Research Institute of Economy, Trade and Industry (RIETI)BBL Seminar
Handout
June 23, 2011
"Opening Japan - Comparisons with other G20 countries andlessons learned from international experience"

Dirk Pilat & Andrea Beltramello
http://www.rieti.go.jp/jp/index.html

Opening Japan
Comparisons with other G20countries and lessons learned frominternational experience

Dirk Pilat & Andrea Beltramellodirk.pilat@oecd.org and andrea.beltramello@oecd.org
Directorate for Science, Technology and IndustryOECDOutline• The role of openness for economic growth• International comparison of openness –Japan vs. other G20 countries• Policies supporting opennessOutline• The role of openness for economic growth• International comparison of openness –Japan vs. other G20 countries• Policies supporting openness

Openness and economic growth• Openness is a key determinant and driverof economic growth• Many dimensions of openness:– Trade– FDI– Circulation of people– R&D, technology and knowledge• Importance of outward flowsImpacts of openness (I)• Economies benefit on the whole from increased
openness:– Specialisation and economies of scale– Product and labour market competition– Intra-industry reallocations and reduction ofinefficiencies– Access to knowledge and ideas, supporting innovationand technology diffusion• Overall: openness contributes to achieving andsustaining high rates of output and productivity
growthImpacts of openness (II)• But: adjustment costs and potentiallysome negative impacts, e.g. at the locallevel• Therefore, importance of complementarypolicies, e.g. labour market and social
policies

Outline• The role of openness for economic growth• International comparison of openness –Japan vs. other G20 countries• Policies supporting openness

International trade
Clear trend towards increased openness in most countries
including JapanSum of exports and imports, goods and services
As a percentage of GDP, at current prices.
%
1202000

2007

OECD Countries

Non-OECD Countries

1008060
40

200Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.

International investment
Long term trend by Japanese companies to develop activities
abroad, but Japan lags markedly in inward foreign investment
Foreign direct investment assets and liabilities as a percentage of GDP
Average 2005-2008%

AssetsLiabilities

76543210Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.

International trade and investment, industry level (I)Large outbound activities in some sectors…
Transport equipment (ISIC 34+35)% 90
Exports as a % of production

8070

Imports as a % of production

6050

Share of foreign affiliates indomestic turnover

40
Turnover of affiliates abroad asa % of domestic turnover3020

FDI inflows 2004-06 as a % ofproduction

100-10Japan

Germany

Korea

UKUSA

FDI outflows 2004-06 as a %of production

Source: OECD calculations based on OECD AFA, STAN and International Direct Investment databases.

International trade and investment, industry level (II)… while other sectors are significantly less internationalised.
Food, beverages and tobacco% 90Exports as a % of production

8070Imports as a % of production

60
50

Share of foreign affiliates indomestic turnover

40
Turnover of affiliates abroad
as a % of domestic turnover

30
20

FDI inflows 2004-06 as a %of production

100-10Japan

GermanyKorea

UKUSA

FDI outflows 2004-06 as a %of production

Source: OECD calculations based on OECD AFA, STAN and International Direct Investment databases.

Global value chains (I)Intra-industry trade increases with development of GVCs;
larger countries tend to have lower values, particularly Japan
Index of intra-industry trade in manufactures
Average 1997-2008
10090807060
50403020100OECD Countries

Non-OECD Countries

1. 2000 - 2008 for South Africa.

Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.

Global value chains (II)Like other larger countries, Japan shows a low degree ofoffshoring both in services and manufacturing
Offshoring of manufacturing and services, by country, 2005
Imported intermediates as share of total intermediates
Manufacturing

Services25%
20%
15%10%
5%0%

Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.

Global value chains (III)Japan is heavily integrated with other countries in East Asia
Import content of exports with partner countries, 2005
From Europe

From NAFTA

From East Asia

From Other Asia

40%
30%20%10%0%

Source: OECD (2010), OECD Input-Output and Bilateral Trade Database, January 2010.

