Development Bank of Japan
Research Report
No. 24The Changing Structure of Trade in Japan and
Its Impact: With the Focus on Trade in Information
Technology (IT) Goods

March 2002

Economic and Industrial Research Department
Development Bank of Japan

Contents

Summary ............................................................................................................................. iii
Introduction .......................................................................................................................... 1
I Trade Trends in Japan in the 1990s ...............................................................................2
1. Import and Export Trends in Japan.......................................................................................... 2
2 Export Intensity Index between Japan and China, Korea, Taiwan and the U.S. ............... 4
3. Trade with China, Korea and Taiwan by Stage of Demand .................................................. 6
II Conditions of Comparative Advantage Evident in Japanese Trade ........................... 10
1. Two Trade Structures ................................................................................................................10
2.
3.
4.

Comparative Advantages between Japan, CKT and the U.S...............................................11
Relationship between Net Exports and Factor Intensity on the H-O Model ..................13
Relationship between Net Exports of Information Technology (IT)
Related Goods and Factor Endowments ...............................................................................15
III Characteristics of Japan’s Trade in IT Goods............................................................. 16
1. Japan’s Trade in IT Goods by Stage of Demand ..................................................................16
2. Competitiveness of IT Goods in Japan, China/Korea/Taiwan and the U.S. ..................17
3. Trends in IT Goods Trade in Japan, Asian Countries and the U.S....................................18
IV Background of Intra-industry Trade ........................................................................... 20
1. Current State of Intra-Industry Trade in Japan .....................................................................20
2. Background of Intra-Industry Trade.......................................................................................23
3. Noteworthy Connotations of the Expansion of Intra-Industry Trade in
IT Intermediate Goods .............................................................................................................27
V Relationship between Intra-Industry Trade and Productivity .................................... 28
1. Impact of the Development of Intra-Industry Trade on Productivity ..............................28
2. IT Investment Level and the Intra-Industry Trade Index ...................................................28
Conclusion .......................................................................................................................... 31
Tables.................................................................................................................................. 32
References........................................................................................................................... 36

Development Bank of Japan Research Report/ No. 24 i

The Changing Structure of Trade in Japan and Its Impact:
With the Focus on Trade in Information Technology (IT) Goods
Summary
1. Low-level growth in domestic demand continued in Japan during the 1990s, while foreign
trade continued to increase with both imports and exports exerting a strong impact on GDP.
The global increase in the demand for computers and other information technology (IT) goods
since the latter half of the 1990s has furthermore brought major changes to the structure of tradein Japan. In the background of these changes is the slowdown in the U.S. economy since mid
2000, which is having a strong effect on movements in the business climate of Japan and other
Asian countries.
In this report, we (1) present an overview of foreign trade trends in Japan since the 1990sand (2) analyze the changes in comparative advantages, the background of net exports and soforth, centered in trade in IT goods, while (3) discussing trends in intra-industry trade, one
additional aspect of foreign trade, and its effects and clarify the characteristics of the structure of
trade in Japan.
2. In regard to the share of Japan’s trading partners, the U.S. is reaching a peak while trade withother Asian countries is at a high level. Export Intensity Index (a relative value derived by
dividing the value of exports by country by the value of imports from trading partners) indicates
that, in addition to Taiwan and Korea, the relationship with China has recently been developing
more strongly that that with the U.S. Reclassifying the rapidly increasing trade items with Asian
countries by the stage of demand shows that equipment components and other intermediate
goods, both imported and exported, are increasing and the ratio of the total is rising consistently.
Changes in export competitiveness by item using the revealed symmetric comparativeadvantage (RSCA) index indicate that, while equipment and transportation equipment boast of astrong comparative advantage, the dominance is gradually weakening. Instead, the competitive
advantage of Taiwan is increasing while the relatively lower position of China is rapidly
improving.
3. As the result of a verification of the relationship between comparative advantage as seen in
net exports (exports - imports) in Japan and domestic factor endowments using data bycommodity, a tendency becomes apparent in IT goods of exporting capital-intensive products to
China, Korea and Taiwan and importing R&D-intensive products from China, Korea andTaiwan. One of the factors involved in the latter is the possibility that research and developmentof IT goods is being conducted domestically and the goods are being imported from China,
Korea and Taiwan through foreign direct investment or other means.
The relationship between net exports in IT goods and factor endowments, however, is notnecessarily strong. It is possible that the activation of bilateral trade within the same industry (orcommodity classification) (so-called intra-industry trade), which is not expressed in net exports, ishaving an effect due to economies of scale or product differentiation, which are not premised ona relationship between the two.

Development Bank of Japan Research Report/ No. 24 iii

4. The comparative advantage of IT goods is strong with intermediate goods but declines withfinal goods. On the other hand, the competitive edge of China in final goods and generalequipment components is showing steady improvement.
Of trade in IT goods between Japan and China, Korea, Taiwan and the U.S., the U.S. has thestrongest demand and the weight of final goods is relatively high. On the other hand, the weightof intermediate goods in Asia has become extremely high and it is apparent that multi-level trade
in intermediate goods is being carried out in the region. We therefore see a structure in which
trends in IT demand in the U.S. exert a strong impact on trade in Asia and, in turn, on
production trends.
5. When focusing on moves in IT goods, in particular, in intra-industry trade in Japan, we seethat there is activity in intermediate goods while final goods remain at no more than a low level.
This is possibly a strong expression of economies of scale, product differentiation and otherfactors that stimulate intra-industry trade as a characteristic of intermediate goods rather than
final goods in the area of IT goods.
Intra-industry trade occurs when firms in one’s own country specialize in the production ofcertain goods and it is more highly advantageous to import other goods produced by firms inforeign countries when product differentiation or economies of scale are evident. We attempted
to confirm this relationship using panel data by commodity. When viewed by industry, intraindustry trade in computers and consumer electric equipment is expanding even if there is no
sizable change in the scale of domestic facilities. This is thought to be due to the effect of anincrease in reverse imports resulting from expanded foreign direct investments. In addition, inthe case of integrated circuits, in particular, both differentiation and the intra-industry trade index
are showing strong growth and it is possible to see that the differentiation of products is being
carried out globally and that bilateral trade is intensifying in vigor.
6. Finally, we verified the relationship to productivity as an effect that intra-industry tradeexerts on the domestic economy. It is possible that productivity improves as intra-industry tradedevelops due to the promotion of competition with imported goods. Upon verifying thisrelationship using industry-level data, we recognized a certain degree of significance and realizedthat the increase in intra-industry trade is enhancing capital productivity.
7. The trade structure in Japan is thus going through a considerable transformation due to the
expansion of trade with Asia and global growth in the demand for IT goods. Within the context
of increasing trade in intermediate goods, especially IT goods, it is also evident that the increase
in intra-industry trade in the medium term stimulates an improvement in productivity in thedomestic market. However, along with the multi-level trade in intermediate goods within Asia, it
is also necessary to be aware that trends in the business climate of the U.S., the country with thestrongest demand for IT goods, are having an immense impact on Asian economies and theeffect on Japan is also great. In the management of the economy in Japan hereafter, it will benecessary to promote a further reinforcement of product development capabilities in thedomestic market taking this globalization fully into account.

iv Development Bank of Japan Research Report/ No. 24

Introduction
The real economic growth rate in FY 2000 was an increase of 0.9%. The contribution ofdomestic demand was 0.7%, while the contribution of foreign demand of 0.2%. In a breakdown,exports accounted for 1.0% and imports (deducted) 0.8%, indicating that the absolute values ofthe degree of contribution of imports and exports was greater than that of domestic demand.
This means that exports and imports are having a strong effect on the domestic economy and thereason why this occurred is not simply a matter of business cycles in the domestic and foreign
markets.
Japan expanded trade overseas throughout the 1990s and trade with other Asian countries
demonstrated the most conspicuous movement. China and other Eastern Asian countries
demonstrated particular improvement in export competitiveness as economic development
progressed. Although economic growth in Asia stagnated following the currency crisis in 1997,
they subsequently succeeded in achieving a rapid recovery and the steady increase in the presenceof Asia in Japan’s trade picture is probably the most notable change in the environment
surrounding the issue of trade in Japan in the 1990s.
In addition, trade in Japan also realized other major changes in the composition of goods.
Worldwide growth in the demand for computers, communication and other information
technology (IT) goods, especially during the latter half of the 1990s, boosted the ratio of IT
goods in both imports and exports. While the U.S. was the country with the strongest demandfor IT-related final goods, that is, finished products, moves within the economic environment of
East Asian countries, which play an important role as production bases for intermediate products,
also came to have a considerable effect on the economy of Japan through trade. As a result, theeffects of the current deceleration of the U.S. economy are emerging in the form of stunted
growth in Asian countries, a rapid drop in exports from Japan as a result and stagnation indomestic production.
In this study, we analyze trends in trade in Japan since the 1990s from the perspective of (1)the strengthening relationship with Asian countries and changes in comparative advantage, (2)the expansion of trade in intermediate goods centered in IT goods and (3) the background andimpact of the development of intra-industry trade with the aim of clarifying the characteristics ofthese structural changes and their background.

