Annex: Data Definitions and Sources
a. Market growth: Based on export weighted index of non-oil import volumes of nine trading regions; 1985=100. The index is a geometric average of a fixed-weight index (based on export shares in 1984-86) and a variable-weight index (based on period export shares). The nine regions are: Australia (4.4), Canada (4.0), France (2.0), the (former) Federal Republic of Germany (6.6), Korea (6.8), the Middle East (10.3), Taiwan Province of China (5.2), the United Kingdom (4.4), and the United States (56.5). 21/ Data for industrial countries were supplied by the IMF’s Research Department; data for Korea and Taiwan Province of China were proxied by International Financial Statistics data on total import value divided by import unit values; data for the Middle East were proxied by Saudi Arabian import value divided by U.S. export unit values. 22/
b. Relative export unit values: Japanese export unit values divided by competitors’ export unit values, all expressed in U.S. dollars. Competitors’ unit values were constructed as an 11-country weighted average of manufactured export unit values. The countries are: Austria (1.1), Belgium (2.5), Canada (3.3), France (8.1), the (former) Federal Republic of Germany (16.6), Italy (5.4), the Netherlands (2.5), Sweden (2.2), Switzerland (2.3), the United Kingdom (9.30, and the United States (46.6). 23/ Data were supplied by the IMF Research Department.
c. Relative unit labor costs in manufacturing: Japanese units labor costs divided by competitors’ unit labor costs, all in U.S. dollars. Competitors’ unit labor costs were based on the same 11-country weighted average described in 1 b. above. Data were supplied by the IMF Research Department.
d. Profitability at world prices: Competitors’ export unit values divided by average variable products costs in Japan. The latter is defined as a weighted average of manufacturing labor costs (17.7) and, for intermediate costs, the overall wholesale price index (82.3). 24/
e. Real net capital stock: Average net capital stock (national accounts definition) divided by fixed investment deflator.
f. Nominal effective exchange rate: A weighted average of bilateral exchange rates against the yen using the same 11-country weighting system described in 1 b. above. An increase indicates an appreciation of the yen.
2. The following data definitions and sources were used in the export volume equations (Table 4):
a. Dependent variables: The volume of capital goods exports was constructed by dividing value by a weighted average of the unit values of electrical equipment, nonelectric machinery, and transport equipment excluding passenger cars. The volume of consumer goods exports was constructed by dividing value by the wholesale price index of exports of consumer goods. Data were taken from The Summary Report on Trade of Japan (Japan Tariff Association) and Price Indexes Monthly (Bank of Japan).
b. Independent variables: World trade as described in 1 a. above. Data for inventory/sales ratios and domestic capacity variables for total, capital goods, and consumer goods production were taken from Industrial Statistics Monthly (Ministry of Trade and Industry). Profitability for total exports is described in 1 c. above for total exports; for capital goods exports, it was defined as a weighted average of competitors’ export unit values and fixed investment deflators divided by the domestic wholesale price of capital goods; for consumer goods, it was defined as a weighted average of competitors’ export unit values and consumer expenditure deflators divided by the domestic wholesale prices of consumer goods. 25/ The composition of world demand (capital goods exports equation) was the ratio of indices of partners’ fixed investment to domestic demand. Both these indices used the nine-region weighting described in 1 a. above.
a. Dependent variables: Manufactured import volume was defined as manufactured import value minus nonmonetary gold imports, divided by the unit value index for manufacturing imports. Nonmanufactured import volume was defined as value divided by a weighted average of unit values of total imports and manufactured imports. Capital goods import volume was defined as import value divided by a weighted average of import unit values of electrical equipment, nonelectrical eqiupment, and transport equipment excluding passenger cars. Consumer goods import volume was defined as value divided by manufactured import unit values. Intermediate goods import volume was defined as import value divided by a weighted average of import unit values of raw materials, mineral fuels, iron and steel, and chemicals. Food import volume was defined as import value divided by unit value of food imports. Data were taken from The Summary Report on Trade of Japan (Japan Tariff Association).
b. Independent variables: The following domestic demand variables were used: domestic demand plus exports for manufactured imports; industrial production in mining and manufacturing for nonmanufactured imports; private plus public consumption for consumer goods imports and for food; and total fixed investment for capital goods imports. Data based on national accounts and production statistics in constant prices. Relative price variables were defined as the relevant import unit value divided by the relevant sectoral domestic wholesale price index.
