What is RIETI Highlight?

2022 Special Edition

CONTENTS

Global Intelligence Project

Climate Change

EBPM

VoxEU Columns

Non Technical Summaries

RIETI UPDATE

Research Programs

RIETI Books

RIETI’s public relations magazine RIETI Highlight is published in Japanese on a quarterly basis, featuring
RIETI’s most recent activities with the objective of disseminating our research outcomes to a wider
audience. This RIETI Highlight Special Edition is written in English and published annually as an overview
of RIETI’s undertakings for our international readers. We hope this Special Edition will be helpful not only in
spreading information on our activities and research findings but also in deepening international readers’
understanding of our mission as a leading Japanese policy think tank.

89
P1

TOPICS

P2

Japan’s New Capitalism and New Industrial Policy

P8

RIETI COVID-19 Initiatives

P10

RIETI Open BBL Webinar: Global Intelligence Series
Economic Security Policy as Growth Strategy and Recent Developments inTrade Rules

P14

RIETI Open BBL Webinar: Global Intelligence Series
Mongolia Long-term Vision 2050 and Expectations for Japan,
Presented by Former Chairman of the National Development Agency of Mongolia

P16

ColumnCOP26 Assessment and Challenges

P18

ColumnCollapse of the CDM Scheme under the Kyoto Protocol and Its Spillover:Consequences of “carbon panic”

P21

Special Interview
EBPM Also for Climate Change Countermeasures

P23

RIETI Special Seminar for the MediaWill Raising the Minimum Wage Take Away Jobs?
—Considering a desirable minimum wage policy—

P26

Special Interview
Establishing EBPM in Japan—The benefits of using nudges—

P29

Teams Become More Productive When Their Hours Are Shorter

P31

The Impact of COVID-19 on Global Production

P34

Impacts of the Vaccine Intellectual Property Rights Waiver on Global Supply

P37

Productivity of Working from Home during the COVID-19 Pandemic:
Panel data analysis

P38

Impact of Cash Transfers on Consumption during the COVID-19 Pandemic:
Evidence from Japanese Special Cash Payments

P40

The Impact of COVID-19 on Japanese Firms:
Mobility and resilience via remote work

P41

Are Applying for and Receiving Subsidies Worth It for Small Enterprises?
Evidence from the government support program in Japan

P42

Report on Recent Activities

P44

International Institutions that Collaborated with RIETI in 2021

P46

List of Events in 2021

P47

RIETI’s Fifth Medium-term Plan

P48

Introduction of the Nine Research Programs

P53

Socio-Life Science and the COVID-19 Outbreak

RIETI Special Discussion• All titles and affiliations are as of the day of the event.
• Events and interviews are held online unless otherwise noted.
• Views expressed in this issue are solely those of the individual authors, and do not necessarily represent the views of RIETI.

RIETI Chairman Makoto Yano Elected
as a New Member of the Japan Academy
RIETI Chairman Makoto Yano was elected as a new member of the Japan Academy at the 1154th General Meeting of
the Japan Academy held on December 13, 2021. In selecting Dr. Yano, the Japan Academy described his major academic
achievements as follows: “Dr. Yano has accumulated original and sophisticated theoretical research in the fields ofinternational economics and dynamic general equilibrium theory. In particular, his ‘turnpike theorem’ on long-term
equilibrium channels in the framework of the dynamic general equilibrium model, the most well-known neoclassical model,
and his proof of global stability have been highly evaluated as a link between optimal growththeory and equilibrium dynamic theory. Furthermore, he developed the conventional neoclassicaldynamic general equilibrium theory into a nonlinear dynamic theory in collaboration with Dr.
Kazuo Nishimura and has greatly expanded the scope of endogenous business cycle theory. In
addition, in the field of international economics, his original research on various policy issues ofpractical importance, such as the transfer paradox and the effects of voluntary export restrictions,has been widely recognized.”
Makoto Yano
Chairman, RIETI / Project Professor, Institute of Economic Research, Kyoto University /Professor by Special Appointment, Sophia University

Amid growing uncertainties caused by the climate crisis, geopolitical risks, and the pandemic, there is a need to re-design
economic policy to include public-private partnerships for “Moon Shot” type large-scale advanced R&D initiatives, newinstitutional designs to create new markets and promote innovation, and measures to strengthen supply chain resilience.
In furtherance of effective change to meet these pressing needs, RIETI will inaugurate a new RIETI EBPM Centeron April 1, 2022. In collaboration with domestic and overseas researchers and policymakers, the Center will strengthen
retrospective policy assessments and develop new analytical tools to facilitate the prospective assessment of the economic
effects of large-scale projects considered for implementation through public-private partnership, including, for example,
decarbonization, and to propose the data design necessary to evaluate each potential project. Through these efforts, RIETI
aims to evolve evidence-based policy making (EBPM) and to play a core role as a policy research institute that supports theadvancement of economic and industrial policies through effective analysis and recommendations.

RIETI Faculty Fellow Takashi Unayama received
2021 NTJ Richard Musgrave PrizeDavid Cashin and Takashi Unayama’s paper “The Spending and Consumption Response to a VAT Rate Increase” (National
Tax Journal, Vol. 74, No 2) won the 2021 NTJ Richard Musgrave Prize. The prize was established in 1999 and is presented
each year to the author(s) of the best article published in the National Tax Journal.
https://ntanet.org/awards/richard-musgrave-prize/
The paper was written based on the following RIETI Discussion Paper:“The Impact of Permanent Income Shock on Consumption: Evidence from Japan’s 2014 VAT
Increase” (16-E-052)
https://www.rieti.go.jp/en/publications/summary/16030069.html
Takashi Unayama
Faculty Fellow, RIETI / Professor, Institute of Economic Research, Kyoto University

RIETI Highlight 2022 SPECIAL EDITION

TopicsRIETI Inaugurates New EBPM Center on April 1

RIETI
SpecialDiscussion

Japan’s New Capitalism
and New Industrial Policy
Speakers:

RichardBaldwin

MakotoYano

TetsuyaWatanabe

Professor of International
Economics, Graduate

Chairman, RIETI

Vice President,
RIETI

Institute, Geneva

RIETI Special Discussion
2

Japan’s new capitalism and mission-oriented industrial policy has been formulated to cope with changing global supply
chains and to drive economic growth. The policy places emphasis on economic growth and income distribution but
needs to address risks from China’s market transformation and climate change to succeed. Clear industrial targets
for innovation must be based in high quality markets and on industrial inputs that are difficult to substitute. However,questions remain on how to interface with China in global trade and the degree to which government intervention may
be necessary to combat climate change in sectors without current demand. Professor Richard Baldwin of Graduate
Institute, Geneva, Makoto Yano, Chairman of RIETI, and Tetsuya Watanabe, Vice President of RIETI, met online to
discuss the current issues.