Development Bank of Japan Research Report/ No. 24 1

I

Trade Trends in Japan in the 1990s

1. Import and Export Trends in JapanLet us look first of all at economic growth and movements in imports and exports in Japan
during the 1990s. Figure 1-1 shows the ratio of imports and exports to nominal GDP in a line
graph and the contribution of imports and exports to nominal GDP in a bar graph. The ratio ofimports and exports to GDP in 1990 was 8.6% and 10.4%, respectively, while the ratio of both
imports and exports dropped as the country forged ahead into the so-called “Heisei slump”
through 1993 and both the U.S. and Europe were not able to achieve more than relatively low
growth. Later, through 1996, the business climate in Japan regained vigor and, with the goodbusiness conditions in both the U.S. and Asia, the ratio of both imports and exports increased.
When the Asian currency crisis occurred in 1997, exports especially to Asia declined thefollowing year, 1998, due to the impact of the crisis. Domestic demand also showed negative
growth in real terms and imports declined. In the next year, 1999, exports especially to Europe
and the U.S. stagnated along with the progressive appreciation of the yen and there was a general
overall slowdown in domestic demand in Japan and, therefore, the ratio of imports and exports
to GDP dropped in 1998 and 1999. However, both domestic and foreign demand improved in2000 and the ratio of exports and imports to GDP rose, reaching a level of 10.8% for exports
and 8.6% for imports. Compared to 1993, this represents an increase 1.7 points for exports and2.2 points for imports.
Figure 1-1 Contribution of Exports and Imports to Nominal GDP
(%)

(%)

10

12

Ratio of exports/GDP (right-hand gradations)

8

10

6

Ratio of imports/(GDP + imports)(right-hand gradations)84Nominal GDP
growth rate

2

4

0

2

Export contribution
Import contribution-2

Domestic demand contribution-4
90
Source:

2

6

91

92

93

94

95

96

97

0
98

99

00 (year)

Prepared based on the Economic and Financial Data for Japan of the Office of the Prime Minister

Development Bank of Japan Research Report/ No. 24

The degree of contribution of imports and exports in the GDP (nominal) was greater thandomestic demand in 1999 and 2000. The nominal GDP growth rate in 1999 declined by 0.6%
against the previous year and, of that, the contribution of domestic demand declined by 0.3%,
while, in contrast, the contribution of exports declined by 0.8% and the contribution of imports
increased by 0.5%. Likewise, in 2000, GDP growth declined by 0.1%, of which, domestic
demand remained flat at 0.0%, exports increased by 0.8% and imports decreased by 0.9%. Thus,
for the past two years, the contribution of the fluctuations in imports and exports has been
relatively greater than that of the fluctuations in domestic demand.
We will look next at a breakdown of the import and export of goods based on the Trade
Statistics by commodity and region. Although the value of export goods was in the range ofabout ¥40 trillion during the years 1990-96, that increased to ¥50 trillion from 1997, except in1999 (Figure 1-2). By category of goods, there is a general tendency for capital goods, which
account for the majority, to increase and, in addition, though durable consumer goods also
declined for a while in the mid-1990s, that also began to increase again later. By region, exports
to Asian countries and the U.S. were of essentially equal importance with shares of 31.1% and31.5%, respectively. Later, however, exports to Asian countries expanded and the weight ofexports to Asia increased, surpassing that of exports to the U.S., which remained at essentially thesame level.
Figure 1-2 Transitions in the Value of Exports by Commodity and Share by Region(¥ tril.)

(%)

60

45
Share to Asia (right-hand gradations)

Other

40
Share to U.S.
(right-hand gradations)

50

35

40

30
25

30
20
15

20

10
10

Industrial raw
materials
Food products, direct
consumer goods

Non-durable consumer
goodsgoods
Durable consumer
goods

Capital goods

5
0

0
90
Source:

91

92

93

94

95

96

97

98

99

00

Prepared based on the Trade Statistics, Ministry of Finance

Development Bank of Japan Research Report/ No. 24 3

Meanwhile, in regard to the import of goods, though the value, which had been ¥33.9
trillion in 1990, declined through 1993, it later began to show a tendency of increase, reaching¥40.9 trillion by 2000 (Figure 1-3). By commodity, petroleum and other industrial raw materials
were the major commodities based on monetary value, while capital goods demonstrated anotable trend toward increase. By region, as with exports, the ratio of imports from other Asian
countries rose more throughout the 1990s than from the U.S. By 2000, imports from the U.S.
accounted for no more than 15.1%, while those from Asia rose to 33.0%.
Figure 1-3 Transitions in the Value of Imports by Commodity and Share by Region(¥ tril.)

(%)

60

45
Share from Asia (right-hand gradations)50

40

Share from U.S.
(right-hand gradations)

Other

35
30 Industrial raw materials

40

25 Food products, direct
consumer goods

30
20
20

15
10

10

Non-durable consumer
goodsconsumer goods
Durable consumer
goods

5
Capital goods

0

0
90

Source:

91

92

93

94

95

96

97

98

99

00

Prepared based on the Trade Statistics, Ministry of Finance2 Export Intensity Index between Japan and China, Korea, Taiwan and the U.S.
Thus, the ratio of both imports and exports to and from other Asian countries increased and, if
imports from Japan increased in importance for trading partners, we can judge that that led to an
enhancement in bilateral trade relationships. We thereupon calculated figures (“Export Intensity
Index”) by dividing the ratio of the value of exports to export trading partner j to total exports
from Japan by the ratio of the value of total imports into country j to total global imports
excluding Japan, as indicated in Figure 1-4.

4Development Bank of Japan Research Report/ No. 24

Figure 1-4 Export Intensity Index between Japan and China, Korea, Taiwan and the U.S.
2.8
2.6
2.4

Taiwan

2.2
2.0

Korea

1.8
1.6

China

1.4
U.S.

1.2
94
Note:
Source:

95

96

97

98 (year)

The export intensity index is (ratio of exports to country j to total exports from Japan) ¸ (ratio of total imports tocountry j to total world imports excluding Japan). The higher the index, the stronger the relative trade linkage.
Prepared based on the International Trade by Commodities Statistics (“ITCS”), OFCD.

X ij

XCij = M
XCij
Xij
Xiw
Mj
Mw
Mi

j

X iw

( Mw - Mi ): Export Intensity Index: Value of exports from country i (Japan) to country j: Value of exports from country i to the world: Value of imports to country j from the world: Value of total world imports: Value of imports to country i from the world

This export intensity index represents the scale of the economy of country j (scale ofimports) relativized by the exports to country j from Japan. What should be noted here is that it
is not possible to gauge the closeness of trade relationships between the two countries by themonetary value itself of the exports from Japan to country j. Even if we state, for example, that
there has been an increase in the value of exports from Japan to country j, the extent of that
increase corresponds to an expansion in the scale of the economy of country j and, if country j
also increases its imports from other countries to the same extent, it could not then be said thatthe trade relationship between Japan and country j has necessarily become stronger. In order toconsider this point, we used the export intensity index in this study as an index that expresses theDevelopment Bank of Japan Research Report/ No. 24 5

strength of the connection in trade relationships. Since the index with a value of 1 or moreindicates a relationship that is stronger than the average connection with the other countries, it
could be said that there is a relatively stronger connection with export recipient countries.
Transitions in the export intensity indices for the U.S., and China, Korea and Taiwan, whichamong Asian countries have an especially high volume of exports from Japan, show a strong
connection of 1 or more in all of these countries, with especially high ratios for Taiwan and
Korea. In addition, the export coupling with China has surpassed the export intensity index for
the U.S. since 1995 (in 1990, the export intensity index for China was 1.37 and 1.44 for the U.S.
and, by 1995, that had switched to 1.48 for China and 1.40 for the U.S.), evidencing theincreasing strength of the trade relationship with China1.
3. Trade with China, Korea and Taiwan by Stage of Demand
Changes in the content of trade with China, Korea and Taiwan (“CKT”), where the connection
with Japan is steadily strengthening, were evident throughout the 1990s. Instead of the usualclassification of goods, we reclassified trade goods on our own in this study as intermediate
goods, final demand goods and natural resources by stage of demand and attempted to ascertain
the way in which they moved.
We used the OECD’s International Trade by Commodities Statistics (“ITCS”) as the original
source of trade statistics in order to unify data used in the analyses starting in this chapter. The 5digit Revision 2 SITC code is the most detailed commodity classification in the CD-ROM
containing these statistics for the year 2000, and we reclassified goods by stage of demand at thelevel of these commodity classifications. Specifically, we reclassified the following ten categories.
(1) Natural resources(2) Intermediate goods (consumer non-durable goods)(3) Intermediate goods (materials)(4) Intermediate goods (electric equipment2)(5) Intermediate goods (non-electric equipment components)(6) Intermediate goods (transport equipment components)(7) Intermediate goods (non-equipment components)(8) Final goods (capital goods)(9) Final goods (consumer durable goods)(10) Other
Normally, with classifications (special classifications) such as capital goods and durable
consumer goods in the Trade Statistics of Japan, the Summary Report on Trade of the Japan
Tariff Association is especially well known and the relationship of correspondence between these
special classifications and the classifications used in this study are as indicated in Table 1-1.

1

2

6

It is necessary to be aware that shipments via Hong Kong are not included here. The weight of exports to China fromoverseas via Hong Kong is rather high; however, in order to define the subject of this analysis, namely, expanding trade with
the Chinese mainland, more clearly in this study, in terms of trade relationships, we conducted the analyses separating Hong
Kong, where foreign trade was already vigorous prior to 1990, from the Chinese mainland.
In this study, “electric components (electric and electronic components)” combine components for electric equipment use andcomponents for electronic equipment. The classification of information technology (IT) goods used in Section 4 of Chapter II
only includes electronic components.
Development Bank of Japan Research Report/ No. 24

Table 1-1 Classification by Stage of Demand Used in This Study(table of correspondence with special classifications)Classification in the Foreign Trade Summary
SpecialStandard classification
classification
Food products and Natural food products
direct consumer
Processed food products
goods
Industrial supplies Crude materials
Mineral fuels
Industrial chemicals
MetalsTextiles
Other
Capital equipment Non-electric equipment

Electric equipment
Transport equipment
Other
Consumer nondurable goods
Consumer durable
goods

Textile products
Other
Household equipment

Domestic electric
equipment
Passenger cars
Motorcycles, etc.
Toys, musical instruments,
etc.