From RoWInternationalisation of knowledge (I)International scientific collaboration in Japan is low
Scientific articles per capita, by type of collaboration, 2008
International co-authorship

Domestic co-authorship

Single author

2.521.5

10.50Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris.

Internationalisation of knowledge (II)Contribution of foreign affiliates to business R&D in Japan is low
The share of foreign-controlled affiliates in total business sector R&D
expenditure, 2007 , in %%403020100Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.

Internationalisation of knowledge (III)Limited importance of foreign firms controlling domestic inventions inJapan, and of inventions made abroad controlled by Japanese firms
Cross-border ownership of inventions, 2005-07%

Argentina 88%

Foreign ownership of domestic inventions (1)Domestic ownership of inventions made abroad (2)4035302520151050

1. Share of PCT patent applications owned by foreign residents in total patents invented domestically. Coverage: countries/economies with more than 200 PCT filings over the period.
2. Share of PCT patent applications invented abroad in total patents owned by country residents. Coverage: countries/economies with more than 200 PCT filings over the period.
3. All patents that involve international co-operation.
4. Patents of OECD residents that involve international co-operation.
5. The EU is treated as one country; intra-EU co-operation is excluded.

Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.

Internationalisation of labour (I)Inbound and outbound flows of persons to and from Japan are
significantly lower than for other countries
Total Migration Rates¹, circa 2000
Number of immigrants and emigrants as a share of total domestic population%30

Total Emigration Rate % (1)OECD Countries

25

Total Immigration Rate % (1)Non-OECD Countries²

20151050

Source: OECD Database on Immigrants in OECD Countries - DIOC. DIOC-E 2000 release 2.0.

Internationalisation of labour (II)A small share of the Japanese labour force is foreign
Stocks of foreign labour force, in %%102008

2000

86420

Source: OECD (2010), International Migration Outlook: SOPEMI 2010, OECD, Paris.

Internationalisation of highly skilled human capital
Japan participates only to a limited extent in global brain
circulation compared to other OECD G20 countries
Migration Rates of Tertiary Educated, population 15+, circa 2000
Number of tertiary educated emigrants and immigrants as a share of total tertiary educated population%Emigration Rate of Tertiary Educated % (1)Immigration Rate of Tertiary Educated % (1)3530OECD Countries

Non-OECD Countries²2520151050

Source: OECD Database on Immigrants in OECD Countries - DIOC. DIOC-E 2000 release 2.0.

Cultural diversity
Limited acceptance of people from different racial, ethnic andcultural groups in Japan.
Gallup Diversity Index, 2008
Percentage of respondents answering positive to each of the three questions
concerning acceptance of different racial, ethnic, and cultural groups.
1009080706050403020100

1. Year for this country, 2009.
Source: Gallup World Poll, 2008.

Key indicators on the openness of Japan…
Trade & Capital

Highly Skilled% Int'l Doctoral Students% Int'l Tertiary Students

Trade Openness
Import Penetration
100
90

Export Market Shares

80
Migration Rt. Tertiary Ed.

Labour70

FDI Assets & Liabilities

60
Nationality Diversity Index

50

Outward & Inward M&As

40
30

Stock of Foreign Labour

Share of FCA's Turnover

20
10Total Migration Rates

Int'l Co. Innovation

Imported/Domestic Int.

Domestic Ownership

Knowledge

VA as % of Production

0Intra-industry Trade Index

Foreign Ownership
Int'l Co-Authorship

Total Offshoring
Import Cont. of Exports

Tech Flows as GDP%
Funds from Abroad % BERD
FCAs in R&D Expenditure

GVCs

…compared to the openness of Korea…
Trade & Capital

Highly Skilled% Int'l Doctoral Students% Int'l Tertiary Students

Trade Openness
Import Penetration
100
Export Market Shares

9080
Migration Rt. Tertiary Ed.

FDI Assets & Liabilities

70Labour60
Nationality Diversity Index

Outward & Inward M&As

504030Stock of Foreign Labour

Share of FCA's Turnover

2010VA as % of Production

0Total Migration Rates

Int'l Co. Innovation

Imported/Domestic Int.