Introduction
Tetsuya Watanabe: The supply chain disruption caused by
the COVID-19 pandemic reminded us how integrated our supply
chains are. It highlighted the supply chain risks for automakers inparticular as the necessary procurement of automotive parts andcomponents was disrupted. Furthermore, the disruption to supply
chains revealed how little we know about our own global supply
chains and their hidden risks, which have been impacted by the
pandemic and geopolitical tensions. Decarbonization of the global
supply chain is also a priority for decision making of businessleaders. Products and services are in the end being selected byconsumers and citizens around the globe who have become very
sensitive about the carbon footprint throughout the supply chain.
Geopolitical tensions and the increased importance of addressing
economic security concerns required us to take a coordinatedapproach among like-minded countries, but at the same time weneed to strengthen the rule-based global and regional economicorder and upgrade the free trade system to avoid fragmentationof supply chains. Digital technologies change the supply chain
dramatically, and how governments and private sectors cantransform themselves in the data age is a huge challenge in every
country.
The NBER (National Bureau of Economic Research) working
paper, “Risks and Global Supply Chains: What We Know and
What We Need to Know,” authored by one of our speakers,
Professor Richard Baldwin, and Dr. Rebecca Freeman of the Bankof England, identifies the risks to and from global supply chains,
how global supply chains have recovered from past shocks, and

RIETI Highlight 2022 SPECIAL EDITION

proposes a risk-versus-reward framework to evaluate whether
risk policies are justified. Professor Baldwin and Dr. Freeman
also discussed how exposures to foreign shocks are measured andconsidered the future of global supply chains in light of the current
policy environment.
Heightened supply chain risk requires individual companies to
respond to new risks by balancing the costs and risks of relying
on global supply chains. But at the same time, the increasing
uncertainty of global supply chains necessitates that governments
also react to new risks and challenges.
In this new environment, new thinking on capitalism emerged inEurope, the U.S., and elsewhere. And in Japan, too, Prime Minister
Fumio Kishida announced new capitalism as the main pillar of
his economic policy. I first invite Chairman Yano to share his
perspective on the new capitalism and mission-oriented industrial
policy, then Professor Baldwin will share his perspective, followed
by a discussion.
The need for a new capitalism
Makoto Yano: Recently, Prime Minister Kishida has proposed
what he calls new capitalism as the basis of his policy agenda. By
doing so, he emphasizes the importance of income distribution.
His initiative advocates the creation of a “good loop” of
economic growth and income distribution. That is, he aims to
end wage stagnation and, by doing so, to revitalize the Japanese
economy. Mr. Kishida advocates controlling large corporations’dominant market power over smaller companies, from which theypurchase intermediate goods and services at low prices, as is thePast industrial policy and new targets
METI is now advocating a “moonshot.” This is a part of the newindustrial policy, which aims to make policy more target-orientated,or, you might say, mission-oriented. It differs from the old Japanesestyle industrial policy, which set targets that had already been tested
in more advanced economies at that time. Examples are electric
appliances, cars and so on, the importance of which were obvious.
This is in a sense similar to the current Chinese economic policies,
although some of them are already more advanced than Japanesecounterparts at this moment.
In the late 1980s, Japan switched from the old industrial policy
to structural reform and is now thinking of adopting a new styleof industrial policy, which aims at targets that are untested andunknown. When a country is trying to catch up to more advanced
economies, it is not difficult to decide what sort of technologies
it should adopt. Once an economy achieves the top technologicallevel, however, it is very difficult to determine what technologies
to focus on; at that point, the economy falls into a state of
confusion. Falling into such a state of confusion is unfortunately
nearly inevitable for any country that stands at the front line oftechnological development. For about three decades since the1960s, the U.S. was in that state. For the last three decades, Japan
has been in a similar state of confusion. For Japan to get out of
this state, it is very important to seek a new approach to industrial
policy, promoting the development of brand new technologies
in the world; this is how the U.S. managed to get out of its
technological stagnation, by developing new technologies that now

lead the world’s industries, including spaceships, computers, andthe internet. I believe that it is a very good time for METI to create
new industrial policy seeking the development of new technologies
in this drastically changing world.
METI identified three stages of industrial policy since the 1950s.
METI states that the goal of the first stage industrial policy was todevelop specific industries, and the underlying economic theory
was to deal with market failure or infant industry protection. The
innovation policy was more focused on application and catching up
to the developed countries’ models and manufacturing in the past,and the promotion of manufacturing was a very important part. And
during the second-stage structural reform period, Japan wanted toreform the market infrastructure. METI wanted to make a marketoriented economic policy and to deal with the government failings
with an innovation policy focused on attaining more basic scientificknowledge.
Japan shifted away from manufacturing during the second stage,and I have thought that this was the correct approach. During thisstage, unfortunately, Japan has weakened its technological edge. I
believe that this has prompted METI’s current initiative.
Figure: New Industrial Policy: Contents
Stage 1

Stage 2

Stage 3

Conventional Industrial Policy

Structural Reform

New Industrial Policy

Goal

Development of SpecificIndustries

Reform ofMarket Infrastructure

Mission-Oriented
Problem Solving

Underlying
TheoryMarket Failure
Infant Industry Protection

Market-Oriented
Government Failure

Coping with Uncertainty
Market Creation
Government’s Failure to Act

Innovation
PolicyApplication
Catching-up

Basic Policy-Oriented

Moonshot-type Innovation

Manufacturing

Promotion of
Manufacturing Industry

Shifting Away from
Manufacturing

Digital Transformation
Creation/Maintenance ofSupply Chain/Value Chain

RIETI Special Discussion

traditional Japanese business style. I agree with the premise of thispolicy. The policy aims to expand middle-income families and toincrease population.
To realize this, the government is to subsidize education andhousing and assist in childcare, for example, by increasing thenumber of nursery schools. This in particular has been noted as aproblem because the small number of nursery schools is preventing
women from both entering the workforce and remaining at work.
Moreover, Prime Minister Kishida advocates increasing wages
for essential workers, particularly those in nursing, elderly care,and childcare. This is partly because of the issues revealed during
the current COVID-19 situation, but, of course, the need for wage
increases in nursing services and elderly care was evident even
before the pandemic.
Compared to the U.S., Japan’s wages in nursing and elderly careare low. Recently, the BBC has reported that the Japanese average
wage has been stagnant for over three decades, whereas wage
rates have generally increased in many countries such as Germany,
France, the UK, the U.S., and South Korea. However, this is partly
a reflection of Japan’s GDP as a whole, which has also not seenmuch growth.
I think that the administration perceives that by raising wages, itwill create additional economic progress and economic growth.

METI now wants to lead moonshot-type innovations.
It wants to digitalize the industry as a whole and create or
maintain new supply chains for the new digitalized economy.
This new industrial policy is very similar to what Professor
Richard Baldwin has emphasized during his past presentations
at RIETI, discussing uncertainties of market creation, targeted
innovation, digital transformation, and supply chain creation andmaintenance. I agree with Professor Baldwin on the importance ofpushing these issues. At the same time, however, there is a huge
difference between where Japan is and where Europe and the
U.S. are. The idea of this new industrial policy remains a broadconcept in Japan, but its success is not guaranteed if Japan simply
follows the U.S. or European models from the past or present.
The current targets being emphasized by the Japanese
government are green technology, resiliency and sustainability,
digital transformation, and income distribution. Currently, Japanwants to bring Taiwan Semiconductor Manufacturing Company(TSMC) to Japan and further their technology to develop logic
chip production capabilities.
I believe that it is important to set up a grand design and

RIETI Highlight 2022 SPECIAL EDITION

3

philosophy that supports these initiatives. For instance, John F.
Kennedy’s moonshot encompassed not just scientific knowledge
but also commercial policy and targets, as well as military andnational prestige. Clearly, market-oriented goal-setting was pursued
during that period. It is also clear from the development of theinternet and computer technology that a clearly-defined, marketoriented vision of the unfolding of these networks was evident fromthe beginning stages of the development of these technologies.
Before launching the new industrial policy, we need to develop thistype of clear vision on how the policy will use technology and whatshould be developed to enable such a vision of the future.

