofold. First, the productivity of entrants, survivors and exiters increased simultaneously from 2006 to 2007. This result suggests that the cut‐off productivity level increased after trade liberalization. Second, the resource reallocation between firms was facilitated after the liberalization. These findings are consistent with the implications of the recent models of international trade and firm heterogeneity.

  February 19, 2014   doi: 10.1111/jere.12032   open full text
• Trade Facilitation and the Extensive Margin of Exports.
  Robert C. Feenstra, Hong Ma.
  Japanese Economic Review. February 19, 2014
  This paper examines the link between trade facilitation and export variety for a broad cross‐section of countries. We measure trade facilitation using port efficiency. We also include the bilateral import tariff and OECD membership and regional trade agreements. We find that port efficiency contributes significantly to the extensive margin of exports, and that the bilateral import tariff negatively impacts the variety of exports. The positive effect is confirmed when examining trade between countries without common land borders, or between OECD member countries and non‐OECD countries. Results are not as strong when we look at within‐OECD trade, or focus on bilateral trade in the intensive margin.

  February 19, 2014   doi: 10.1111/jere.12031   open full text
• On the Relationship Between Innovation and Product Market Competition.
  Marc Escrihuela‐Villar, Jorge Guillén.
  Japanese Economic Review. February 19, 2014
  This paper considers a theoretical model where firms reduce their initial unit costs by spending on R&D activities in a collusive market and where firms are able to coordinate on distinct output levels other than that of the unrestricted joint profit maximization outcome. We show that, in our model, the degree of collusion (captured by the discount factor) reduces the incentive to innovate when innovation is made non‐cooperatively. The reason is that non‐cooperative R&D introduces a negative externality where firms overinvest beyond the effort required to minimize the cost in order to extract profits from the rival firm, and a reduction in product competition helps internalize the externality. In a research joint venture the absence of R&D rivalry leads to contrary results. The main implication is that the validity of the Schumpeterian hypotheses depends on the extent of cooperation at the R&D stage.

  February 19, 2014   doi: 10.1111/jere.12033   open full text
• Self‐rated Health Status of Japanese and Europeans in Later Life: Evidence from JSTAR and SHARE.
  Mayu Fujii, Takashi Oshio, Satoshi Shimizutani.
  Japanese Economic Review. January 29, 2014
  Using panel data from two surveys in Japan and Europe, we examine the comparability of the self‐rated health of the middle‐aged and elderly across Japan and European countries and across the survey periods. We find that a person's own health is evaluated using different standards (thresholds) across the different countries and survey waves. When evaluated using common thresholds, the Japanese elderly are found to be healthier than their counterparts in the European countries. Reporting biases causing discrepancies between the changes in individuals' self‐rated health and their actual health over the survey waves are associated with education and country of residence.

  January 29, 2014   doi: 10.1111/jere.12029   open full text
• Multi‐Product Exporters and the Margins of Trade.
  Andrew B. Bernard, Ilke Van Beveren, Hylke Vandenbussche.
  Japanese Economic Review. January 23, 2014
  The present paper examines multi‐product exporters in Belgium, considering their importance and the relationship between the margins of trade and firm productivity. We use proxies for trade costs to quantify the extensive and intensive margin adjustments of trade. Relatively few exporting firms account for the majority of Belgian exports and these large firms have greater productivity and value‐added, more employees and more exported products than smaller exporters. Across firms, productivity is positively associated with firm exports. More productive firms export more products to more countries and have higher average product‐country export flows. The extensive and intensive margins are equally important in total firm exports.

  January 23, 2014   doi: 10.1111/jere.12030   open full text
• Political Accountability, Electoral Control and Media Bias.
  Takanori Adachi, Yoichi Hizen.
  Japanese Economic Review. December 17, 2013
  Are anti‐establishment mass media really useful in preventing politicians from behaving dishonestly? This paper models the direction of media bias, and shows that the probability of a dishonest action by an incumbent is higher (than that in the case of no media bias) if and only if the mass media have some degree of “anti‐incumbent” bias (i.e. information favourable to the incumbent is converted into unfavourable news about the incumbent with a positive probability), provided that the incumbent is less likely to be opportunistic than a challenger in the upcoming election. This result holds irrespective of the degree of “pro‐incumbent” bias.