Baldwin, Richard and Paul Krugman, “Persistent Trade Effects of Large Exchange Rate Shocks,” The Quarterly Journal of Economics, Vol. 104 (November 1989), pp. 635–54.
Collyns, Charles and Steven Dunaway, “The Cost of Trade Restraints: The Case of Japanese Automobile Exports to the United States,” Staff Papers, International Monetary Fund (Washington), Vol. 34 (March 1987), pp. 150–75.
Feenstra, Robert C., “Quality Change Under Trade Restraints in Japanese Autos,” The Quarterly Journal of Economics, Vol. 103 (February 1988), pp. 131–46.
Hendry, David F., “Predictive Failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money,” in Econometric Modelling, ed. by P. Ormerod (Heinemann, 1980).
Japan, Bank of Japan, “Balance of Payments Adjustment in Japan: Recent Developments and Prospects,” Research and Statistics Department Special Paper No. 178 (May 1989).
Takeuchi, Kenji, “Does Japan Import Less Than It Should? A Review of the Econometric Literature,” The Asian Economic Journal, Vol. 3 (September 1989), pp. 138–70.
It should be noted that the term “country” used in this paper does not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term also covers some territorial entities that are not states but for which statistical data are maintained and provided internationally on a separate and independent basis.
The author would like to thank Dan Citrin and Jorge Marquez-Ruarte for their helpful comments.
By contrast, exports are estimated to have exceeded 20 percent of GNP in the immediate prewar period.
The relative price gains were due in large part to a deterioration in the terms of trade of countries exporting nonmanufactured products. Against countries that primarily export manufactures, Japanese price competitveness has not changed significantly in the last 15 years.
Ratio of export volume to trading partners’ non-oil import volume.
In 1971, U.S. President Nixon imposed a 10 percent surcharge on all imports into the United States, Japan’s biggest export market.
These data, which are taken from national balance of payments sources, are rather coarse indicators of overseas long-term investment. On the one hand, they do not include finance raised in the host country which, according to Japan’s Ministry of Trade and Industry (1988), accounted for as much as 60 percent of Japanese financing in 1986. On the other hand, they include investments for nonproductive uses such as real estate purchases.
Hong Kong, Korea, Singapore, and Taiwan Province of China.
The effects described here are of a partial equilibrium nature and do not take into account the effects of globalization on relative prices, incomes, or exchange rates.
A more complete data description is contained in the Annex.
This result agrees with the Bank of Japan (1989), but shows less underprediction of capital goods exports, possibly because of the inclusion here of the composition-of-world-demand variable that takes into account the world investment boom in this period.
Whether the level of manufactured imports is “unusually” low in comparison with other industrial countries has been the subject of a lively and, it should be stressed, inconclusive debate in the literature. For a survey of this literature, see Takeuchi (1989).
According to data published by Japan’s Economic Planning Agency (EPA), the ratio of imports to GNP in the second half of the 1980s was at its lowest level of the century, with the exception of the war-affected years, 1942-48.
Declining tariff rates made a modest additional contribution to the improved competitiveness of imports in the 1970s and 1980s. In 1987, tariff revenue amounted to 3.4 percent of total imports compared with 6.6 percent in 1971.
Overseas subsidiaries of Japanese firms accounted for about 11 percent of manufactured imports in 1987. An Economic Planning Agency survey (1989) indicated that a rising proportion of firms had plans to import from their overseas subsidiaries.
Excluding Singapore and Indonesia which are major suppliers of oil products to Japan.
The best proxies for this variable were found to be the level and first difference of the operating ratio in manufacturing. Other variables used are described in the Annex.
The relative price elasticity of capital goods imports was extremely low and not statistically different from zero.
Normalized weights for the fixed-weight index in parentheses.
The same method was also used for Korea and Australia for the early 1960s.
The weights (in parentheses) are based on McGuirk (1989) and utilize a combination of bilateral trade and third market weights.
Weights in parentheses are taken for 1985 input-output tables.