Note:
Source:Classification by stage of demand in this study
Natural resources (1)Consumer non-durable goods (2)Natural resources (1)Intermediate goods (petrochemical products, steel, etc.) (3)Intermediate goods (machine tool components, PC components
and accessories) (5) (6)Final goods (machine tools, industrial machines, etc.) (8)Intermediate goods (ICs, other electronic components, etc.) (4)Final goods (computers, computer peripherals, etc.) (8)Intermediate goods (automobile and truck components, etc.) (6)Final goods (trucks, etc.) (8)Intermediate goods (7)Final goods (8)Final goods (clothes, etc.) (2)Final goods (publishing, printing, etc.) (2)Intermediate goods (furniture components, clock movements,etc.) (7)Final goods (furniture, clocks, etc.) (9)Intermediate goods (air conditioner, washing machinecomponents, etc.) (4)Final goods (air conditioners, washing machines, etc.) (9)Final goods (automobiles) (9)Intermediate goods (motorcycle components, etc.) (6)Final goods (motorcycles) (9)Intermediate goods (musical instrument components, etc.) (7)(10)
Final goods (toys, musical instruments, etc.) (9) (10)The numbers (1) - (10) in the diagram primarily correspond to the classification of this study given in Section 3 ofChapter I.
Prepared based on the Summary Report on Trade of Japan, Japan Tariff Association

In Figures 1-5 and 1-6, goods divided into the ten classifications above are tabulated into
four groups, intermediate goods, final goods, natural resources and other and, of them, exports
and imports with CKT are extracted and their transitions are examined.

Development Bank of Japan Research Report/ No. 24 7

Figure 1-5 Export Items to CKT by Stage of Demand
1,000

(%)

70

Intermediate goods ratio (right-hand gradations)

900

Other

60

800
700

Final goods ratio(right-hand gradations)

600

Natural resources

50
Final goods

500
40

400
300

Intermediate goods

30

200
100

20

0
90
Source:

91

92

93

94

95

96

97

98

99 (year)

Prepared based on the ITCS, OECD

Figure 1-6 Import Items from CKT by Stage of Demand(US$100 mil.)

(%)

1,000

70

900
Intermediate goods ratio (right-hand gradations)

800
700

60
Other

Final goods ratio(right-hand gradations)

600

50

Natural resources

500
400

40

Final goods

300
200

30
Intermediate good

100
0

20
90

Source:

8

91

92

93

94

95

Prepared based on the ITCS, OECD

Development Bank of Japan Research Report/ No. 24

96

97

98

99 (year)Intermediate goods account for a share of just under 70% of exports and it has remained at
a consistently high level, though final goods have dropped below 30% in recent years. The
transitions in monetary value (US$) also indicate a conspicuous increase in electric equipment
component and non-electric equipment component of intermediate goods, in particular, haveshown an increase.
Meanwhile, the ratio of final goods, centered in consumer non-durable and other goods ofthe overall is greater than that of intermediate goods. However, there has also been a tendency of
increase in intermediate goods, especially in equipment components, and the import value ofelectric components, in particular, which reached $1.65 billion in 1990, showed notable
expansion to $8.93 billion by 1999. Together with this move, the ratio of intermediate goods has
also gradually increased.

Development Bank of Japan Research Report/ No. 24 9

II Conditions of Comparative Advantage Evident in Japanese Trade
1. Two Trade Structures
In this chapter, we will move forward with an analysis dividing the structure of trade in Japan
broadly into two. One of them is based on traditional trade theory and the other is based on
intra-industry trade.
When various goods are traded bilaterally between two countries, trade goods from theperspective of one of those countries is broadly divided into three groups.
(1) Goods (or industries3) that are only exported(2) Goods that are only imported(3) Goods that are both imported and exported
From the viewpoint of traditional trade theory, trade is seen to occur due to differences in
production technology or production factor endowments between the two countries. A
theoretical system such as this arose from a proposal by Ricardo and this Ricardo model is basedon the concept that differences occur in labor productivity due to differences in the technologyof each country and that an international division of labor comes into being based on theirrelative advantages (comparative advantages). In addition, Hecksher-Ohlin, who further
expanded on Ricardo’s thinking, arrived at the hypothesis that countries that with relatively
abundant labor (capital) will export labor- (capital-) intensive goods4. The Hecksher-Ohlin (H-O)
model based on this hypothesis asserts that an abundance of labor, capital or other production
factors available in any given country will give rise to comparative advantages and will generate
trade.
Based on such traditional trade theory, if it is assumed that there are differences in
production technology or production factor endowments for all goods between any two
countries, all goods would be either imported or exported by one of the countries (items (1) and(2) above) and that there would be no goods that are both exported and imported (item (3)). In
reality, however, regardless of how detailed the classification of goods may be, it is frequently thecase that goods classified in the same category are both exported and imported.
Bilateral trade in goods of the same classification (within the same industry) is referred to as
intra-industry trade. It is thought that the background in which intra-industry trade occurs isdifferent from trade based on comparative advantages explained by the above traditional trade
theory (further related comments are given in Chapter IV).
Figure 2-1 is a conceptual diagram of these two structures of trade and it shows conceptuallythat imports and exports consist of trade between different categories of goods (industries) andtrade within the same category of goods (industries).

3

4

If the criteria for the classification of goods is expanded to the industry level, it could be referred to as “industries” that only
export.
This hypothesis is premised on the conditions of (1) the production function of both goods is homogenous of degree 1, (2)the production function is common to both countries, (3) the factor ratio of both goods does not reverse within an
appropriate range and (4) the utility function of both countries is the same and homothetic (if a certain commodity price isgiven, both commodities will be consumed at the same rate regardless of income level).

10 Development Bank of Japan Research Report/ No. 24

Figure 2-1 Trade Structure Categories (conceptual diagram)< net exports >(1) trade between
different categories ofgoods (industries)(2) trade within thesame category of goods(industries)< intra-industry trade >Exports

Imports(1) Imports and exports between different categories of goods (industries) (E.g., importing natural resources, exporting processed
goods)…Trade occurs due to comparative advantage based on domestic capital, labor and other factor endowments(2) Imports and exports within the same category of goods (industry) (E.g., exporting special-purpose ICs and importing generalpurpose ICs)
…Trade occurs when economics of scale or product differentiation exist

2. Comparative Advantages between Japan, CKT and the U.S.
Since, according to the Hecksher-Ohlin model cited above, there is a comparative advantage ingoods that use a concentration of production factors that exist in abundance, exporting those
goods makes it possible to maximize profits that the exports yield and enhance effectiveness for
consumers. If this relationship is assumed, it becomes possible by using Japan’s share of export
trade goods to comprehend the nature of the comparative advantage on which each category of
goods exported is based, in short, the degree of export competitiveness of trade goods.
Revealed Comparative Advantage index according to Balassa is derived by dividing the ratioof commodity i to the total exports of exporting country j by the ratio of commodity i to total
global exports.
X ij

RCA index =

X ij

Xj
M wi

Mw

M

i
w

Xj
Mw

: Value of export of goods i of country j: Total value of exports by country j: Total value of global exports of goods i: Total value of global exports

This, in other words, is an index that indicates export competitiveness using ex-post export
performance based on the concept that the export competitiveness of commodity i of country jbased on a comparative advantage will be reflected in the value of exports of commodity i from
Development Bank of Japan Research Report/ No. 24 11

country j. If the RCA index of commodity i is 1 or more, it could be said that exports ofcommodity i of country j are higher than the global average and consequently have a comparativeadvantage.
In Table 2-1, figures by commodity are calculated by Revealed Symmetric Comparative
Advantage index with this RCA index monotonically transformed as indicated below. With the
RSCA index, goods with a comparative advantage are expressed as a positive value and goods
with a comparative disadvantage are expressed as a negative value.
RSCA Index =Table 2-1

RCAIndex - 1
RCAIndex + 1

RSCA Index of Japan, CKT and the U.S.
Food & live
animals

Beverages
andtobaccoCrude
Mineralmaterials,
fuels,
inedible
lubricants(excl. fuels)

Animaland oils
vegetable

Manufactured Machinery
goods
specialized
Chemicals
classifiedforchiefly byparticularmaterials
industries
0.342-0.212-0.1340.309-0.181-0.1850.258-0.163-0.1640.107-0.268-0.3920.152-0.229-0.2760.085-0.198-0.2650.149
0.162-0.1630.183
0.094-0.111

90
95
98
92
95
98
90
95
98

-0.876-0.903-0.8750.115-0.032-0.044-0.896-0.793-0.830-0.147-0.027-0.303-0.773-0.749-0.677-0.108-0.248-0.339-0.917-0.842-0.883-0.233-0.336-0.371-0.806-0.934-0.912-0.300-0.135-0.376-0.548-0.550-0.787-0.783-0.552-0.536-0.574-0.276-0.922-0.886

Taiwan90
95
98-0.315-0.366-0.638-0.936-0.880-0.935-0.521-0.476-0.492-0.894-0.815-0.770-0.831-0.874-0.888-0.344-0.188-0.269

0.187
0.188
0.211

0.060
0.133
0.145

U.S.

90
95
98

0.012
0.027
-0.056

0.291
0.202
0.074

0.149
0.129
0.000

-0.538-0.576-0.601

0.038
0.050
0.038

0.104
0.064
0.023

-0.295-0.272-0.242

0.141
0.117
0.127

Japan

China

Korea

Notes:

Source:(1) The RSCA index is (RCA index - 1)/(RCA index + 1).
The RCA index is (ratio of commodity i to total exports of exporting country j)/(ratio of commodity i to total
global imports)(2) The RSCA index expresses the comparative disadvantage of export goods. If it is a positive value, there is acomparative advantage and, if negative, a comparative disadvantage.
Prepared based on the ITCS, OECD

Looking first at the RSCA index for Japan, we see that all goods other than machinery are
negative values and that machinery are the only goods with a comparative advantage. The RSCA
index of machinery was 0.342 in 1990 and at the comparatively high level of 0.258 in 1998,
indicating that they have considerable comparative advantage. Nevertheless, it should be notedthat the value declined between 1990 and 1998 and that there was relative deterioration in the
degree of comparative advantage. As indicated below, this is thought to be the effect of an
improvement in the competitiveness of machinery in other Asian countries.
The comparative advantage that the U.S. had in beverages, tobacco and chemicals in 1990
had weakened by 1998 while very little change was seen in the advantage in equipment andtransportation equipment.
Korea and Taiwan, like Japan, have a comparative advantage in machinery and that

