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A Dynamic Model of Export Adjustment with Deep-pocket Effect: Evidence from Japanese Keiretsu Firms

Author

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  • Eiichi Tomiura

    (Kobe University)

Abstract

This paper constructs a dynamic optimization model, predicting that expected future export expansion costs, rather than current export reduction costs, retard a firm fs export adjustments during currency appreciation. As export expansion costs tend to increase with the firm fs dependence on export, the export dependence of firms will diverge as the exchange rate appreciates. On the other hand, the deep-pocket effect leads to the convergence of export dependence since firms heavily dependent on exports are likely to face binding financial constraint. By splitting 309 Japanese firms depending on their affiliation with Keiretsu groups, this paper finds evidence consistent with theoretical predictions.

Suggested Citation

  • Eiichi Tomiura, 2004. "A Dynamic Model of Export Adjustment with Deep-pocket Effect: Evidence from Japanese Keiretsu Firms," Kobe Economic & Business Review, Research Institute for Economics & Business Administration, Kobe University, vol. 48, pages 55-71, February.
    • Handle: RePEc:kob:review:feb2004::v:48:p:55-71
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    More about this item

    Keywords

    adjustment costs; export dependence; liquidity constraint; Keiretsu;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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