RIETI Special Discussion
4

Quality markets and industrial transfer
Society has seen great changes in technologies, such as withthe adoption of personal computers, spaceships, smartphones,
and e-commerce. The recent commercialization of space travel
came as a real surprise to me. Behind such transformations,
there are high quality markets, which are prerequisites for suchdevelopments. It is these well-organized, high-quality markets
that laid the foundation for personal computers, spaceships,
smartphones, and e-commerce, and that is what Japan lacks. This
is in part due to the fact that what Japan is trying to develop is
totally unknown, and it’s unlike past transformations in industry.
To develop such unknown technologies requires good markets. A
market connects technologies to people’s lives. A market is a kindof dual-directional pipe where products go from technologies
and resources to everyday life. Information or people’s needs areconnected through this pipe to technological development. Market
quality can be seen as the quality of said pipe and the transfer
of information through the pipe, given available technologies
and consumer preferences. If the pipe is well developed, you
can create a good loop between the production side and theconsumption side of the economy. Currently, I believe that Japan
does not have a good pipe connecting these two factors.
I think that the target of such a policy should be something thatis difficult to achieve, like the moonshot or similar goals. It willtake about 30 years from when the ideas for the technology arebeing developed until actual commercial use of such technologies.
Space rockets, for example, took about 60 or 70 years to reachcommercialization. To make commercial use of those advanced
technologies, it is important to develop high-quality markets.
To make new technologies compatible to the market, I thinkthat innovation must be needs-driven. Income distribution isparticularly difficult to pinpoint as many and various opinions
exist on the subject. Therefore, a good market is essential toachieving such targets. Japanese industrial policy is still aborrowed concept from Europe and the U.S. European economies
went through reforms successfully in the 1980s and 1990s. They
created very strong infrastructure, which seeded new technologies
that allowed them to become commercial leaders three decades
later.

RIETI Highlight 2022 SPECIAL EDITION

Macro goals and micro goals
Richard Baldwin: I would like to begin by differentiating
between macro goals and micro goals. The idea of inequality
leading to stimulation of demand, which leads to stimulation andgrowth could be a macro goal. Nevertheless, on the micro side of
new industrial policy, education, housing, and childcare all seemto be very clear in that they may boost productive capacity of an
economy. For example, there is value for the country in having an
educated society which is greater than the value for the individual.
Therefore, education subsidies are a very good thing. Housing isanother area where policy can have an impact because housing
stock moves more slowly than demand for housing. Moreover,childcare is another area where policy can be effectual because if
the capacity for childcare were larger, or there was easier access toit, more women would utilize it and plan for that possibility.
There are, however, distinctions between the new economic
policy and the former ones. I agree that the old industrial policy
was, indeed, based on the need to ‘catch up,’ so to speak, and it
was easier to visualize that Japan needed industry development insteel, automotive, electronics, cement, chemicals, pharmaceuticals,
etc. In the 1980s, Europe and the U.S. were moving toward priceoriented policies and limited government. Japan followed suitwith excellent growth. However, it became evident that catch-up
growth and steady growth are not the same, eventually reducing theattractiveness of that policy option.
Responding to the rise of China
For the new industrial policy, areas where there are targets
that industry cannot cope with by themselves would be key.
Another factor that affects the situation is the rise of China. Its
industrialization progressed at a rapid rate in the span of about two
decades. During this industrialization, it imported from industrial
intermediaries such as Japan, Germany, and the U.S. However,since around 2006, its trade-GDP ratio began declining as it
imported less. It began substituting domestic production from its
domestic industrial base in place of previously imported high-techintermediates. Those previous exports to China are now fading,and it will not revert course because China’s trade-GDP ratio isconverging to that of a large economy, like the U.S. or the EU.
The implication of this is that the policy that worked for the last
20 years will no longer be effectual. Moreover, there are U.S.China geostrategic tensions leading to industrial disruptions, whichhave been driven by political factors. One example of this is the
disruption in semiconductors. The sitting administrations in the
U.S. and China will dictate how aggressive these tensions will
become, but in the U.S., neither major political party is interested
in a cooperative approach with China. In China, President Xi is
focusing on internal markets and developing their industrial base.
These changes have fundamentally ended the status quo that has
existed for the last 20 years.
It is clear that there is a need to assess these trends, especially

RIETI Special Discussion

Industrial response to climate change
The challenges of climate change, or as I like to call it, the climate
rescue, are great. There will be a few decades in which to rescue
ourselves from the damage that has been done and continues to becreated. Actions for the mitigation of emissions and adaption tochanges that are already happening will have serious implications
for demand for manufacturing goods worldwide. This is a point thathas already been made by many commentators. It is a very largetransformation that many companies are undertaking. However, insome technologies, there are bottlenecks or coordination failures orexternalities that can impact such transformation. One example ofsuch a bottleneck is the adoption of electric vehicles. While policy
makers can help prompt demand, companies like Tesla have solved
the issue of adoption of electric vehicle technology by organizing
the whole supply chain. However, electronic vehicles are a relatively
simple technology even compared to diesel or gasoline cars, and the
supply chains are simple. Even for gasoline vehicles a moonshot was
not necessary. However, it seems to me that hydrogen technology,
carbon capture and other mitigating technologies require a more
systematic push for development. The demand does not exist yet andso, here, government may be impactful. If such climate mitigating
technologies do come to fruition, it seems that only a small numberof companies and countries will develop the technology, but it willneed to be deployed everywhere in the world. This is a massive
reorientation of demand for high-tech manufacturing, which iswhere the G7 countries are still global leaders. That being said, suchtechnologies will have demand for decades into this century, even if
only for domestic use.
Other areas of change will be adaptation to extreme weather,including creation of sea walls, irrigation systems, moving cities,
heat resistant agriculture, and so on. Precision irrigation andindustrial agricultural equipment for planting that requires lesswater, less fertilizer, and less pesticide are other examples of superhigh technology that will be in demand around the world during
this period of rapid climate change. However, incentives forindustry such as in agriculture may be required in Japan. Anotherarea of adaptation of markets will be in water treatment and waterproduction. Fresh water is already a critical issue for many regions,and desalination, water recycling, and rain capture are examples ofhigh-tech or medium-tech engineering and scientific solutions—thedemand for which will also increase with climate change. It is clearthat there is room for a micro-level industrial policy that might help

