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How Japanese firms can weather endaka periods: Evidence from the transportation equipment industry

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  • Thorbecke, Willem

Abstract

Japan has experienced several appreciation episodes. These appreciations may squeeze profit margins and lower export volumes. This paper investigates whether firms can weather appreciation periods by producing differentiated rather than commoditized products. To do this it investigates different sectors within the Japanese transportation equipment industry. Results from estimating pricing-to-market (PTM) coefficients indicate that firms producing differentiated products can pass-through more of exchange rate appreciations into higher foreign currency prices and thus better preserve their profit margins. Results from estimating trade elasticities are consistent with the PTM results and indicate that the automobile industry has exported much less than predicted after the yen depreciated in 2012. Finally, estimates of the stock market exposure across sectors indicates that the profitability of firms producing differentiated products is less exposed to appreciations. Producing differentiated, knowledge-intensive goods can thus help firms to survive endaka periods.

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  • Thorbecke, Willem, 2020. "How Japanese firms can weather endaka periods: Evidence from the transportation equipment industry," Japan and the World Economy, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:japwor:v:56:y:2020:i:c:s0922142520300360
    DOI: 10.1016/j.japwor.2020.101035
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    Cited by:

    1. Kawasaki, Kentaro & Sato, Kiyotaka, 2021. "A new assessment of economic integration in East Asia: Application of an industry-specific G-PPP model," Japan and the World Economy, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Differentiated products; Exchange rate pass-through; Exchange rate elasticities;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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