  December 17, 2013   doi: 10.1111/jere.12028   open full text
• Spatial Cournot Competition in a Linear City with Directional Delivery Constraints.
  Chia‐Hung Sun.
  Japanese Economic Review. November 21, 2013
  This study investigates a sequential game of location and transportation mode choices, as well as the subsequent quantity choice. The results show that spatial Cournot competition with directional delivery constraints yields a richer set of spatial configurations, involving midpoint agglomeration, maximum differentiation and asymmetric dispersion, and a richer set of transportation mode selections, involving delivery in different directions, asymmetric delivery between duopoly firms, and delivery in two directions by each firm, depending on the fixed cost of a transportation instrument. This paper concludes with an investigation of welfare analysis on optimal locations and transportation modes.

  November 21, 2013   doi: 10.1111/jere.12026   open full text
• Pricing Nikkei 225 Options Using Realized Volatility.
  Masato Ubukata, Toshiaki Watanabe.
  Japanese Economic Review. November 15, 2013
  This article examines option pricing performance using realized volatilities with or without handling microstructure noise, non‐trading hours and large jumps. The dynamics of realized volatility is specified by ARFIMA(X) and HAR(X) models. The main results using put options on the Nikkei 225 index are that: (i) the ARFIMAX model performs best; (ii) the Hansen and Lunde (2005a) adjustment for non‐trading hours improves the performance; (iii) methods for reducing microstructure noise‐induced bias yield better performance, while if the Hansen–Lunde adjustment is used, the other methods are not necessarily needed; and (iv) the performance is unaffected by removing large jumps from realized volatility.

  November 15, 2013   doi: 10.1111/jere.12024   open full text
• Individual Stock Returns and Monetary Policy: Evidence from Japanese Data.
  Masahiko Shibamoto, Minoru Tachibana.
  Japanese Economic Review. October 24, 2013
  The present paper uses Japanese firm‐level data to investigate the effects of monetary policy on stock. The main purpose of this paper is to examine whether monetary policy has heterogeneous effects on stock returns and whether such heterogeneity can be explained by existing theories of monetary transmission mechanisms. We find little evidence that the demand sides of the interest rate and balance sheet channels explain the heterogeneous effects of monetary policy. However, there is evidence that the supply sides of the interest rate and balance sheet channels, when measured by capital intensity, financial leverage and interest payment burden, can explain its heterogeneous effects.

  October 24, 2013   doi: 10.1111/jere.12019   open full text
• Who values the family‐friendly aspects of a job? Evidence from the Japanese labour market.
  Tadashi Sakai, Naomi Miyazato.
  Japanese Economic Review. October 20, 2013
  Women with family responsibilities such as child‐rearing generally prefer jobs with flexible working conditions. According to the theory of compensating wage differentials, women working in such family‐friendly jobs are paid less than those working in family‐unfriendly jobs. The present paper investigates whose wages are more greatly affected by the family‐(un)friendly aspects of their jobs. Based on a longitudinal survey of Japanese women, we found that among several family‐(un)friendly attributes of a job, only commuting time requires a wage premium, and most of the premium is associated with job changes made by part‐time‐working married women.

  October 20, 2013   doi: 10.1111/jere.12022   open full text
• Old‐age Social Security versus Forward Intergenerational Public Goods Provision.
  Ryo Arawatari, Tetsuo Ono.
  Japanese Economic Review. October 20, 2013
  This paper introduces an overlapping‐generations model with earnings heterogeneity and borrowing constraints. The labour income tax and the allocation of tax revenue between social security and forward intergenerational public goods are determined in a bidimensional majoritarian voting game played by successive generations. The political equilibrium is characterized by an ends‐against‐the‐middle equilibrium where low‐income and high‐income individuals form a coalition in favour of a lower tax rate and less social security while middle‐income individuals favour a higher tax rate and greater social security. Government spending then shifts from social security to public goods provision if higher wage inequality is associated with a borrowing constraint and a high elasticity of marginal utility of youth consumption.

  October 20, 2013   doi: 10.1111/jere.12021   open full text
• Input Prices as Signals of Costs to a Downstream Rival and Customer.
  Pei‐Cheng Liao.
  Japanese Economic Review. October 17, 2013
  We consider a dual distribution channel in which a vertically integrated manufacturer competes with a downstream rival in a retail market and also sells an input to the rival. We use a signalling model with a continuum of types to examine a situation in which the manufacturer has private information on the production cost of its retail product. We show that in a separating equilibrium under Cournot (Bertrand) retail competition, the manufacturer signals the uncompetitiveness (competitiveness) of its firm by charging a smaller input price than the optimal price under complete information.

