IDEAS home Printed from https://ideas.repec.org/a/eee/japwor/v32y2014icp14-36.html
   My bibliography  Save this article

Investments in response to trade policy: The case of Japanese firms during voluntary export restraints

Author

Listed:
  • Chu, Hyo-Youn

Abstract

This paper develops a dynamic structural model of a single decision in order to analyze the effect of voluntary export restraints (VERs) on quality-upgrade and foreign direct investment (FDI) behavior. I estimate the model parameters using a variant of the two-step estimator developed by Bajari et al. (2007). Using panel data of Japanese firms in the U.S. automobile industry, both activities are found to have significant sunk cost, which introduces intertemporal interactions in decisions, and I also find that the entry costs for FDI are larger than fixed adjustment costs for quality-upgrade. I simulate counterfactuals based on the estimation of the structural model. In the absence of the VERs, both quality-upgrade and the probability of undertaking FDI decrease. The second simulation examines the substitution effect between the two investment activities. The proposal to restrict FDI policy causes a dramatic increase in the level of quality-upgrade. Similarly, the proposal to restrict quality-upgrade policy results in an increase in the probability of FDI.

Suggested Citation

  • Chu, Hyo-Youn, 2014. "Investments in response to trade policy: The case of Japanese firms during voluntary export restraints," Japan and the World Economy, Elsevier, vol. 32(C), pages 14-36.
    • Handle: RePEc:eee:japwor:v:32:y:2014:i:c:p:14-36
    DOI: 10.1016/j.japwor.2014.07.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0922142514000425
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.japwor.2014.07.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2011. "R&D Investment, Exporting, and Productivity Dynamics," American Economic Review, American Economic Association, vol. 101(4), pages 1312-1344, June.
    2. V. Joseph Hotz & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1994. "A Simulation Estimator for Dynamic Models of Discrete Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(2), pages 265-289.
    3. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, September.
    4. V. Joseph Hotz & Robert A. Miller, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 497-529.
    5. Robert C. Feenstra, 1988. "Quality Change Under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(1), pages 131-146.
    6. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
    7. Fuss,Melvyn A. & Waverman,Leonard, 2006. "Costs and Productivity in Automobile Production," Cambridge Books, Cambridge University Press, number 9780521031752, January.
    8. Ronald L. Goettler & Brett R. Gordon, 2011. "Does AMD Spur Intel to Innovate More?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1141-1200.
    9. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    10. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," The World Bank Economic Review, World Bank, vol. 6(2), pages 189-211, May.
    11. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haiyan Yu & Shan Li & Yiyuan Liu & Qiuping Liu & Yuxin Lu, 2023. "Do International Trade Frictions Influence the Competitiveness of Entity Enterprises? Evidence from the Perspective of Financialization," SAGE Open, , vol. 13(4), pages 21582440231, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Victor Aguirregabiria & Victor Aguirregabiria & Aviv Nevo & Aviv Nevo, 2010. "Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games," Working Papers tecipa-419, University of Toronto, Department of Economics.
    2. Aamir Rafique Hashmi & Johannes Van Biesebroeck, 2016. "The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 192-208, March.
    3. Jan De Loecker & Johannes Van Biesebroeck, 2016. "Effect of International Competition on Firm Productivity and Market Power," NBER Working Papers 21994, National Bureau of Economic Research, Inc.
    4. Johannes Van Biesebroeck & Aamir Hashmi, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," 2007 Meeting Papers 362, Society for Economic Dynamics.
    5. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1445-1488, December.
    6. Carlos Daniel Santos, 2009. "Recovering the Sunk Costs of R&D: the Moulds Industry Case," CEP Discussion Papers dp0958, Centre for Economic Performance, LSE.
    7. Paul Grieco & Hongsong Zhang & Shengyu Li, 2018. "Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufactures," 2018 Meeting Papers 874, Society for Economic Dynamics.
    8. Tobias Salz & Emanuel Vespa, 2020. "Estimating dynamic games of oligopolistic competition: an experimental investigation," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 447-469, June.
    9. Steven T Berry & Giovanni Compiani, 2023. "An Instrumental Variable Approach to Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(4), pages 1724-1758.
    10. Joao Macieira, 2010. "Oblivious Equilibrium in Dynamic Discrete Games," 2010 Meeting Papers 680, Society for Economic Dynamics.
    11. Coşar, A. Kerem & Grieco, Paul L.E. & Li, Shengyu & Tintelnot, Felix, 2018. "What drives home market advantage?," Journal of International Economics, Elsevier, vol. 110(C), pages 135-150.
    12. Maican, Florin G., 2012. "From Boom to Bust and Back Again: A dynamic analysis of IT services," Working Papers in Economics 543, University of Gothenburg, Department of Economics.
    13. Karun Adusumilli & Dita Eckardt, 2019. "Temporal-Difference estimation of dynamic discrete choice models," Papers 1912.09509, arXiv.org, revised Dec 2022.
    14. Koray Cosguner & Tat Y. Chan & P. B. (Seethu) Seetharaman, 2018. "Dynamic Pricing in a Distribution Channel in the Presence of Switching Costs," Management Science, INFORMS, vol. 64(3), pages 1212-1229, March.
    15. Amoroso, S., 2013. "Heterogeneity of innovative, collaborative, and productive firm-level processes," Other publications TiSEM f5784a49-7053-401d-855d-1, Tilburg University, School of Economics and Management.
    16. Dalton, John T. & Goksel, Turkmen, 2013. "Reputation and learning: Japanese car exports to the United States," Japan and the World Economy, Elsevier, vol. 25, pages 10-23.
    17. Sara Amoroso, 2014. "The hidden costs of R&D collaboration," JRC Working Papers on Corporate R&D and Innovation 2014-02, Joint Research Centre.
    18. Victor Aguirregabiria & Pedro Mira, 2007. "Sequential Estimation of Dynamic Discrete Games," Econometrica, Econometric Society, vol. 75(1), pages 1-53, January.
    19. Mark J Roberts & Daniel Yi Xu & Xiaoyan Fan & Shengxing Zhang, 2018. "The Role of Firm Factors in Demand, Cost, and Export Market Selection for Chinese Footwear Producers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2429-2461.
    20. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:japwor:v:32:y:2014:i:c:p:14-36. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505557 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.