Domestic Ownership

Knowledge

Intra-industry Trade Index

Foreign Ownership

Total Offshoring

Int'l Co-Authorship

Import Cont. of Exports

Tech Flows as GDP%

Funds from Abroad % BERD

FCA's in R&D Expenditure

GVCs

…the openness of China…
Trade & Capital

Highly Skilled% Int'l Doctoral Students% Int'l Tertiary Students

Trade Openness
Import Penetration
10090

Export Market Shares

80
Migration Rt. Tertiary Ed.

Labour70

FDI Assets & Liabilities

60
Nationality Diversity Index

50

Outward & Inward M&As

40
30

Stock of Foreign Labour

Share of FCA's Turnover

2010

Int'l Co. Innovation

Imported/Domestic Int.

Domestic Ownership

Knowledge

VA as % of Production

0

Total Migration Rates

Intra-industry Trade Index

Foreign Ownership
Int'l Co-Authorship

Total Offshoring
Import Cont. of Exports

Funds from Abroad % BERD
Tech Flows as GDP%
FCA's in R&D Expenditure

GVCs

…the openness of UK…
Trade & Capital

Highly Skilled% Int'l Doctoral Students% Int'l Tertiary Students

Trade Openness
Import Penetration
10090

Export Market Shares

80
Migration Rt. Tertiary Ed.

Labour70

FDI Assets & Liabilities

60
Nationality Diversity Index

50

Outward & Inward M&As

40
30

Stock of Foreign Labour

Share of FCA's Turnover

2010Total Migration Rates

Int'l Co. Innovation

Imported/Domestic Int.

Domestic Ownership

Knowledge

VA as % of Production

0

Intra-industry Trade Index

Foreign Ownership
Int'l Co-Authorship

Total Offshoring
Import Cont. of Exports

Tech Flows as GDP%
Funds from Abroad % BERD
FCAs in R&D Expenditure

GVCs

…the openness of Germany…
Trade & Capital

Highly Skilled% Int'l Doctoral Students% Int'l Tertiary Students

Trade Openness
Import Penetration
10090

Export Market Shares

80
Migration Rt. Tertiary Ed.

Labour70

FDI Assets & Liabilities

60Nationality Diversity Index

50

Outward & Inward M&As

4030

Stock of Foreign Labour

Share of FCA's Turnover2010
Total Migration Rates

Int'l Co. Innovation

Imported/Domestic Int.

Domestic Ownership

Knowledge

VA as % of Production

0

Intra-industry Trade Index

Foreign Ownership
Int'l Co-Authorship

Total Offshoring
Import Cont. of Exports

Tech Flows as GDP%
Funds from Abroad % BERD
FCAs in R&D Expenditure

GVCs

…and the openness of the US
Trade & Capital

Highly Skilled% Int'l Doctoral Students% Int'l Tertiary Students

Trade Openness
Import Penetration
10090

Export Market Shares

80
Migration Rt. Tertiary Ed.

Labour70

FDI Assets & Liabilities

60Nationality Diversity Index

50

Outward & Inward M&As

4030

Stock of Foreing Labour

Share of FCA's Turnover

20
10Total Migration Rates

Imported/Domestic Int.

Int'l Co. Innovation

Domestic Ownership

Knowledge

VA as % of Production

0

Intra-industry Trade Index

Foreign Ownership
Int'l Co-Authorship

Total Offshoring
Import Cont. of Exports

Funds from Abroad % BERD
Tech Flows as GDP%
FCAs in R&D Expenditure

GVCs

Outline• The role of openness for economic growth• International comparison of openness –Japan vs. other G20 countries• Policies supporting openness

Promoting trade and investment liberalisation
Barriers to trade and investment are relatively low in Japan
compared to other G20 countries …
OECD Product Market Regulations: Barriers to Trade and Investment, 2008
3.5
3
2.5
2
1.5
1
0.5
0

1. 6 = most restrictive; 0 = least restrictive.
2. Data may no longer fully reflect the current situation, in particular in fast reforming countries.
3. Data refer to beginning of 2008.
Source: OECD Product Market Regulations Database, 2008.