avoid coordination problems and overcome certain externalities.
Potential targets
Determining appropriate targets for the new industrial policy isparticularly difficult because industrial policy tends to be captured
by industry. Industry has more knowledge about the technology
in question than the government will ever be able to informthemselves about in a policy-relevant timeframe, but it may havediffering incentives compared to other stakeholders, and so targets
should be general but clear. Therefore, targets that address adapting
to climate change and the changing manufacturing patterns in
China are high-level enough that they should find significant public
support and be implementable.
In terms of an intermediate timeframe, the rapid deteriorationof the U.S.-China relationship and trade disruptive policies dojustify industrial policies that safeguard key components. The ideaof certain sectors that are critical to many surrounding sectors issomething that policy should embrace again. The first criterion
for this determination is the question of how complementary
these inputs are to other industrial inputs. In the 1950s, Europe
focused on coal and steel, forming trade communities for better
coordination. Later, atomic energy was added, and these sectors
became linchpins for other sectors. Semiconductors are similar inthat regard, and this has been made clear during recent supply chain
disruptions. For instance, it was not common knowledge that the
automotive industry would be so heavily impacted by supply chain
disruption in semiconductors. The inability to substitute such an
input is another key criterion in determining an appropriate target,
which, in turn, is also related to how difficult or time-consuming it
may be to establish a similar infrastructure if the supply is lost. Hereagain, semiconductors are a good example. Taiwan has facilities
at an advanced technical level that others may find challenging to
replicate. In the medium term, as Japan, Europe, and the U.S. pivot
to semiconductors, there may be a surplus of supply, leading someto characterize the current shift as a mistake. However, the degree
to which they are necessary seems to outweigh any such criticism.
The importance of securing domestic supply is now clear. Anotherindustry that may face overcorrection, due to COVID-19, is the
production of medical equipment and vaccine production. This maylead to waste but likewise it may be important to secure domestic
infrastructures and supply.

RIETI Special Discussion

keeping an eye on what demand patterns for exports will evolve
into in the face of diminishing demand from China. Companies
surely have talented people working on what those targets shouldbe, but it may require reorientation of production or concentrationthat would be better directed at the government policy level, so
relevant targets necessarily incorporate this perspective. Policy
targets must address areas where collective action is more effective
than individual action in reorienting the economy as a whole.

Discussion
The role of government in target industries
Yano: You mentioned that industrial experts are more
knowledgeable than the government in technology. However, youalso mentioned the large role that government could have in anindustry such as semiconductors. What is your take on these two

RIETI Highlight 2022 SPECIAL EDITION

5RIETI Special Discussion
6

positions?
Baldwin: In my understanding, there is a part of the production
in industry that is very cyclical where a new product, such asa memory chip, is designed: it starts as very expensive, but it
becomes cheaper as production techniques are improved. Then
more chips hit the market. This is an undersupply and oversupply
situation. We are seeing a situation like this currently where theprivate industry is reluctant to invest due to this cyclical supplydemand structure, so government policy could be a kind of
insurance to keep production going even when it may not be
so profitable. Other industries such as education and healthcare
also involve a government element because some parts of theseindustries are not profitable enough for private industry tomaintain interest, despite societal demand for them.
So, such a target industry would have a lack of substitutable
inputs, very long lead times, and a cyclical nature. These elements
would make it difficult for the industry to cover all costs. It is insituations like this that I think that if there are very clear reasons for
public investment, there could be public and private return fromsuch investment.
In Europe, Airbus was one such case. Airbus could not enter
the market as a private company because Boeing and McDonnell
Douglas were already producing jets: a private company could notjustify the risks involved in such a massive investment. I think that
this public-private wedge that was used for Airbus can similarly bea justification for investment in semiconductors.
Yano: Currently, in the semiconductor industry, Intel is completely
private, however, the Taiwan authority is involved in TSMC andthis involvement has led to a different form of industry. TSMC
has accumulated technologies and development over time thatare more diverse than other players. What is it particularly about
semiconductors that means that the private sector cannot catch upby themselves?
Baldwin: Here we are talking about getting a new production siteor a new company producing the good. In some cases, this may
require continued support but in other cases it may not. Airbus is
now a profitable company and does not require support. Intel isalso a profitable company, but it grew during the personal computer
boom and was entangled with the growth of the Windows
operating system. There are many products that were designed
around—and in cooperation with—these chips, so the technology
is self-sustaining at this point. It seems the Korean and Taiwanese
semiconductor industries were influenced by government policy at
one point but perhaps do not need it now. However, as I understandit, Japan is interested in manufacturing chips that do not currently
exist, and for this, massive support from the government will beneeded over many years. There is more of a need to establish theindustry domestically, specifically due to U.S.-China tension, which
has made trade between these states no longer free or guaranteed.
I understand and agree with your suggestion that permanent

RIETI Highlight 2022 SPECIAL EDITION

subsidization should only be used in extraordinary cases.
Healthcare, education, roads, judiciary, police, fire brigades are
all examples of areas that require permanent subsidies because of
the gap between public and private. In other cases, there should betermination clauses if subsidization of an industry is going to work,that are based upon the evaluation of costs and benefits for society.
So, it is also important to distinguish between startup help andpermanent help.
There was also a case in the U.S. where massive government
support was given to a semiconductor company to establish a cuttingedge manufacturing base, but eventually only a warehouse was built
in Wisconsin. So private companies must also be forced to upholdagreements that they make. It is not just a case of injecting funds.
Watanabe: You mentioned that coordination in some cases may
justify government industrial policy intervention regarding therise of China and climate change issues. You also mentioned theneed for the coordination among like-minded countries. Could
you explain what you mean by increased coordination that may benecessary, due to the changes in demand resulting from China’s
new trade balance?
Baldwin: The argument is for requiring the least amount ofgovernment intervention. One example is evident in trains, heavy
earth moving equipment, or big, advanced cranes, and construction
equipment etc. that were being imported from Japan, Germany,or the U.S. when China was in its fast industrialization phase,say from the 1990s to 2010. The demand for all this equipment
coming in was large enough to distort the world market. However,
now, for example, China has their own construction equipment
produced locally, so the demand for high-tech capital goods andhigh-tech intermediate inputs is moving. Maybe industry canadapt fast enough to this change, but there is a real possibility that
this change is large and systemic. So, there may be a need for
coordination among G7 manufacturers to realize that the Chinese
market is not coming back and is orienting itself toward otherareas. It may well be that the private sector has sufficient incentives
to do that. However, the manufacturing of this equipment takes
many companies—and perhaps the government could help in
coordination of the supply chain between nations, and so on.
However, the changing patterns for sophisticated and manufactured
goods are nowhere near as strong as the shifting patterns forsemiconductors.
Use of nuclear energy in achieving decarbonization goals
Yano: Regarding the considerations on nuclear energy, France andthe European Union announced that nuclear is one way of copingwith global warming and that nuclear will remain in the picture.
What is your opinion on this technology?
Baldwin: In the German case, the then Chancellor, Angela Merkel,
decided to phase out all nuclear energy after the Great East Japan