  October 17, 2013   doi: 10.1111/jere.12020   open full text
• Dynamic Analysis of an Endogenous Growth Model with Investment‐specific Technological Change.
  Kizuku Takao.
  Japanese Economic Review. July 09, 2013
  This paper examines a dynamically optimal subsidy policy in a continuous‐time version of the endogenous growth model developed by Krusell (Krusell, P. (1998) “Investment‐Specific R&D and the Decline in the Relative Price of Capital”, Journal of Economic Growth, vol. 3, no. 2, pp. 131–141), in which investment‐specific technological progress occurs endogenously because of R&D performed by monopolistic firms. It is demonstrated that a combination of the time‐invariant subsidy for investment and the time‐variant subsidy for R&D enables the market equilibrium to replicate the socially optimal allocation.

  July 09, 2013   doi: 10.1111/jere.12018   open full text
• Can Small Class Policy Close the Gap? An Empirical Analysis of Class Size Effects in Japan.
  Hideo Akabayashi, Ryosuke Nakamura.
  Japanese Economic Review. July 01, 2013
  Can smaller classes lead to better educational outcomes and greater equality in achievement? We estimate the causal effects of class size on achievement tests by using discontinuous changes in class size under the Japanese public compulsory education system. We employ a value‐added model that uses achievement tests conducted at two different times during the same school year. Our results show that a reduction in class size has significantly positive effects on Japanese language test scores in the sixth grade, especially at schools in wealthy areas. However, we find no evidence that a universal small class policy closes the achievement gap among schools.

  July 01, 2013   doi: 10.1111/jere.12017   open full text
• On Persistent Demand Shortages: A Behavioural Approach.
  Yoshiyasu Ono, Junichiro Ishida.
  Japanese Economic Review. May 23, 2013
  We incorporate two sets of behavioural assumptions, fairness concerns and insatiable desire for money, into a dynamic optimization model to illuminate how they can generate persistent aggregate demand shortages. We obtain the conditions for persistent unemployment and temporary unemployment. Policy implications differ significantly between the two cases. A monetary expansion raises private consumption under temporary unemployment but not under persistent unemployment. A fiscal expansion may or may not increase short‐run private consumption but crowds out long‐run consumption under temporary unemployment. Under persistent unemployment, however, a fiscal expansion always increases private consumption. The “paradoxes of toil and flexibility” also appear.

  May 23, 2013   doi: 10.1111/jere.12016   open full text
• Policy Measures to Alleviate Foreign Currency Liquidity Shortages under Aggregate Risk with Moral Hazard.
  Hiroshi Fujiki.
  Japanese Economic Review. May 06, 2013
  During the recent global financial crisis, certain central banks introduced two innovative cross‐border operations to deal with the problems of foreign currency liquidity shortages: domestic liquidity operations using cross‐border collateral and operations that supply foreign currency among central banks based on standing swap lines. We show theoretically that central banks improve the efficiency of equilibrium under foreign currency liquidity shortages using these two innovative temporary policy measures.

  May 06, 2013   doi: 10.1111/jere.12015   open full text
• Interlinkage and Generous Tit‐for‐Tat Strategy.
  Hitoshi Matsushima.
  Japanese Economic Review. April 19, 2013
  We investigate an infinitely‐repeated prisoners' dilemma with imperfect monitoring and consider the possibility that the interlinkage of the players' distinct activities enhances implicit collusion. We show a necessary and sufficient condition for the existence of a generous tit‐for‐tat Nash equilibrium. Such an equilibrium, if it exists, is unique. This equilibrium achieves approximate efficiency when monitoring is almost perfect, where the discount factors are fixed.

  April 19, 2013   doi: 10.1111/jere.12014   open full text
• Strategic Entry Deterrence by Limiting Qualities under Minimum Quality Standards.
  Sang‐Ho Lee, Ram Kumar Phuyal.
  Japanese Economic Review. April 12, 2013
  We consider a minimum quality standard (MQS) regulation under a vertically differentiated duopoly model where an incumbent may deter entry by limiting qualities, and explicity examine the strategic interaction between entry cost and a limit quality. We show that MQS will increase social welfare in most cases by reducing the incentive of the incumbent to limit quality, but it might render industry entry unprofitable for the entrant, which could induce predation to deter entry.