12 Development Bank of Japan Research Report/ No. 24

advantage is particularly gaining in strength in Taiwan. It is possible to see that Taiwan with its
notable growth in manufacturing industries, especially electric equipment, steadily improved its
export competitive edge not only in materials production but also in processing and assembly
type manufacturing throughout the 1990s. Furthermore, China’s RSCA index for machinery wasa considerably disadvantageous –0.392 in 1990. By 1998, however, this had shown a broad
improvement to –0.198 and the effect of the improvement in China’s export competitiveness on
Asian and world trade is expected to expand significantly hereafter.
3. Relationship between Net Exports and Factor Intensity on the H-O Model
What then is the nature of the domestic factor endowments that give rise to the relative strengthof export competitiveness of export goods as indicated above? In this section, we empiricallyanalyze the relationship between trade goods in Japan and domestic production factor
endowments using the Hecksher-Ohlin model framework described above.
Leamer was the first to conduct consistent empirical analyses based on the approach of thismodel. Leamer devised the production factor version of the H-O model, that is, a method forcomprehending by directly correlating the export of goods with the production factors that are
input in order to produce those goods. Since the factor price is equalized in both countries when
two countries produce the same goods under premises such as those described in footnote 4, theratio of production factors input into those goods is also the same in both countries. It thenbecomes possible to deem trade in those goods to be the same as trade in the production factors
input into those goods. In other words, this is a situation in which “countries with abundantlabor will have net exports of labor and net imports of capital (by having labor and capital takethe form of input into the goods).”
We will not attempt to clarify the relationship between net exports and factor endowments
in Japan by commodity by estimating the production factor version of the H-O model using theTrade Statistics of the Ministry of Finance and the Input-Output Tables (1995) of theManagement and Coordination Agency (the current Ministry of Public Management, Home
Affairs, Posts and Telecommunications).
We decided to determine the relationship between directly input production factors and net
exports5. Rather than simply dividing the production factors into capital and labor, we decided to
select research and development expenses as a technology-intense factor and technicians as an
explicit production facto66 in order to more clearly define the characteristics of the factor
endowments.
The input value and volume of production factors such as capital, labor, research anddevelopment expenses and technicians for each type of commodity were described in the BasicTransaction Tables and Employment Matrix included in the Input-Output Tables. Since the mostdetailed classification in the Basic Transaction Tables and Employment Matrix is the intermediate
consolidated sector classification, we tabulated the trade value based on HS classifications
integrated with the intermediate consolidated sector classification of the Input-Output Tables
and prepared the export and import values by commodity while referring to the correspondence
table of the basic classification described in the Input-Output Tables and the HS 9-digit code of
the Trade Statistics. We calculated the net export value from these export and import values bycommodity as the explained variable and carried out a cross-sectional estimate for 1995 withcapital, research and development expenses, number of technicians and the number of other
employees as explanatory variables.
5
6Intermediate input such as embodied in intermediate goods is not taken into account here.
Even if there are three or more commodities and production factors with the production factor version of the H-O model, theabove relationship becomes established through the equalization of the factor price. Refer to Wong (1995).
Development Bank of Japan Research Report/ No. 24 13

Table 2-2 is a summary of the results of this estimate. The symbols in the explanatory
variable column are expressed as pluses or minuses for the various items. If a plus, it can beconsidered to be exported in a form that embodies the relevant production factor and, if a minus,
it can be considered to be imported.
Table 2-2 Relationship between Net Exports and Factor Intensity(1) Global trade
Explained variable

Explanatory
variables
Net exports
CapitalResearch anddevelopment
All industries+ ( ** )Manufacturing industries (materials production type) +Manufacturing industries (processing, assembly type) + ( ** )IT goods++

Technicians+ ( ** )+ ( ** )+Otheremployees- ( ** )-(*)(2) Trade with China, Korea and Taiwan
Explained variable

Explanatory
variables
Net exports
CapitalResearch anddevelopment+ ( ** )All industries
Manufacturing industries (materials production type) - ( * )+Manufacturing industries (processing, assembly type) + ( * )IT goods+(*)-(*)

Technicians+ ( ** )+(*)+ ( ** )+Otheremployees- ( ** )- ( ** )- ( ** )(3) Trade with the U.S.
Explained variable

Explanatory
variables
Net exports
CapitalResearch anddevelopment+ ( ** )All industries- ( ** )+ ( ** )Manufacturing industries (materials production type) - ( ** )+ ( ** )Manufacturing industries (processing, assembly type) - ( ** )IT goods+
Note:
Source:Technicians+ ( ** )-Otheremployees-

A cross-sectional estimate was conducted by commodity for 1995. “+” and “-“ are estimated parameter symbols.
(**)means significant at a level of 1% or 5% and (*) means significant at a level of 10%.
Prepared based on the ITCS (OECD) and the Input-Output Tables of the Ministry of Public Management, Home
Affairs, Posts and TelecommunicationsFirst of all, looking at the net exports from Japan to the world overall, the tendency toexport R&D-intensive goods or technician labor-intensive goods is significant with all goods (allindustries). Consequently, it can be said that Japan has an abundance of technological production
factors with respect to the world overall and that it is exporting goods with concentrated input of
those production factors. This tendency furthermore differs depending on the commodity. With
industrial materials type products, technician-intensive goods are exported while there is atendency to import non-technician-intensive goods. Meanwhile, with processed or assembled
type products, there is a strong tendency for R&D-intensive goods to be exported.
When looking solely at trade with China, Korean and Taiwan, based on all industries, capitaland technician-intensive goods and non-technician-intensive goods are imported. Though the
14 Development Bank of Japan Research Report/ No. 24

relationship is somewhat weak, a tendency is apparent of exporting capital-intensive goods of theprocessed and assembled type in particular. In addition, in trade with the U.S., there is a tendency
to export R&D-intensive goods and import capital-intensive goods whether all industries,
industrial materials type industries or processing or assembly type industries.
The relationship described above shows results that are essentially consistent with thetendency of comparative advantage and disadvantage by commodity of the previous section.
Since equipment and electric equipment have an abundance of production factors such as capitaland technicians, it is exported with comparative advantage. On the other hand, comparative
disadvantages are broadly evident in materials production type industries and there is a tendency
to import capital-intensive goods from Asia or the U.S. When looking again at the net export
value of trade with Asian countries by item (Appended Fig. 2-1), in addition to a broad excess ofimports of textiles over exports in materials production type industries, there is a small amount of
net exports in non-metallic industries. In addition, the net export value of equipment andapparatus rapidly contracted between 1995 and 2000 and there has been a possibility recently of
weakening in the relationship to factor endowments as evident in the previous estimate.
4. Relationship between Net Exports of Information Technology (IT) Related Goods
and Factor Endowments
In order to consider the characteristics of net exports by commodity in more detail, we carriedout a similar estimate focusing on information technology (IT) related goods. (Table 2-2)
We selected the following three items here while referring to the classification of theOECD’s Information Technology Outlook 2000 (Appended Fig. 2-2).
(1) Computer related devices(2) Communication related devices(3) Electronic components

According to the results of the estimate, a relationship to IT goods, weak though it may be,
was evident in CKT. There is a tendency with IT goods to export capital-intensive goods andimport R&D-intensive goods. In regard to the meaning of the latter R&D-intensive goods, rather
than shifting R&D bases from Japan to locations overseas, goods with a considerable input of
R&D expenses in Japan are probably being shifted to CKT at the production stage, massed
produced locally there and then imported.
No significant relationship was seen in IT goods, however, in trade with the U.S. and withthe world at large. The relationship between net exports and factor endowments becomes
established based on premises such as those given in footnote 4. Actually, however, there arecases when premises such as those are not necessarily consistent. When there is a global shift inproduction factors or economies of scale, in particular, it is not valid with traditional trade theory
such as Hecksher-Ohlin and, as indicated in Chapter IV, is thought to be realized in the form ofbilateral trade in the same goods (same industry), in short, intra-industry trade. In other words, it
is possible that the reason for the difficulty in applying traditional trade theory to IT goods may
be due to the impact of the activation of intra-industry trade. We thus decided to survey moves in
IT goods trade such as this in Chapter III and analyze the background and effects of intraindustry trade in the following Chapters IV and V.

Development Bank of Japan Research Report/ No. 24 15

III Characteristics of Japan’s Trade in IT Goods
1. Japan’s Trade in IT7 Goods by Stage of Demand
The increase in the global demand for IT goods from the beginning of the 1990s also had astrong effect on trade in Japan. Let us take a look at Japan’s imports and exports of IT goods
divided into the same commodity classification by stage of demand as in section 3 of Chapter I.
When tabulated based on the OECD’s ITCS data, the value of exports of IT goods fromJapan (Figure 3-1) was $42.26 billion in 1990, expanding rapidly thereafter to $84.89 billion by
1995. There was a tendency toward decline through 1998, which again turned to an increase to$72.55 billion in 1999. In a breakdown, there was a notable increase in exports of IT-related
intermediate goods especially during the first half of the 1990s and there was considerable growthin electric components (semiconductors, ICs, etc.), which accounted for the majority ($18.24
billion in 1990 ® $43.26 billion in 1999).
Figure 3-1 Detailed Breakdown of Exports of IT Goods by Stage of Demand($100 mil.)

1,000
900

(%)

80

Intermediate goods ratio(right-hand gradations)

70

800
700
600

60
Final goods ratio(right-hand gradations)

50

500

40

400

30

300

20

200

Intermediate goods(electric components)

0

0
90

Source:Intermediate goods(non-electric
equipment
components)

10

100

Note:

Final goods

91

92

93

94

95

96

97

98

99 (year)

Of IT goods (1) computer-related devices, (2) communications-related devices and (3) electronic components,
components included in (3) and (1)/(2) are classified as intermediate parts and finished products included in (1)/(2)are classified as final goods.
Prepared based on the ITCS (OECD)

In addition, there was also an increase in non-electric equipment (computer and peripheraldevice components, accessories, etc.) ($6.88 billion in 1990 ® $11.45 billion in 1999). Meanwhile,
final goods, including finished computers and communication equipment, expanded broadly
through 1993 but peaked later. Therefore, the ratio of intermediate goods of total exports went
through a steep rise during the early half of the 1990s and remained at a high level (59.4% in
1990 ® 75.4% in 1999) while the ratio of final goods gradually declined.
Although the import value of IT goods was small in scale compared to the export value, that

7

The definition of IT goods is the same as that given in section 4 of Chapter II.