Earthquake and tsunami. I understand the concern for nuclear waste
in the long term. However, there does not seem to be enough time tochange to other sustainable technology. Nuclear energy is very low
carbon and although it brings other problems and vulnerabilities,
there may not be enough time before 2030 or 2050 to control
carbon emissions without it. It may be the lesser of two evils rightnow. Japan, however, is a different case because it is geologically
active, so the seismic activity might make it less attractive as an
option. France, on the other hand, has been using nuclear power fora long time which has helped them adjust to climate goals. I think,in terms of combating climate change, we should use all of the toolsthat we have. Nuclear (energy) is a tool that has a long-run costs but
short-run benefits.
Ensuring the interface with state capitalism
Yano: Some say that China is no longer a viable trading partner for
the U.S., Europe, and Japan. Is that your view as well?
Baldwin: I would not take that view. That being said, I think that
China’s trading pattern is changing to that of a normal, megaeconomy but that this change is not widely understood to be part ofa permanent transition. The new equilibrium that we have arrived
at will remain. The problem is the interface between China’s typeof capitalism and others, such as the capitalism in Europe, Japan,
and the U.S. Over time, Europe, Japan, and the U.S. have come toterms with certain ways of interfacing with each other. Europe has
a different capitalist system than the U.S. including the preventative
principle, regulation, and social goals. Furthermore, Japan andthe U.S. faced a great deal of conflict during the late 1980s andearly 1990s until an interface was worked out. We must now find
an appropriate interface for China. They will not change, and wewill not change. I am optimistic that we will find an interface thatworks because there is so much money to be made in finding it;
it could be so disruptive. China produces intermediate inputs thatare used widely in manufactured goods, and these are pervasive
throughout the world’s value chains, to a degree that most people
still do not comprehend. Therefore, if you buy a good from Canada,
the EU, etc., many inputs are likely made in China. So, it will bevery expensive and difficult to separate Chinese manufacturing
especially for intermediate inputs, and there will be an imperative tofind a way to cooperate. A main issue is with industrial subsidies.
One example of such cooperation is the U.S. and European
aircraft industry, with military interest on the U.S. side and Airbus
on the other. To clarify, China is undergoing permanent change
led by one administration, and this is not a transitory action. China
has become like Germany, a manufacturing powerhouse exportingand making industrial parts themselves. In the medium term, U.S.China tensions make reliance on China risky, and this type of risk isdifficult to plan for, due to the escalations that are possible in such asituation. An example of this risky nature is the reactions during the
Trump administration leading to heightened tensions.

Yano: While the U.S.-Japan relationship had tensions during
the 1980s, one factor that is different with China is the size of its
economy. Japan is smaller than the U.S. in every way. China, on theother hand, is huge, both in terms of population, land, and market
potential. It is entangling political and economic powers at the sametime. This is a new model for U.S., Europe, and Japan to cope with.
China’s population is far larger than the U.S., Europe and Japancombined, and they may become even more powerful.
Baldwin: It is never possible to separate economics from politics
at that level. China has been successful at industrializing andhas driven some U.S. industries out of business. However, U.S.
industry as a whole is not suffering in terms of production orexports. It is adapting. The domestic market effects are leading
to popular backlash against China. There are also political
exploitations of the tensions to get votes. However, it may
not be possible to separate these elements. Solving the issueof the integration of China into the world system is a difficult
problem that I cannot address. However, we should deal withelements such as forced technological transfers, subsidies, andthe purchase of overseas companies. These elements are leading
to changes in competitiveness at a product and firm level which
are viewed as unfair. For instance, in commercial aircraft there
was an agreement between the U.S. and Europe about how muchfinancing could be given. This resulted in a series of industrial
sector-level agreements and subsidy practices. Thus, there is a setof practical things that can be done on a commercial level that cansolve some problems. It may be difficult to say if this will solve
the larger problems, but they are not really for economists tosolve.
These issues are bilateral or plurilateral issues and not within thepurview of the WTO, so they will have to be addressed as such. So,
my suggestion would be for METI and other economists to focus
on allegations of unfair trade and commercial tensions. These kindsof discussions occur regularly between Europe, Japan, Korea, andthe U.S., but the way those subsidies and policies work in China
is different. The old tools like countervailing duties may not be
sufficient, so that is where we should focus the dealings.
Watanabe: Richard touched upon a very important point byfocusing on the need of interface with the state capitalism. Of
course, we need to address economic security concerns and takea coordinated approach among like-minded countries, but at thesame time our economies are so interdependent that we cannot
decouple the global economy. In this regard, we have to bridge thedifferent types of capitalisms and create an interface with their state
capitalism. We have some tools in our toolbox already such as rules
on industrial subsidies, government procurement, etc. By upgradingthese toolkits, we can upgrade and strengthen the free trading
system and rule-based global and regional economic order. Thatis the very important point we should not lose sight of, and that iswhere Japan and other middle-power countries caught in the middleof the superpower competition should play a role. Thank you.

RIETI Highlight 2022 SPECIAL EDITIONRIETI Special Discussion

RIETI Special Discussion

7

RIETI COVID-19 Initiatives

Masayuki Morikawa
President and CRO, RIETI

Response of economic researchers to the COVID-19
pandemic

COVID-19 Initiatives
8

The COVID-19 pandemic has been a peculiar shock from ahistorical perspective. Despite the development and availabilityof vaccines and therapeutic drugs, a light at the end of the tunnel
is still not visible. The year 2022 will likely also be one when we
have to live with the virus.
This pandemic has been characterized by (1) a trade-off
between health and economic activity, (2) heterogenous impact
by industry, and (3) the extremely heightened uncertainty. To
mitigate the spread of infections, measures that restrict people’s
movements and requests to stay at home have suppressed
economic activity, at least in the short run, and ordinary
economic policies to stimulate the economy have ended up
increasing the number of people infected. Global economic
crises and other past shocks have had a considerable impact
on manufacturing, but the COVID-19 pandemic has seriously
affected the service industry where person-to-person contact
is essential. Moreover, the COVID-19 pandemic has generated
unparalleled uncertainty about the future.
Economists around the world are actively tackling these newissues. In the field of economics, there has been a cumulative
increase in the number of research papers on the subjectof COVID-19 and many academic journals have produced
special issues. Japan is no exception to this trend. The Japanese
Economic Association set up a special webpage for COVID-19
pandemic research. The Association’s journal, Japanese
Economic Review, has twice released special issues.
RIETI also has made a concerted effort to promote research
relating to COVID-19 in its Fifth Medium-term Plan, whichbegan in April 2020. At the time this article was penned, roughly
60 discussion papers have been published, and approximately
20 research papers have already been peer-reviewed andpublished or are scheduled to be published in academic journals.1

RIETI Highlight 2022 SPECIAL EDITION

Because real-time analysis and information unobtainable fromgovernment statistics are necessary, much research has been
conducted using stock prices, POS data, mobile phone tracking
data, and other types of high-frequency data as well as researchbased on original surveys of companies and individuals. The
specific topics analyzed have ranged broadly. A provisional
attempt at categorization of the topics might produce thefollowing categories: (1) factors and countermeasures relating
to infection spread, (2) impact on consumption and the macroeconomy, (3) impact on industries and companies, and (4) impact
on the labor market (see Figure 1).

RIETI COVID-19-related researchFirst, representative examples of research focusing on the
pandemic have employed simulations incorporating economic
models into epidemiological models (RIETI Discussion Paper
20-E-089, 21-E-004, 21-E-009).2 The topics that have been
analyzed have included the impact that social distancing
measures, mobility restrictions, and vaccinations have hadon infections and economic activity. In addition, research has
also been conducted that is based upon original surveys of
individuals, and which offers suggestions for effective methodsof increasing vaccinations (21-J-007, 21-J-023, 21-J-026, 21-P017). These have also been referenced by the government in thepolicymaking process.
Second, research relating to consumption and the macroeconomy includes a survey of households on the effect thatthe pandemic and shelter-in-place measures have had indeterring people from engaging in consumption (20-P-020),
analysis employing POS data indicating weekly changes in
consumption behavior (20-J-037) and estimates of the effect of
the Special Cash Payments provided to all households in 2020 on
consumption (21-E-043). These papers have revealed empiricallythat, while consumption for cosmetics and eating out decreasedperformance, the feasibility of working from home varies greatly
depending upon industry and occupation. This research revealed
a trend of this practice increasing the disparity in the labormarket. It has also found that average productivity when working
from home is lower than when working at the usual workplace.