  April 12, 2013   doi: 10.1111/jere.12007   open full text
• Global Sourcing in Industry Equilibrium.
  Tomohiro Ara.
  Japanese Economic Review. April 09, 2013
  This paper extends the Antràs and Helpman (2004) model to a continuum of sectors to explore a full set of possibilities for organizational forms in global sourcing. We show that industries of the economy are divided into seven classes of sectors in terms of the prevalence of organizational forms. In particular, the coexistence of different organizational forms is less likely as the sectoral input intensity is more extreme, so that intra‐industry heterogeneity is less relevant to the firms' organizational choices. It is also demonstrated that our equilibrium analysis offers a useful framework for examining comparative statics on the sectoral input intensity.

  April 09, 2013   doi: 10.1111/jere.12010   open full text
• Measuring Search Frictions Using Japanese Microdata.
  Masaru Sasaki, Miki Kohara, Tomohiro Machikita.
  Japanese Economic Review. April 09, 2013
  This paper estimates individual‐level matching functions to measure search frictions in the Japanese labour market and presents the determinants of search duration. We employ administrative microdata that track the job search process of job seekers who left or lost their job in August 2005 and subsequently registered at their local public employment service. Our finding is that the matching function exhibits decreasing rather than constant returns‐to‐scale for job seekers and vacancies. We also find that after controlling for the benefits period, job seekers who lost their job involuntarily were more likely than those quitting voluntarily to exit from unemployment.

  April 09, 2013   doi: 10.1111/jere.12011   open full text
• International Economic Interdependence and Exchange‐rate Adjustment under Persistent Stagnation.
  Yoshiyasu Ono.
  Japanese Economic Review. April 09, 2013
  Using a two‐country, two‐commodity dynamic optimization model with general homothetic preference for the commodities, this paper examines the effects of a tariff and a quota on consumption and employment in the case where persistent unemployment arises due to a liquidity trap. A trade restriction improves the current account, which causes the home currency to appreciate and harms the competitiveness of home firms. Therefore, home employment and consumption decrease while foreign employment and consumption increase. Tariff‐quota equivalence is found to be valid. Preference, technological and policy parameter changes that improve the current account in general worsen home unemployment.

  April 09, 2013   doi: 10.1111/jere.12012   open full text
• China's Fiscal Decentralization and Regional Economic Growth.
  Jian Chu, Xiao‐Ping Zheng.
  Japanese Economic Review. April 09, 2013
  The present paper applies Lucas's theory of endogenous growth and Stiglitz's theory of local public goods to build an econometric model consisting of five simultaneous equations to study China's fiscal decentralization effects on regional economic growth. The model is estimated by two‐stage least squares using a set of panel data on 31 Chinese provinces during 1996–2005. The estimated results show that China's fiscal decentralization increased the local governments' expenditure on physical infrastructure and education, which led to the rising local physical capital stock and human capital levels, respectively, and then resulted in the growth of regional economies.

  April 09, 2013   doi: 10.1111/jere.12013   open full text
• Corporate Tax Reductions, Cross‐Border Ownership and Welfare.
  Wataru Johdo.
  Japanese Economic Review. January 28, 2013
  In this paper, a three‐country model incorporating the cross‐border ownership of stock and international firm relocation is constructed. Using this model, the effects of a reduction in the corporate tax on welfare in all three countries is examined. The findings indicate that if the country undertaking the reduction is moderately rich, and one of the two remaining countries is rich while the other country is poor, the tax reduction not only brings about a positive effect on its own welfare, but also increases the welfare of the rich foreign country and lowers that of the poor foreign country.

  January 28, 2013   doi: 10.1111/jere.12006   open full text
• Endogenous Alleviation of Overreaction Problem by Aggregate Information Announcement.
  Hiroki Arato, Tomoya Nakamura.
  Japanese Economic Review. January 25, 2013
  It is well‐known that agents overreact to public information in markets characterized by strategic complementarities. We propose a simple and implementable method of alleviating the overreaction problem. Extending the beauty‐contest game of Morris and Shin to a multi‐region economy, we show that, under an aggregate information announcement, each agent converts purely public information into imperfect public information endogenously. This makes the agents’ beliefs dispersed and alleviates the overreaction problem. Moreover, we compare the welfare effect of the aggregate information announcement with that of a separate announcement. We find that there exist plausible situations where the aggregate information announcement is better than the separate information announcement despite reduced quality.