16 Development Bank of Japan Research Report/ No. 24

continued to grow throughout the 1990s ($10.18 billion in 1990 ® $39.92 billion in 1999). In adetailed breakdown, both intermediate and final good increased and imports differed fromexports in that the ratio of intermediate goods increased by more than 60% and ratio of final
goods by more than 30% throughout the 1990s (Appended Fig. 3-1).
2. Competitiveness of IT Goods in Japan, China/Korea/Taiwan and the U.S.
As in section 2 of Chapter II, we attempted a comparison of export competitiveness of IT goods
based on the RSCA index. For the categories of goods, we used the same classification into threegroups as in the previous section, final goods, intermediate goods (electric components) andintermediate goods (non-electric equipment components).
In Table 3-1, looking first at the RSCA index for Japan, it is apparent that the values arecomparatively high for all categories of goods and that they have an advantage in terms of export
competitiveness. However, there was a tendency for that advantage to weaken somewhat through1998 and final goods, in particular, switched to the negative, becoming comparatively
disadvantageous. Since the processing and assembly processes of PC computers and otherproducts tend to be labor-intensive, it is possible for the NIES and ASEAN countries, China andother countries to enhance their export competitiveness through the input of low-cost labor. It is
likely that Japan lost its comparative advantage due to this relative improvement in export
competitiveness in other countries. Although the RSCA index of final IT goods in China wasactually in a conspicuously comparative disadvantage as of 1992 with a negative value of –0.567,
this shifted to the positive by 19988. Still, China remains at a comparative disadvantage in the caseof ICs and other capital-intensive electric components with high added value. In addition, Taiwan
is highly export competitive not only with final goods but also computer motherboards and otherintermediate goods components9 and all RSCA indices also indicate high levels.
Table 3-1 RSCA Index of IT Goods in Japan, CKT and the U.S.
Final goods
Japan

China

Korea

TaiwanU.S.

Source:
8

9

90
95
98
92
95
98
90
95
98
90
95
98
90
95
98

0.310
0.106
-0.010-0.567-0.209
0.011
0.034
0.012
0.389
0.343
0.399
0.180
0.125
0.047

Intermediate goods(electric components)
0.315
0.316
0.201
-0.534-0.529-0.411
0.465
0.419
0.256
0.325
0.358
0.191
0.063
0.121

Intermediate goods(non-electric equipment components)
0.294
0.248
0.177
-0.369-0.256-0.093-0.492-0.616
0.441
0.598
0.624
0.321
0.225
0.157

Prepared based on the ITCS (OECD)

According to IDC Japan, the value of IT products produced in China was $5.3 billion in 1996, increasing to $12.4 billion by1999.
According to IDC Japan, the value of electronic products produced in Taiwan as of 1996 was $6.45 billion for ICs and $530
million for LCDs. By 1999, this had increased to $12.00 billion and $1.00 billion, respectively. In addition, the value of the
production of computers, peripherals and other IT hardware (not including electronic devices) was $18.87 billion in 1995,
increasing to $33.78 billion by 1998 and, even with the effects of the great earthquake in 1999, growth continued in that year
to $39.87 billion. The composite ratio by type of major hardware product in 1999 shows that PC computers as finishedproducts accounted for 50.1% overall with high ratios for monitors (16.3%), motherboards (12.5%) and other products.
Development Bank of Japan Research Report/ No. 24 17

3. Trends in IT Goods Trade in Japan, Asian Countries and the U.S.
In order to comprehend the scale and characteristics of trade in IT goods as it continues toexpand globally, we tabulated the value of exports in IT goods for 1999 between the typical three
regions of Japan, CKT and the U.S. (Figure 3-2). The value of exports of IT goods from Japan to
the U.S. was $21.44 billion with imports from the U.S. amounting to $11.91 billion, indicating an
excess of exports over imports in the amount of $9.53 billion. Meanwhile, exports from Japan to
CKT amounted to $13.31. billion against imports of $12.13 from CKT, an excess of exports overimports of $1.18 billion. Furthermore, exports from CKT to the U.S. had a value of $30.06
billion against imports from the U.S. to CKT of $17.72 billion. This would indicate that, in the
trade relationship between these three regions, the U.S. has the greatest ability to absorb demand.
We furthermore divided each of these export values between intermediate goods and final
goods. When calculating the ratio of final goods of exports and total export value, the ratio fromJapan to the U.S. and from CKT to the U.S. was at the relatively high levels of 37.1% and 48.7%,
respectively. On the other hand, the ratio of final goods from Japan to CKT and from the U.S. to
CKT did not go beyond 10.9% and 20.5%, respectively, indicating that more than 80% consistedof intermediate goods. Given the absolute value of 36.9% for the ratio of final goods exported
from CKT to Japan, it is evident that the U.S. has the overwhelmingly strongest demand for final
goods. Meanwhile, it is also clear that CKT have a structure centered completely in demand forintermediate goods.
Figure 3-2 Trade in IT Goods between Japan, CKT and the U.S. (1999)
Japan$13.31 billion(89.1%/10.9%)$21.14 billion(62.9%/37.1%)$12.13 billion(63.1%/36.9%)$11.91 billion(71.5%/28.5%)$17.72 billion(79.5%/20.5%)
CKT

U.S.
$30.06 billion(51.3%/48.7%)

Note:
Source:Figures in parentheses express (intermediate goods ratio/final goods ratio)
Prepared based on the ITCS (OECD)We moreover tabulated the scale of exports of IT goods for Asia overall including not only
CKT but also NIES countries such as Singapore and Hong Kong as well as Thailand, Malaysia
18 Development Bank of Japan Research Report/ No. 24

and other ASEAN countries. The total value of exports and imports from CKT to other Asian
destinations (excluding Japan) is as indicated in Table 3-2. In 1999, exports amounted to $38.67
billion and imports to $33.74 billion, both indicating a broad increase over 1995 and, in addition,
the ratio for intermediate goods was also at an extremely level.
Table 3-2 Trade in IT Goods in Asia (excluding Japan)

Value of exports from CKT to other
Asian countries
Value of imports to CKT from other
Asian countries
Note:
Source:

1995
1999
1995
1999

Value
($100 mil.)
226.8
386.7
133.3
337.4

Ratio of intermediate
goods
84.2%
84.2%
84.3%
78.4%

Import and export values also include the value of trade between China, Korea and Taiwan.
Prepared based on the ITCS (OECD)

Based on this, it can be seen that a considerable volume of multi-level trade in intermediate
IT goods is being carried out within Asia. It could be said in the case of IT goods that vigoroustrade business exists between the countries at the stage of intermediate components until
completed as final goods due to the diversification and globalization of production processes10,
the increase in the number of components and other factors.
In the multi-level trade structure centered in intermediate goods, when strong demandoccurs from the outside for final goods, there is a spiraling surge of growth of trade inintermediate goods including speculative demand and other factors, energizing production
activities in countries within the multi-level structure. When demand for final goods from theoutside cools, however, inventories accumulate overall and trade and production activities
decelerate due to the diversification of production stages. It is possible to see this trade structurein the background of the deceleration of the U.S. economy in the second half of FY 2000 and,particularly, the cooling of demand that induced stagnation in the economies of Asia and, in turn,a broad decline in exports from Japan.

10

A shift in production of some computer peripherals from Taiwan to China has been picking up speed. According to IDC
Japan, the ratio of Chinese production among components, such as keyboards, mouses, etc., that are installed in PC computers
produced domestically in Taiwan has reached a level of some 70-80%.
Development Bank of Japan Research Report/ No. 24 19

IV Background of Intra-industry Trade
1. Current State of Intra-Industry Trade in Japan
As touched upon at the end of section 3 of Chapter II, in actual trade activities, not only is tradecarried out between two countries in differing goods and between differing industries but trade in
the same goods and between the same industries, that is, intra-industry trade, is also common.
This has culminated in the erosion that is becoming evident in part in Japan’s competitive
advantage in the relationship between net exports and factor endowments or export
competitiveness seen through the previous chapter. That does not mean, however, that Japan’s
exports themselves will be reduced or that absolute competitiveness is being lost but it is due
rather to changes in the correlation with imports or correlation with exports of other countries.
Since IT goods, in particular, do not fit well within models based on traditional trade theory suchas that described above, there is great significance in examining the issue from the perspective of
intra-industry trade.
Accordingly, let us look first at trends in intra-industry trade in Japan. Though a variety ofindices have been considered as means for comprehending intra-industry trade, in this study, we
adopted the following calculation method based on Fontagne et al. (1998), Chiarlone (2000) andothers11.
Overlap index =Xj
Mj

Min(X j ; M j )Max(X j ; M j ): Value of exports (of commodity i) to country j: Value of imports (of commodity i) from country j

We indicated the transitions in the index by commodity for trade with CKT and trade with
the U.S. with figures derived by multiplying the overlap index calculated by the formula above by
100 as the intra-industry trade index (Figures 4-1 & 4-2). Looking that the movement in the intraindustry index in trade with CKT, there is considerable evidence of intra-industry trade in thefield of final products in durable consumer goods during the first half of the 1990s; however, theindex dropped through the latter half of the 1990s due to the decease in exports from Japan andthe increase in imports from CKT.