Prospects and Challenges
Much research is also currently underway, including research
integrating the social and natural sciences, such as a study on
antibody testing, which is being jointly conducted with the
Kyoto University Graduate School of Medicine and the Pasteur
Institute in France. The results are expected to be promising.
Ex-post evaluations of the variety of relief policies extended
to individuals and companies, to which huge budgets havebeen committed during the COVID-19 pandemic, present
future issues of high priority from the perspective of evidencebased policy making (EBPM). As mentioned earlier, analysis
has already been conducted on the effect of the Special Cash
Payments, but empirical analyses are still lagging on the effects
and side-effects of government financial institutions’ cash flow
assistance, benefits to small- and medium-sized enterprises,
employment adjustment subsidies, tourism demand promotion
measures (Go To Travel), and other policies. RIETI will continue
to actively pursue research related to COVID-19 in 2022 in orderto shed light on possible changes in the economic structure after
COVID-19.

COVID-19 Initiatives

as COVID-19 spread, “nesting consumption” increased. The
structure of composition significantly changed and the marginal
propensity to consume was low for uniform cash payments
provided to the public. Recently, analysis has also begun on theeffect of vaccination on consumer behavior (21-E-079).
Third, most of RIETI’s COVID-19-related research papers
have concerned the pandemic’s effect on industries andcompanies. Stock price data offer high utility enabling a quick
understanding of the impact that the shock has had on industry
and companies. Beginning early on, research has been conductedusing such data (20-E-061, 20-E-068, 20-E-088). Based uponoriginal survey data, research measuring the uncertainty firms
face (20-E-081, 21-E-042) suggested an increase in uncertainty
among firms maintaining trade relations with China during theinitial stage of the pandemic, and that the COVID-19 pandemic
has been strongly characterized as a greater uncertainty shock
than the Global Financial Crisis. There has also been muchresearch employing simulations and ex-post assessments ofshock propagation (20-E-037, 21-E-001, 21-J-010, 21-E-014, 21J-031) that has revealed how the impact extended across regions
and countries via the supply chain. While the COVID-19 shock
has had a severe negative impact on accommodations, dining
services, and passenger transportation industries, there have also
been industries that were positively affected as a result of “nesting
consumption,” such as electrical and machine manufacturing,
information services, and online retail. Research simulating
the exit of firms during the COVID-19 pandemic (20-E-065)
indicated sizable heterogeneity, varying by industry and region,and that enormous subsidies are needed to prevent firms fromexiting. Research has also been conducted that used original
surveys of companies to reveal the characteristics of companies
which have taken advantage of the assistance provided bygovernment relief measures (21-P-006, 21-J-029). Making useof market mechanisms is important in selection of companies
to facilitate post-COVID-19 economic growth, and researchon these mechanisms will provide suggestions for desirable
government policies.
Fourth, there has also been much research looking at the
pandemic’s effect on the labor market. Research analyzing thecharacteristics of workers who have been severely impacted (20E-039, 20-E-064) has shown that the COVID-19 pandemic has
dealt a heavy blow to non-standard workers, small-scale selfemployed, and low-income earners, and that this has widened
economic disparity. Also, a noticeable change in the labor market
during the COVID-19 pandemic has been the rapid expansionin employees working from home, which much research hasaddressed (20-E-073, 21-E-002, 21-E-024, 21-E-063, 21-E-078).
While the increase in working from home has mitigated theeffects of the COVID-19 shock on employment and corporate

Footnotes
1 In addition to these, several books have also been published: Kobayashi,
Keiichiro and Masayuki Morikawa (Eds.) (2020), Economics of the
COVID-19 Pandemic, Nikkei Business Publications, and Miyagawa,
Tsutomu (Ed.) (2021), Economics of the COVID-19 Shock, Chuokeizai-Sha.
2 These numbers are the numbers assigned to the RIETI Discussion Papers(the same applies hereinafter).
*The discussion papers referred to in the text are easily
accessible from the online version of this column: https://www.rieti.go.jp/en/columns/s22_0005.html

Figure 1: Overview of RIETI COVID-19-related paper topics

Note: As of December 2021.

RIETI Highlight 2022 SPECIAL EDITION

9GLOBAL INTELLIGENCE PROJECTRIETI Open BBL Webinar: Global Intelligence Series

Economic Security Policy as Growth Strategy andRecent Developments in Trade Rules
Date: September 6, 2021
Speaker:

Jun Kazeki(Director-General, Trade Control Department, Trade and Economic Cooperation Bureau/ Director-General,
Economic Security Policy, Minister’s Secretariat, Ministry of Economy, Trade and Industry (METI))

Commentator: Tsuyoshi Kawase(Faculty Fellow, RIETI / Professor, Faculty of Law, Sophia University)
Commentator: Kazuto Suzuki(Professor, Graduate School of Public Policy, The University of Tokyo)

The Government of Japan expands on its view of economic security policy as a growth strategy and its holistic
approach to protect critical technology in response to rapid changes in technological innovation and shifting
geopolitics. Japan’s Ministry of Economy, Trade and Industry (METI) is engaged in a review of its export control
policy and shares recent developments in trade rules and the use of anti-dumping and countervailing duties, andchallenges and opportunities therein.

GIP

Economic security policy as a growth strategy
The basis of national security is rapidly expanding into theeconomic and technological fields due to technological innovationand geopolitical changes. Vulnerabilities in supply chains are
becoming clear due to COVID-19 and other disruptive challenges.
In this respect, the Japanese government recently states in its growthstrategy that it will strengthen and promote economic security
policy. Japan intends to secure autonomy and gain superiority,
as well as deepen cooperation with like-minded countries andestablish an international order based on fundamental values andrules. Japan will strengthen its effort to know, protect and promotecritical technologies via a holistic, whole-of-government approach.
While the economic security policy is a new focus, free andfair trade remains an essential part of government policy. In fact,
the most recent government-wide documents emphasize that theJapanese government will expand free and fair economic orderand further strengthen the rules-based multilateral trading system
to build a resilient supply chain and to actively develop the global
economy in light of challenges such as climate change and thedigital economy. In addition to rulemaking in such challenging
areas, enforcement is important in tackling unfair trade practices,
including those that may lead to overcapacity in certain sectors in
the global economy.
“Know, protect and promote”
Japan has adopted a holistic approach to protecting criticaltechnology, namely “know, protect and promote.” “Know” means
to identify chokepoints in global supply chains with multiple
suppliers. “Protect” means to prevent diversified technology

10

RIETI Highlight 2022 SPECIAL EDITION

acquisition activities. “Promote” is research and development(R&D) promotion in critical technology fields, as highlighted
in the Integrated Innovation Strategy of 2020, through which
the government made intensive efforts to materialize and define
government policy in more granular detail.
Foundation of economic security
Economic security is characterized as a key policy in three
government-wide strategies, namely the Action Plan of the Growth
Strategy, the Basic Policy on Economic and Fiscal Management andReform of 2021, and the Integrated Innovation Strategy of 2021.
These three documents stipulate the allocation of human and otherresources in the Japanese government through which Japan will
accelerate its economic security policy, including export controls.
Within the Japanese government’s Action Plan of the Growth
Strategy, I would like to highlight Chapter 6: Ensuring Economic
Security and Concentrated Investment. It places critical importanceon the assurance of technological supremacy. To achieve this, thestrategy highlights the need to develop critical technologies iin
sectors such as aerospace, quantum, artificial intelligence, hig
highperformance computing, semiconductors, nuclear, advanced
materials, biotechnology, and marine technologies.
Furthermore, it mentions protecting critical technologies, suchas through a novel export control framework and export controls.
It also focuses on investment screening enforcement, immigration
screening policy for foreign students and researchers, research
integrity, and a secret patent system. Thus, it promotes both a policyof protection and a policy of promotion. Moreover, the government
strategy highlights building resilient supply chains for critical

RIETI BBL Webinar: Global Intelligence Series invites leading experts from Japan, the U.S., Europe, and other
Asian countries to give lectures about various global issues. Many policy proposals are derived from informationcollected and discussed in these lectures.