  January 25, 2013   doi: 10.1111/jere.12003   open full text
• Welfare Analysis of Pension Reforms in an Ageing Japan.
  Akira Okamoto.
  Japanese Economic Review. January 25, 2013
  This paper uses a computable general equilibrium model with overlapping generations to explore the effects of different public pension schemes on economic welfare, and intergenerational and intragenerational equity. Besides the benchmark case based on the 2004 public pension reform, the present paper considers two alternative reforms: financing the basic pension benefit through a consumption tax, and eliminating the earnings‐related pension benefit. The simulation results suggest that even the consumption‐tax financing of only the basic pension, namely, the combination of both reforms, might not improve overall economic welfare, although it increases economic output by inducing capital formation.

  January 25, 2013   doi: 10.1111/jere.12002   open full text
• Education, Innovation and Long‐Run Growth.
  Katsuhiko Hori, Katsunori Yamada.
  Japanese Economic Review. November 29, 2012
  We extend a second‐generation Schumpeterian growth model to incorporate human capital accumulation to clarify the general equilibrium effects of subsidy policies on human capital accumulation and R&D activities in a unified framework. Despite the conventional argument that subsidies always stimulate these growth‐promoting activities, we find that subsidies asymmetrically affect human capital accumulation and R&D activities. Our theoretical results suggest that research using standard models of human capital might find false negative relationships between education subsidies and economic growth.

  November 29, 2012   doi: 10.1111/j.1468-5876.2012.00588.x   open full text
• The impact of Japanese hospital financing reform on hospital efficiency: A difference‐in‐difference approach.
  Galina Besstremyannaya.
  Japanese Economic Review. September 18, 2012
  With Japanese hospital financing reform, a prospective payment system (PPS) has been established for inpatient care to replace the traditional fee‐for‐service remuneration of hospitals. This paper evaluates the effect of the reform on technical and cost efficiency of local public hospitals. Efficiency is estimated non‐parametrically using two‐stage data envelopment analysis with bias correction through bootstrap, and parametrically applying stochastic frontier analysis. The descriptive analysis shows that efficiency declines after the introduction of PPS. Difference‐in‐difference estimations reveal that PPS results in a limited efficiency gain, which might be related to inadequate incentives created by the two‐part PPS tariff in Japan.

  September 18, 2012   doi: 10.1111/j.1468-5876.2012.00585.x   open full text
• Determinants of the Timing of Downsizing Among Large Japanese Firms: Long‐Term Employment Practices and Corporate Governance.
  Tomohiko Noda.
  Japanese Economic Review. July 31, 2012
  This paper analyses the relation between corporate governance and employment adjustment behaviour among Japanese firms. The results are summarized in the following two points. First, in the period before 1997, although main banks were likely to allow firms' employment maintenance until they experienced 2 consecutive years of losses, they tended to press firms to downsize once firms faced financial distress. Second, the reduced function of main banks and the increased influence of foreign owners have changed the timing of downsizing since 1997. Changes in corporate governance have brought about slight but non‐negligible changes in Japanese employment practices.

  July 31, 2012   doi: 10.1111/j.1468-5876.2012.00578.x   open full text
• Testing for the Presence of Moral Hazard Using the Regulatory Reform in the Car Insurance Market: Case of Korea.
  Yong‐Woo Lee.
  Japanese Economic Review. July 23, 2012
  The aim of this paper is to investigate the presence of the moral hazard phenomenon in the Korean car insurance market. In the context of natural experiment, I examine whether the regulatory reform introduced in 2000 generates significant difference in accident probability between before and after the reform. Further, I analyse the different effects of regulatory reform on different parts of the outcome distribution. In any case, I do not find the significant effects of regulatory reform on accident probability.

  July 23, 2012   doi: 10.1111/j.1468-5876.2012.00579.x   open full text
• Social Security Earnings Test and the Labour Supply of the Elderly: New Evidence from Unique Survey Responses in Japan.
  Satoshi Shimizutani.
  Japanese Economic Review. July 23, 2012
  This study proposes an alternative approach of utilizing direct responses to a survey on the social security earnings test for the elderly to provide new evidence on the sensitivity of the labour supply decision of workers aged between 60 and 64 with respect to the test. Our empirical results show a discouraging effect on working in a large proportion of these workers in Japan, even after correcting for the observed attributes of individuals who reported being either affected or unaffected.

  July 23, 2012   doi: 10.1111/j.1468-5876.2012.00580.x   open full text