11

The well-known intra-industry trade index according to Grubel-Lloyd (the GL Index) is as indicated below.
GL Index =Xj +Mj - Xj -Mj
Xj +Mj

It has been pointed out, however, that there are a number of drawbacks with this index. For example, the larger amount ofimports and exports consists of both intra-industry and inter-industry trade while the lesser amount must consist only of intraindustry trade. In reality, though, since the classification of goods has a certain range, bilateral transactions are seen withalmost all trade goods and intra-industry trade exists in all of them. In addition, in case intra-industry trade exists in allindustries, the trade balance would consist only of the balance of inter-industry trade, albeit such situation would be almost
unthinkable in actuality.
With Fontagne et al. (1998), intra-industry exists if the overlap index is 0.1 or more and differentiated goods are being tradedbilaterally. It is assumed that, if the index is less than 0.1, there is a strong tendency for trade activities to be carried out in one
direction and it is possible to deem the goods to be homogeneous. As a result, it would be possible to classify trade in all
goods as either bilateral or unilateral without regard to the import/export balance.
20 Development Bank of Japan Research Report/ No. 24

Figure 4-1 Transitions in Intra-Industry Trade with CKT
100
Final goods (consumer durable goods)

90
80
70

Intermediate goods (equipment components)

Intermediate goods (materials)

60
50
40
Natural resources

30

Final goods(consumer
non-durable
goods)

20
Final goods (capital goods)

10090
Source:

91

92

93

94

95

96

97

98

99 (year)

Prepared based on the ITCS (OECD)

Figure 4-2 Transitions in Intra-Industry Trade with the U.S.
100
90
80

Intermediate goods (materials)

70
Final goods (capital goods)

60
50Intermediate goods (equipment components)

40
30
20

Final goods (consumer durable goods)

Final goods(consumer non-durable goods)

Natural resources

10090
Source:

91

92

93

94

95

96

97

98

99 (year)

Prepared based on the ITCS (OECD)

Development Bank of Japan Research Report/ No. 24 21

Meanwhile, exports from Japan consisted primarily of final products of capital goods andintermediate products of equipment components until the 1990s; however, imports from CKT
gradually increased, developing into bilateral trade. This tendency is conspicuous compared to therelationship with the U.S. and suggests an improvement in the export competitiveness of CKT.
In addition, when we calculated the intra-industry trade index for IT goods, the transitions
were as indicated in Figures 4-3 and 4-4.
Figure 4-3 Intra-Industry Trade Index for IT Goods in Trade with CKT
100
90
80

Intermediate goods(non-electric equipment components)
Final goods

70
60
50
40
30

Intermediate goods (electric components)

20
10
0
90
Source:

91

92

93

94

95

96

97

98

99 (year)

Prepared based on the ITCS (OECD)

Figure 4-4 Intra-Industry Trade Index for IT Goods in Trade with the U.S.
100
90
80
Intermediate goods (electric components)

70
60
50
40
30
20

Intermediate goods(non-electric equipment components)

Final goods

10
0
90

Source:

91

92

93

94

95

96

Prepared based on the ITCS (OECD)

22 Development Bank of Japan Research Report/ No. 24

97

98

99 (year)It could be said first of all that intra-industry trade in IT goods has been in a trend of overall
increase both in trade with CKT and with the U.S. since the latter half of the 1990s. In trade with
CKT, in addition to an increase in the intra-industry trade in non-electric equipment components,
electric components have also shown a continuous gentle rise. The intra-industry trade index for
final goods began to increase around 1994, declining somewhat by 1999. Meanwhile, in tradewith the U.S., the intra-industry trade index in electric components reached the highest level.
Final goods increased from 1993 through 1996, which was then followed by a slight decline.
Intra-industry trade in IT goods has thus become vigorous, especially in intermediate goods.
The question then arises of the nature of the background in the tendency and the significancethat it may have. We will consider the background and meaning of intra-industry trade beginningin the next section.
2. Background of Intra-Industry Trade
Krugman et al. developed the so-called “new trade theory” incorporating in trade the concepts ofmonopolistic competition and differentiated oligopoly. According to Krugman (1980), themonopolistic competition model theorizes the occurrence of trade by establishing such premisesas (1) increasing returns to scale, (2) imperfect competition under product differentiation and (3)consumers who select more diverse consumption. In other words, if consumers show preference
for a variety of goods when per-unit production cost declines along with increased production
volume, firms in one’s own country will specialize in the production of certain goods and it
becomes more advantageous to import other goods produced by firms in foreign countries. The
concept is that trade occurs for that reason.
We attempted to verify whether or not economies of scale or product differentiation
generate intra-industry trade using actual data based on the concept of this “new trade theory.”
In order to examine first of all the relationship between intra-industry trade and economies ofscale, we used the intra-industry trade index calculated based on trade statistics as the explained
variable and the ratio of tangible fixed assets to total assets as a proxy variable expressing
economies of scale as the explanatory variable12.
In regard to the former, as in the method of section 3 of Chapter II, we prepared data byindustry by integrating the goods of trade statistics based on the intermediate classification of the
Input-Output Tables. We calculated the latter tangible fixed assets ratio using the Development
Bank of Japan’s Company Financial Data and, at that time, we maintained consistency between
the industries and explanatory variable by matching the industry classification of the Company
Financial Data with the intermediate classification of the Input-Output Tables.
When we estimated industry panel data with the estimate term of 1995-99 and 1990-99 using
the above data (Table 4-1), we found that, in 1995-99, the significance of parameters of
economies of scale that satisfy the sign conditions was somewhat weak. In addition, in the periodof 1990-99, the sign conditions did not match and a stable relationship was not obtained between
the two13.

12

In order to measure economies of scale directly, it is necessary to determine whether or not economies of scale exists by
estimating the cost function or by other means. In this study, however, due in part to limitations in data, we used the ratio of
tangible fixed assets as a proxy variable. This is used from the ex-post perspective that, if an industry demonstrates economies
of scale, the scale of its facilities will be relatively larger; however, there is probably room for improvement in the selection ofvariables. There are also examples of using the fixed expenses ratio (Hoden, Ito and Kainuma, 1991), etc., as other proxyvariables in similar analyses.
13
Wu-Hauseman test was conducted and the fixed effects model was used.
Development Bank of Japan Research Report/ No. 24 23

Table 4-1 Estimate of the Factors for Determining Intra-Industry Trade
Explained variable

Explanatory variables

Intra-industry trade index

Estimate period(estimate method)

Economies of scale

Product differentiation

I/O Table intermediateclassification

1995-99(panel estimate)

0.30(1.73)-(45 goods)

1990-99(panel estimate)-0.04(-0.43)-HS 4-digit classification

1990, 1995, 2000
(panel estimate)-

0.09(1.17)

1990, 1995, 2000
(OLS estimate)-

0.14(5.70)(1,234 goods)

Note:
Source:The ratio of tangible fixed assets/total assets of the relevant industries was used for the economics of scale and thenumber of goods of the HS 6-digit code within the HS 4-digit code classification of the Trade Statistics were used for
product differentiation.
Prepared based on the Trade Statistics of the Ministry of Finance, Input-Output Tables of the Ministry of Public
Management, Home Affairs, Posts and Telecommunications and the Company Financial Data of the Development
Bank of Japan

Figure 4-5 Intra-industry Trade of Processing and Assembly Type Industries andEconomics of Scale(intra-industry trade index of I/O Table intermediate classification)

50△1990 → ○1995 →● 1999
Computers* Electric equipment

40

Precision equipment

30
Consumer electric equipment20
Non-electric equipment

10
Business and service apparatus

Automobiles

0
10

15

20

25

30

(tangible fixed assets/total assets, %)Note:
Source:Only major industries are extracted.
Prepared based on the Trade Statistics of the Ministry of Finance, Input-Output Tables of the Ministry of Public
Management, Home Affairs, Posts and Telecommunications and the Company Financial Data of the Development
Bank of Japan

24 Development Bank of Japan Research Report/ No. 24

The relationship between the two when viewed by industry is as indicated in Fig. 4-6. The
trends of major processing and assembly industries indicate a certain degree of correlation
between the intra-industry trade index and the tangible fixed assets ratio in the case of nonelectric equipment, automobiles and business and service apparatus. On the other hand, intraindustry trade became rapidly active from 1990 through 1995 in the case of consumer electric
equipment, precision equipment and computers and electric equipment, while there was a notablelack of any degree of change in the tangible fixed asset ratio.
What factors then are possible as the background of these results? The increase in foreign
direct investments can probably be cited as one of them. Along with the increase in Japan’s
foreign direct investment from the mid-1990s, there was a conspicuous increase in reverse
importation14.
Taking this situation into account, even though no sizable change was evident in the scale ofdomestic facilities, intra-industry trade is thought to have accelerated through the local
production of those products for which local production is advantageous from the standpoint of
product differentiation and their reverse importation.
Next, we will confirm the relationship between intra-industry trade and production
differentiation. For the explanatory variable, we used the number of goods classification of theTrade Statistics as an index indicating the degree of product differentiation. Specifically, taking
into consideration the fact that consistent time-series commodity classification since 1990 havebecome possible as well as the fact that goods consistently correspond to exports and imports,
we based it on the HS 6-digit code as the most detailed commodity classification satisfying theabove two points in the Trade Statistics of the Ministry of Finance. As the index of productdifferentiation, we used the number of goods of the HS 4-digit code that are in the HS 6-digit
code15.
In the relationship between the two, we conducted panel estimates by commodity withestimation periods of 1990, 1995 and 200016 (Table 4-1). The outcome indicates that signconditions are consistent and that the parameters are also significant. In addition, when we
confirmed this by OLS estimates of all data of 1990, 1995 and 2000, we found the signconditions to be consistent as well as a high degree of significance. It could be said, in otherwords, that this indicates that the more notable the product differentiation of products, the morevigorous bilateral trade within the same product classification will be.
Let us look next at the relationship to product differentiation by industry. Fig. 4-6 shows thedegree of the intra-industry trade index and product differentiation for a number of products
classified as IT goods17.
14

Though Japan’s foreign direct investments declined during the early half of the 1990s, there was a tendency toward increaseduring the latter half as the yen became stronger. There was a broad increase in manufacturing industries in FY 1999, due inpart to a reaction following the Asian currency crisis, but this was followed again in 200 by a decline (Appended Fig. 4-1).
The tendency for the local subsidiaries of Japanese firms to carry out reverse importation became stronger along with the
cumulative increase in direct investments and there has been a particularly rapid surge since the latter half of the 1990s(Appended Fig. 4-2). Meanwhile, there has also been an increase in the export of intermediate goods to those local subsidiaries
and this is considered to be one factor that is stimulating intra-industry trade (Appended Fig. 4-3).
15
The Hufbauer index (standard deviation of product per unit added value/mean value) and the ratio of advertising expenses
against sales are among additional indices of product differentiation. In this study, however, we used the indices indicatedabove due to data availability. One problem regarding such methods of the intra-industry trade index itself is the possibility of
random change due to the setting of the range of goods classification; in this study, however, we sought to eliminate thatproblem as much as possible by using the most highly segmented statistical classification ordinarily available.
16
Wu-Hauseman test was conducted and the random effects model was used.
17
A number of HS 4-digit-based products are grouped together and classified for the purpose of simplification in the goods
classification of Fig. 4-7 and, therefore, the values are mean values. The value for the product differentiation of “businessequipment” in the diagram, for example, is the mean value of number of 6-digit goods including HS 4-digit based “wordprocessors,” “calculators” and “other business equipment.”
Development Bank of Japan Research Report/ No. 24 25