Promoting trade and investment liberalisation… but Japan has relatively few bilateral investment
agreements …
G20 Members' International Investment Agreements, as of 15 October 2010
Bilateral Investment Treaties (BITs)

Other IIAs

200180160140120100806040200Source: OECD and UNCTAD (2010), 4th Report on Trade and Investment Measures in the G20.

Promoting trade and investment liberalisation… though relatively more regional trade agreements
Number of Regional Trade agreements in G20 countries
Number of RTAs in force

Number of RTAs with early announcement35302520151050Source: WTO Regional Trade Agreements Information System (RTA-IS).

The gains from regional economic integration: the EU• Permanent rise of about 2% in GDP• Boost in employment by almost 1 ½%
• Quadrupling of FDI within Europe, andincrease in FDI into Europe• Trade boosted by 38% by EU membership(with only 5% diverted from non-members),
plus positive “Single Market Effect” of 9%• “Soft” gains in global trade system andinternational economic governancePolicies for openness of R&D and innovation• Japan recently introduced:– R&D tax incentives– Reform to foster regional activities andrevitalise urban areas– Changes in IPR legislation and specific
IPR support towards SMEs
• But: international collaboration ininnovation and science is weaker than inmany other OECD countries

Internationalisation of R&D and innovation:
Sweden and Finland• Integrated need to promote internationalisation of national
actors in innovation support programmes• VINNOVA in Sweden:– redress systemic failures in NIS– promote collaboration among different innovation
actors• SITRA and TEKES in Finland:– create enabling conditions for domestic companies tointegrate in GVCs
– increase Finland’s investment attractiveness;– promote international science and technology
collaboration

Labour market policies
Overall, a high level of employment protection legislation is expected tohave negative effects on the labour market.
Employment protection in selected G20 countries, 2008
Scale from 0 (least stringent) to 6 (most stringent)
3.5
3
2.5
2
1.5
1

0.5
0Source: OECD Indicators on employment protection.

Increased openness through labour market reforms:
Germany• Erosion of international competitiveness anddeterioration of public finances following
reunification• “Agenda 2010” played a role in maintaining
an open economy, attracting investment andsustaining exports:– Labour market reforms– Social security reforms– Tax reforms

Policies for skilled labour migration and mobility
Japan’s immigration policies are relatively strict for employing foreignlabourImmigration laws do not prevent your company from employing foreign labour
IMD WCY executive survey based on an index from 0 to 102010

2000

87654

3210Source: IMD World Competitiveness Yearbook, 2010.

Policies for skilled labour migration and mobility
Executives do not consider Japan’s business environment conducive toattracting foreign highly-skilled people
Business environment is attractive to foreign highly-skilled people
IMD WCY executive survey based on an index from 0 to 101098765432102010

2002

Source: IMD World Competitiveness Yearbook, 2010.

Policies to promote the migration of the highly-skilled:
Denmark and Norway• Relatively recent migration countries, with foreignborn population rates below OECD average• Introduced policies for attracting highly-skilledmigrant workers, with some evidence of success:– Early employment schemes– Job search visa (also for students)– Reduction of top marginal tax rates– Progress in international schools– English language courses

Conclusions• Japan has actively promoted the free movementof goods and capital, and has promoted
multilateral negotiations.
• Japan lags considerably in inward foreign direct
investment, internationalisation of science andinnovation, and openness to labour, notably
highly-skilled workers.
• Further opening can strengthen future growth
performance, as shown in the experience ofother OECD countries.

Report on Opening Japan• Presentation based on OECD report Opening Japan –Comparison with other G20 countries and lessons
learned from international experience• More detail and full details on indicators and theirconstruction are available in the report.
• Report will be released in the coming weeks by OECDand will be accessible through the RIETI website.

Thank you!
dirk.pilat@oecd.org

andrea.beltramello@oecd.org