Export control regimes
There are two important areas of export control to consider.
The first is the challenges of existing export control regimes aandpossible solutions. Japan’s export controls are in accordance withinternational regimes, such as the Wassenaar Arrangement andthe Nuclear Suppliers Group, but limitations exist. Under suchframeworks as the Wassenaar Arrangement, the immediate needs toaddress emerging technologies are undermined by a deficiency inconsensus process among the 42 member countries. Export control
requires quick consensus, but that is often difficult.
Additionally, unilateral measures are problematic. During
the recent trade conflict, the U.S. issued a number of unilateralmeasures, namely, the foreign direct product rules on
semiconductors or some additions to the entity list, which had anumber of impacts on industries. In response, China also introduced
a number of measures including the newly entered into force
Export Control Laws, anti-extraterritorial application law and theanti-sanction laws. This sort of escalation of unilateral measures by
two major economies is detrimental to business predictability.
In addition, unilateral measures are not effective as they cannot
deter the exports of equivalent items from other countries due toloopholes. Therefore, the Government of Japan seeks a solution
through the promotion of the like-minded countries approach,seeking to form a novel export control group complementary to
existing international regimes, in order to achieve more effective
export control and also avoid any escalation of unilateral measures.
The second important area of export control is the review ofdeemed export controls. The approach firstly addresses appropriate
controls on intangible technology transfer, which is foundational
for both national security and innovation in companies, universities,
and institutions. This includes such intangible technologies as
design program software or algorithms.
The Government of Japan is also to review and expand thescope of control to include residents who are influenced by foreigncountries. Under current rules, Japanese nationals and foreigners

staying in Japan for more than six months are exempted fromthe intangible technology transfer controls. As a response tothis situation, the Government of Japan seeks to protect criticaltechnologies at an early stage in these transactions, and a cabinetbacked proposal to do so is now under the public comment process.
The new approach requires intangible technology transfer controls
or an export license for critical technologies being transferred
between residents within the country when the receiving party
is under significant influence of a foreign power, either throughcertain contracts, economic benefits, direct government instructions,or similar.
Challenges and Opportunities
METI’s policy includes global economic strategy, and it intends
to integrate internal policy and external policy. It seeks to do this bybuilding trustable value chains focusing on resilience, green, climatechange, human rights protection and digital. Furthermore, METI’s
policy supports a free and open trading system built for sustainability
and fairness, including its improvement, as well as creating norms
that ensure a level playing field at the World Trade Organization(WTO), within Economic Partnership Agreements (EPAs), and otherfora. Japan is currently at the center of a mega free trade agreement(FTA), and in response to market distorting measures, METI deems
both rulemaking and enforcement to be important.
Since 1995, Japan has only imposed anti-dumping duties innine cases, and only a single instance of countervailing duty, in2006. Anti-dumping duties are widely used around the world with
113 cases in 2020. In particular, after COVID-19, instances are
growing, notably in the metal and chemical sectors. In addition,
between 1995 and 2020, there have been 344 countervailing duties
implemented around the world, while Japanese cases are very
limited.
But what are the challenges here? Trade structure has become
more complex with the development of global supply chains. Thus,
countervailing duties can be seen to be an option to lead to lessmarket-distorting measures, including industrial subsidies.
METI has conducted studies through the Subcommittee on Trade
Remedies of the Industrial Structure Council, and the key findinfindings
reveal that there is difficulty in gaining information on subsid
subsidies, orin particular, the benefits of a subsidy under the definitions of the
WTO agreement and domestic regulation. The second issue concerns
retaliation from other countries. Once a countervailing duty is issued,
it may prompt a countermeasure from another party.
Third, there is a lack of awareness of countervailing duties inJapan considering that the only use of countervailing duties wasin 2006. Given the current economic situation and importance of
supply chains, it is curious that Japan has not considered the useof countervailing duties. The next step is for Japan to promoteinternational cooperation and engage with the EU and the U.S. tocompare best practices in the use of such trade remedies.

RIETI Highlight 2022 SPECIAL EDITION

GIP

technologies and materials in four critical sectors: semiconductors,
pharmaceutical products, batteries, and critical minerals.
In addition, the Government of Japan intends to newly establish
a funding mechanism for economic security, promote advanced
semiconductor and battery technologies and attract manufacturing
facilities of critical industries to Japan, in order to strengthen its
supply chain resilience.
These factors are identical to those mentioned in the U.S.’s 100Day Supply Chain Report, the European Union’s Open Strategic
Autonomy, and China’s emphasis on the importance of supply
chain resilience in order to reduce its dependency on other countries
while simultaneously increasing the dependency on China byother countries in critical sectors. As such, it is evident that major
economies are promoting these protection policies and promotion
policies emphasizing supply chain resilience.

11

GLOBAL INTELLIGENCE PROJECT

Comments and Q&A

GIP
12

Tsuyoshi Kawase: The use of trade
remedy measures has been increasing for the
past couple of years. This is explainable by
the current economic downtrend all over theworld caused by the COVID-19 pandemic.
We experienced a similar increase in the use of
trade remedies in the time of the 1997 Asian
Financial Crisis and the 2008 Global Financial Crisis, for exam
example.
Trade remedies, in particular anti-dumping and countervailing
duties, are often described as tools to tackle unfair trade practices.
However, the explanation is one-sided. Countries with a great
variety of economic systems have acceded to the WTO. Evenamong two similar Western-style market economies, there are manydifferences in regulatory conditions, government policies, and thus
cost structures, even within the same industry.
According to Professor John Jackson, known as a founding
father of the WTO, trade remedies play a buffering role, allowing
the members in the various economic systems to coexist in the
single WTO system. Regardless of their usefulness, so far Japan has
seldom employed trade remedies. This is partly because of Japan’s
experiences under the General Agreement on Tariffs and Trade(GATT) of 1947, when Japan was a target of anti-dumping andcountervailing duties imposed mainly by the U.S. and the European
Economic Community (EEC) at that time. For that reason, inJapan, trade remedies have the stigma of a protectionist tool, andadditionally, Japan’s domestic competitiveness in manufacturing
meant that there was little need for the measures. Therefore, Japanwas eager to reinforce discipline on trade remedies during the
Uruguay Round and the early stage of the Doha Round.
This sentiment changed due to the rise of China and as otheremerging economies became more salient in the early 2000s. For
Japan, the turning point was the imposition of the provisionalsafeguard measures on certain agricultural imports, mainly from
China in 2001, followed by anti-dumping duties on Koreanpolyester staple fiber the following year.
As Mr. Kazeki showed, Japan has been invoking trade remedies
constantly ever since then. Therefore, even though the total number
is still small, there has been a remarkable increase in the past 20
years. Alongside this, there has also been a continuing improvementof the investigation procedures in Japan.
Japanese industries used to seldom initiate trade remedy
investigations. That is due to not only the aforesaid guilty
conscience associated with a protectionist action, but also therestrictiveness of the prerequisites for petition. For example, Japan’s
domestic regulation on anti-dumping and countervailing duties
used to require more support from a domestic industry to initiate an
investigation than those reguired under the WTO agreements. The
2011 and 2016 amendments to the anti-dumping and countervailing
duties guidelines relaxed the excessively stringent requirements to
RIETI Highlight 2022 SPECIAL EDITION