Figure 4-6 Intra-Industry Trade in IT Goods and Product Differentiation(Intra-industry trade index based on the HS 4-digit code)60△1990 → ○1995 →● 1999
ICs of electronic
components

50
40
Computers

30
20

Electronic components

10

Business
equipment

Communications equipment

0
0

5

10

15

20

25

(No. of HS 6-digits goods in the HS 4-digit classification)
Note:
Source:Other than electronic components, HS 4-digit classification mean values (e.g., for business equipment, it is the mean
number of 6-digit goods of HS 4-digit-based word processors, calculators and other business equipment)
Prepared based on the Trade Statistics of the Ministry of Finance

While no particularly strong link is apparent between business equipment andcommunications equipment, a correlation can be seen between electronic components andcomputers. Among electronic components, product differentiation advanced, in particular, with
ICs from 1995 through 1999 and, at the same time, intra-industry trade activity also accelerated.
Though intra-industry trade in IT goods has became active, as mentioned in section 1 ofChapter IV, the relationship with product differentiation indicates that there are disparities in theextent among IT goods. As with IT-related intermediate goods, especially ICs, suppliers of
products in which the outcome of technological development is directly transformed into
improvements in product function (addition of new functions, increased capacity) and stimulates
product differentiation are competing on a global scale in Japan, the U.S., Korea, Taiwan and anumber of other countries and production bases are expanding everywhere. Thus, therelationship between product differentiation and intra-industry trade is strengthening, inparticular, for such goods in the IT field.
Meanwhile, with IT final goods, that is, business and communications equipment finishedproducts, product differentiation is embodied in minute form by means of the brand, addition ofostensible functions and so forth and there is often no change in the commodity classification.
With goods such as these, no strong relationship was evident in the present analyses between
product differentiation and intra-industry trade.
We examined the background of the occurrence of intra-industry trade above using actual
data. Though no strong relationship was seen between intra-industry trade and economies ofscale in an estimate based on all industries, there were indications of a relationship with productdifferentiation. On the other hand, disparities were noted in relationships in the case of individual
26 Development Bank of Japan Research Report/ No. 24

goods depending on the commodity.
3. Noteworthy Connotations of the Expansion of Intra-Industry Trade in IT
Intermediate Goods
It is possible to point out as one factor that was clarified by the estimate that conspicuous
differentiation was realized in IT goods, especially components and other intermediate goods,
through practical improvements in product functions and so forth throughout the 1990s and that
intra-industry trade in such goods expanded. Let us look at the connotations involved.
As seen in Chapter I, the relationship between Japan and China, Korea, Taiwan and other
Asian trading partners strengthened during the 1990s and, in the background, there was
improvement in the export competitiveness of goods produced in each of those countries. As
touched upon briefly in section 3 of Chapter III, as examples of IT goods, Samsung and manyother firms in Korea became ranked among the top names worldwide in DRAM production as
the result of aggressive capital investment by these manufacturers. Furthermore, in addition to agathering of motherboard producers in Taiwan, there are also many OEM production bases ofvendors in the U.S. and Europe, which boast of strong competitive power. In China as well,
production has been expanding centered in the fields of added value products and assembly.
Thus, in the IT field, though described simply as intermediate goods, the field of productdevelopment demonstrates extreme diversity, characterized by the existence of firms withcompetitive power in each segmented field and a large share. In addition, the current pivot pointof IT final goods is computers and computer peripherals, communications equipment and soforth and it is the components of intermediate goods that frequently determine the performanceof those final goods. Therefore, there are multiple countries that have firms capable ofdominating in the development and production of core intermediate goods and there is vigorous
bilateral trade between those countries. Trade patterns such as those described in the preceding
section were more than likely formed as a result of an industrial structure with thesecharacteristics.

Development Bank of Japan Research Report/ No. 24 27

VRelationship between Intra-Industry Trade and Productivity

1. Impact of the Development of Intra-Industry Trade on Productivity
What sort of impact then does the expansion of intra-industry trade have on the domestic
economy? We will not examine the impact of the theoretical background confirmed in theprevious chapter, that is, economies of scale and product differentiation. If intra-industry tradedevelops in industries with strong economies of scale, production will expand further. In addition,
if product differentiation advances and many differentiated products are imported from overseas,that will stimulate competition with domestic products.
Meanwhile, the occurrence of the international movement of production factors may bringsuch aspects as progressive division of labor between processes and the further sophistication of
job content. It is possible consequently to expect the effect of improvements in productivity(labor and capital productivity) to emerge under circumstances brought about by thedevelopment of intra-industry trade.
We thus attempted to confirm such relationships using actual data. Table 5-1 shows theresults of panel estimates of the relationship between productivity18 and intra-industry trade of 49
goods (industries) based on the Input-Output Tables intermediate classification. The estimate
term was 1990-99 and we confirmed that the parameters of the intra-industry trade index, which
was the explanatory variable, had a certain degree of significance.
Table 5-1 Effect of Intra-Industry Trade on Productivity
Explained variable
Capital productivity
I/O Table intermediate classification(49 goods)
Source:Estimate period
1990-99

Explanatory variable
Intra-industry trade index
0.22(1.60)

Prepared based on the Trade Statistics of the Ministry of Finance, the Input-Output Tables of the Ministry of Public
Management, Home Affairs, Posts and Telecommunications and the Company Financial Data of the Development
Bank of Japan

2. IT Investment Level and the Intra-Industry Trade Index
We confirmed in the preceding section that the development of intra-industry trade had theeffect of bringing about an improvement in domestic productivity. In this section, we will
examine whether or not there are strengths and weaknesses in this relationship due to goods(industries) from the somewhat different perspective of IT investments.
Japan Development Bank (1997) conducted an analysis of the contributions of intra-industry
trade on productivity dividing goods between those that are technology-intensive19 and those thatare not. In the present study, we decided to classify goods by the extent of IT-related investmentsthat are carried out when certain goods are produced.
Specifically, we calculated the ratio of IT-related capital goods20 and software in relation tocapital formation (i.e., capital investments of the relevant industry; total endogenous sectors
excluding residential housing) of certain goods based on the Fixed Capital Matrix of the InputOutput Tables (“IT investment level”). We then classified goods into four stages based on that18

Here, we are using calculated capital productivity data using the Company Financial Data of the Development Bank of Japan.
Classification into whether technology-intensive or non-technology intensive using the Input-Output Tables according towhether or not there are large investments to cover research and development expenses.
20
Duplicating machines, word processors, other business equipment, electronic computers, electronic computer peripherals,
wired electric and communications equipment, wireless electric and communications equipment, other electric andcommunications equipment and construction of electric and communications facilities.
19

28 Development Bank of Japan Research Report/ No. 24

ratio21.
Figure 5-1 indicates the intra-industry trade index for each commodity classified by IT
investment level in time-series. This shows that intra-industry trade increases in vigor inproportion to increases in the IT investment level of a commodity. In addition, comparing theyear 1990 with the latter half of the 1990s, it can be seen that increasingly large disparities formed
between goods with a high IT investment level and those with a low level.
Fig. 5-1 IT Investment Level and the Intra-Industry Trade Index(intra-industry trade index)

40
35

IT investment level 4Same 3Same 230

Same 1

25
20
15
10
5
0
90
Note:
Source:

95

96

97

98

99 (year)

Refer to footnote 21 for a definition of “IT investment level.” Prepared based on the Trade Statistics of the Ministryof Finance and the Input-Output Tables of the Ministry of
Public Management, Home Affairs, Posts and Telecommunications

What then do these results signify? Various factors can be cited as the reasons for carryingout IT investments, such as, the acceleration or increased efficiency of business operations andthe reduction of labor costs, and they would likely include achieving the effects of new productdevelopment, additional production sophistication and so forth. Introducing IT technology inareas such as new product development stimulates anticipation of the effect of the more rapid
and effective implementation of product differentiation. In other words, industries with a highlevel of IT investments actively implement product differentiation and these results suggest astructure of exposure to competition with foreign products through intra-industry trade.
What are the perceptions of firms that actually make IT investments? Fig. 5-2 is based on theSurvey of Company Trends in 2000 conducted by the Cabinet Office and indicates the purposesof IT investments over the past three years and next three years. Those reasons for IT
investments during the past three years with a high ratio include the “acceleration of business21

If the ratio is less than 5%, the IT investment level is 1, if the ratio is 5% or more up to but not including 10%, the IT
vestment level is 2, if the ratio is 10% or more up to but not including 20%, the IT vestment level is 3 and, if the ratio is 20%
or more, the IT vestment level is 4.
Development Bank of Japan Research Report/ No. 24 29

operations,” “reinforcement of sales and marketing capabilities” and “reduction in labor
expenses.” There is also a higher ratio of the former two reasons, in particular, for investments
during the next three years. However, those with a ratio during the next three years that is higher
than during the past three years indicate that that tendency became stronger because of items
such as “reduction of procurement expenses” and “reinforcement of R&D capabilities for new
products, etc.,” and it is clear that there is anticipation of the effects of IT investments in the
future.
Fig. 5-2 Purposes for IT Investments During the Past 3 Years and Next 3 Years

Reinforcement of sales andmarketing capabilities
Reduction of procurement expenses
Past 3 years

Reinforcement of R&D capabilities
for new products, etc

Next 3 years

Reduction of inventory expenses
Reorganization
Acceleration of business operations
Reduction of labor expenses

0

20

40

60

80

100
(%)

Source:Prepared based on the Survey of Company Trends in 2000 of the Cabinet Office

30 Development Bank of Japan Research Report/ No. 24Conclusion
In this study, we have sought to empirically comprehend changes in the structure of trade inJapan during the latter half of the 1990s from such angles as the enhancement of relationships
with other Asian countries and an increase in the importance of IT goods and intermediate goodsin trade as well as the background and effects of the development of intra-industry trade.
Viewing the current situation surrounding the issue of trade in Japan, it is clear that since thelatter half of the 1990s, the demand for IT goods, which had expanded globally until then, hasslowed especially in the U.S. and that the U.S. economy itself has been decelerated since 2001.
This tendency is not only evident in the U.S. but also exerts a strong impact on the economies ofJapan and other Asian countries that have close connections through trade.
As indicated through the analyses of this study, as the demand for IT goods grewthroughout the 1990s, the demand for IT-related intermediate goods, in particular, resulted in the
globalization of the production structure, encompassed the related industrial structure even of
Asian countries and Japan outside of the U.S. and brought about more closely knit trade relations.
This is linked to the fact that the impact of the economic fluctuations of one country on othercountries is becoming more short-termed and greater in magnitude.
Though the demand for IT goods may fluctuate in the short term, the general view seems tobe that, in the medium term, it will remain firm in tone worldwide in the future. If that is the case,IT-related firms in Japan will be faced with the need to continue competing within the current
trade structure created by the industrial characteristics of IT goods. By involving themselves in
product development that will make it possible to achieve global competitiveness not only withfinal goods but also intermediate goods, it will be possible for them to respond to the global
demand and, in that sense, it could probably be said that there are still ample business
opportunities out there.
On the other hand, though, that element that is dominated by fluctuations in markets
overseas is also expanding. Reassessing production and inventory control systems from theperspective of short-term outlook for demand and the global linkage between companies willundoubtedly be of even greater importance in the future. In the management of the economy inJapan hereafter, it will be necessary to promote a further reinforcement of product development
capabilities in the domestic market taking the realities of this globalization fully into account.
[Naoki Shinada <nashina@dbj.go.jp>]

Development Bank of Japan Research Report/ No. 24 31

Appended Fig. 2-1 Japan’s Net Exports to CKT by Item(¥ bil.)

2,000
1,500

2000
1995

1,000
1990

500
0
-500
-1,000-1,500-2,000Food
食料品

products

Note:
Source:Textiles
繊維

Chemicals
化学

Non-metals
非金属

Metals金属

Machinery &機械機器
equipment

Also includes Hong Kong and Singapore besides China, Korea and Taiwan
Prepared based on the Trade Statistics, Ministry of FinanceAppended Fig. 2-2 Definition of IT Goods in Trade Used in This Study(1) SITC codes of the ITCS corresponding to IT trade goods according to the Information Technology Outlook
2000 of the OECD.
①Computer equipment
752
Automatic data processing machines & units
759.97
Parts of and accessories suitable for 752-②Electronic Components
772.2
Printed circuits and parts
772.3
Resistors, fixed or variable parts
776.1
Television picture tubes, cathode ray776.27
Other electronic valves and tubes
776.3
Diodes, transistors and semi-conductor devices
776.4
Electronic microcircuits
776.8
Piezo-electric crystals, mounted parts of 776-778.6
Other electronic machinery and equipment
776.29Other electronic valves and tubes③Communication Equip.
764.1
Electronic line telephonic & telegrahic apparatus
764.3
Radiotelegraphic & radiotelegraphic transmitters764.81
Radiotelegraphic & radiotelegraphic receivers
764.91
Parts of apparatus of 764.1-

32 Development Bank of Japan Research Report/ No. 24

(2) Major commodity codes of the Trade Statistics (Ministry of Finance) corresponding to (1) above (based on HS
4-digit codes)(1) Computer-related
8469/8470/8471/8472/8473(84.69~84.72)
equipment(2) Communications-related
equipment

8517/8525/8526/8527/8529(85.25~85.28)(3) Electronic components

8532/8533/8534/8535/8536/8537/8538(85.35~85.37)/8540/8541/8542/8543

Appended Fig. 3-1 Breakdown of Imports of IT Goods by Stage of Demand
(%)

1,000

80

900

70

800

60

700

Ratio of intermediate goods (right-hand gradations)

600

50

Ratio of final goods (right-hand gradations)

500

40

400

30

300

20

200

10

100

Final goods

Intermediate goods(general equipment
components)
Intermediate goods(electrical components)

0

0
90

Note:

91

92

93

94

95

96

97

98

99 (year)

Of IT goods (1) computer-related devices, (2) communications-related devices and (3) electronic components,
components included in (3) and (1)/(2) are classified as intermediate parts and finished products included in (1)/(2)are classified as final goods.
Prepared based on the ITCS (OECD)

Source:Appended Fig. 4-1 Transitions in Foreign Direct Investment(¥100 bil.)70
Manufacturing industries

60

Non-manufacturing industries

50
40
30
20
10
0
90

Source:

91

92

93

94

95

96

97

98

99

00 (year)

Prepared based on the Foreign Direct Investment Application and Report Results, Ministry of Finance

Development Bank of Japan Research Report/ No. 24 33

Appended Fig. 4-2 Transitions in Reverse Imports from Local Subsidiaries(¥100 bil.)

(%)

60

16
Other

14

50

12

Reverse import ratio (right-hand gradations)40

EuropeNo. America

10

30

8
6

20

Asia

4
10

2

0

0
90

Note:

91

92

93

94

95

96

97

98

99 (year)

The reverse import ratio is the ratio against total imports; however, since the response rate of the survey is notnecessarily high, it is necessary to view these values with a certain degree of latitude.
Prepared based on the Basic Survey of Overseas Business Activities, Ministry of the Economy, Trade and Industry.

Source:Appended Fig. 4-3 Transitions in the Value of Exports of Intermediate Goods to Local
Subsidiaries(¥100 bil.)

(%)

160

35

140

30

Local subsidiary export ratio(right-hand gradations)

120

Europe

25

100

20

80

No. America

15

60

10

40

5

20

Asia

0

0
90
Note:
Source:

Other

91

92

93

94

95

96

97

98

99 (year)

The ratio of exports to local subsidiaries is the ratio against total imports.
Prepared based on the Basic Survey of Overseas Business Activities, Ministry of the Economy, Trade and Industry

34 Development Bank of Japan Research Report/ No. 24

Appended Fig. 4-4 Production Activity Functions of Local Subsidiaries(manufacturing industries, FY 1999)
Division of labor withJapan

Division of labor withother than Japan

Integrated production

Total
Source:Technological level(compared to Japan)
HigherSame
Lower
Sub-total
HigherSame
Lower
Sub-total
HigherSame
Lower
Sub-total

Asia

North America

0.2
16.2
15.5
31.9
0.2
11.3
10.8
22.4
0.7
24.9
20.1
45.7
100.0

0.7
22.6
7.9
31.3
1.0
16.3
5.1
22.4
2.2
32.6
11.5
46.3
100.0

Prepared based on the Basic Survey of Overseas Business Activities, Ministry of the Economy, Trade and Industry(2000 survey)

Development Bank of Japan Research Report/ No. 24 35

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Economic Planning Agency Research Bureau. “Issues involved in strengthening the relationshipbetween Japan, China and Korea,” Policy Effect Analysis Report No. 5
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Quality Matters,” CEPR Discussion Paper 1959.
Hoden, M., Ito, J., and Kainuma, N. 1991. “Intra-industry trade in Japan,” Economic Planning
Agency Economic Research Institute, Economic Analysis No. 125
Japan Development Bank. 1997. “The impact of the changing trade structure on the Japanese
economy – with special focus on the effect on productivity and employment,” JDB
Research Report 73
Krugman P. R. 1980. “Scale Ecomonies, Product Differentiation, and the Pattern of Trade,”
American Economic Review, 70.
Sugiura, K. 2000. “The illusion of Asian mutual dependence – Discussion of the intra-regional
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Wong, Kar-yiu. 1995. International Trade in Goods and Factor Mobility, The MIT Press.

36 Development Bank of Japan Research Report/ No. 24

List of Back Numbers (Including JDB Research Report)
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information
Technology (IT) Goods (this issue)
No. 23 Microstructure of persistent ROA decline in the Japanese corporate sector: Inter-company disparties andinvestment strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects ofEvolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisation of
Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansion of
the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on Enterprise Data,
September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September 2000

No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries, June
2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market for
Underground Remediation, May 2000

No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations, the Debt
Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other AsianCountries, November 1999

JDB Research Report
No.96

Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999

No.95

Efforts to Protect the Natural Environment in the United States and Germany: Environmental Mitigation
and Biotope Conservation, July 1999

No.94

Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999

No.93

Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO sector
through comparison with Germany, June 1999

No.92

The Impact of Demographic Changes on Consumption and Savings, March 1999

No.91

Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March 1999

No.90

Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999

No.89

Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japanand the U.S., December 1998

No.88

Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998

No.87

Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998

No.86

Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998

No.85

Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998

No.84

R&D Stock and Trade Structure in Japan, August 1998

No.83

Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998

No.82

The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptance isEssential, May 1998

No.81

The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and 1998
Conducted in August 1997, March 1998

No.80

Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998

No.79

Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January 1998

No.78

Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series andEnvironmental Cost, January 1998

No.77

Current Conditions and Issues of Computerization in the Health Care Industry : For the Construction of a
Health Care Information Network, January 1998

No.76

Household Consumption and Saving in Japan, December 1997

No.75

The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to Support
Diverse Consumer Choices, November 1997

No.74

Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International
Trade, October 1997

No.73

The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the Effects
on Productivity and Employment, October 1997

No.72

An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997

No.71

Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of Economic
Recovery, August 1997

No. 70 Corporate Fundraising : An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997

No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm Datefrom Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of theElectric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key, October
1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of the Current
Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY 1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and 1996
Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October 1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY 1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part2, July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery
Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level, May
1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and 1995
Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY 1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994

No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration, December
1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and 1994
Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and 1993
Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February 1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and 1992
Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and 1991
Conducted in August1990,September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals In Japan, The US, and Korea an Assessment of Economic Efficiency, February 1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and 1990
Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing
Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years 1988 and1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and 1989
Conducted in August 1988, September 1988

No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987