conform with the WTO agreement, with further amendments in
2017.
Another impediment for prospective petitioners is the Antimonopoly Law. Sometimes the producers concerned inevitably
need to discuss their collective application for an investigation, andbecause such talks sometimes touch upon information about prici
pricing,
it could be deemed as a violation of the Anti-monopoly Law. To
remedy such legal uncertainties, METI published a hypothetical caseof collective application, which gives the prospective petitioners ahint of the dos and don’ts in preparing the application.
Furthermore, METI has recently intensified outreach for domestic
industries as only a limited number of Japanese manufacturers were
aware of the usefulness of trade remedies in their business str
strategy
at top management levels.
In addition to the domestic effort, Japan attempts to combat
unfair trade practices through international cooperation. In 2017,it set up the Trilateral Trade Minister Meeting with the U.S. andthe EU, which agreed to amendments to the current WTO Subsidy
Agreement, including expansion of the list of prohibited subsid
subsidies,
introduction of a list of situations where out-of-country bench
benchmarks
can be used regarding governmental provision of goods andservices, and redefinition of a public body whose subsidies are
subject to WTO rules.
While these elements, if successfully incorporated into the WTO
Subsidy Agreement, contribute to better use of countervailing
duties, the Trilateral Meeting should pay more attention to theprocedural aspect of countervailing duties. Currently the Appellate
Body is defunct and unfortunately this status quo will continue
for the foreseeable future. Accordingly, in the absence of disputesettlement measures, countervailing duties imposed by individual
WTO members are more effective to combat distortive industrial
subsidies and ensure a level playing field. Therefore, I would
urge the Trilateral Meeting to discuss the cooperation between
their investigating authorities, including exchange of informat
information
regarding the third country subsidies and concerted action in the
countervailing duties investigations.
In conclusion, the active use of trade remedies is necessary forlevelling the playing field, especially among the WTO memberswith their great variety of economic systems. Having said that, mycomments developed here by no means encourage protectionism.
All measures and investigations must be WTO consistent as amatter of course. WTO agreements regarding the trade remedies
have already been sufficiently clarified by a number of panel
and appellate body reports. Therefore, finally, I recommended
the Japanese investigating authorities observe the relevant WTO
jurisprudence.
Kazuto Suzuki: The economic security of Japan is a very urgent
issue in the context of the rivalry between the U.S. and China,
and for many years Japan has taken a position, which separates
economic activities and political influence, and that economic

legally binding, but it still needs to clarify how to relate to the otherinternational regimes. This new export control group may havesome conflict with the other existing but still influential members.
So how do we justify the idea of this new framework of the export
control group?
Jun Kazeki: First of all, to Professor Suzuki, the first question
you raised on whether the Japanese government or industry should
pursue the economic security policy at all costs is a relevant
question because of the number of products and number oftechnologies in question: Some technologies are critical, and others
are not. The question is how can we distinguish between the two?
Which ones are is strategically important?
During METI’s consultations with industry, we propose thatcompliance and transparency are important, but for company
activities to shrink too much is not ideal. Therefore, we do our best
to clarify the critical technologies in our list. And at the same time,companies need to make a comprehensive assessment regarding
the risk, the nature of the technologies and the regulations present
in the U.S., China, and EU. They need to look at the supply chainsas a whole, not only for export control, but also regarding their
R&D office, strategy office, and various other offices. Now we arerecommending that companies establish a holistic strategiy office tocope with such matters.
Regarding the second question on how economic security policy
and national security are treated and what kind of definitions
exist, there is no clear, concrete, legal text definition of economic
security policy. It is a new subject, so we are attempting to define
its scope. One approach is to focus on critical technologies, but asProfessor Suzuki rightly said, there are several broader perspectives
and definitions in use around the world. Therefore, I believe thatgovernment officials, industries, and academia need to contributeto this debate on the definition. The ultimate objective is to provide
transparency or guidance to all stakeholders.
Regarding the third question on the novel export control regime,
Wassenaar is still the basis for control of exports, and we areconsidering its future. The question is whether to create the securityrelated mechanism within Wassenaar or outside it. In short, there isa need for certain discussions with Japan’s trading partners, but wealso need to rapidly protect or regulate critical technologies. Here,the point is that like-minded countries should be countries which
actually possess such critical technologies in the supply chains.
Also, regarding Professor Kawase’s comment that the use ofcountervailing duties is effective in terms of the current WTO
impasse, of course, METI’s basic view is that we need WTO
reform, but in the meantime, countervailing duty use will benecessary, otherwise our industry or stakeholders will lose theirlevel playing field around the world. We need to promote this idea
right now and proceed with international cooperation with the U.S.
and the EU, and we plan to have an international seminar in thisregard.
RIETI Highlight 2022 SPECIAL EDITION

GIP

activities should not be influenced by politicalmotivations or political strategy. Nevertheless,in the recent geostrategic and geopoliticalsituation, the economy is now being used asleverage to impose the will of the state onothers, and it is a certainty that more countries
are actively using these economic measures toimpose strategic positions. As such, Japan needs to take appropriate
actions.
Mr. Kazeki discussed economic security, but the term “economic
security” is relatively new, and its definition is not yet clear.
Basically, in relation to technological innovation and geopoliticalchange, economic security means the re-establishment of supply
chain resilience to reduce vulnerability in supply chain activities.
Indeed, it is extremely difficult to separate the global market into
smaller businesses based within national economies, and a global
supply chain is unavoidable if we want to reap the benefits ofproductivity and just-in-time production. As such, all countries arevulnerable to political influence upon the supply chain. In order
to increase the resilience in supply chains, METI’s policy is tohighlight strategic autonomy and gain superiority in the supply
chain. Then the question remains: To what extent should Japanbe autonomous and at what cost? What type of items of trade are
more or less important in terms of strategic autonomy? Here, thedefinition of the terms will be critical.
The concepts of “know, protect and promote” are, to someextent, understandable, but if you look carefully there are different
categories or different contexts included in those activities.
“Knowing” is understanding the vulnerability of the supply chaichain
and the current structure of international trade. “Protecting”
means methods of protecting Japanese industry and technology
and preventing technology from transferring to other parties.
“Promoting” relates to more basic, traditional industrial policy.
These three have different contexts. What does economic security
as national security mean, exactly? In the study of international
relations, national security means preventing intentional harm byothers. As it pertains to economic security, it, by extension, takes on
the concept of trying to avoid intentional harm to the supply chain.
And furthermore, “protecting” means the intentional harm that isdone by stealing technology. Then the question remains: What does
“promote” do for national security? Yes, building up the industrial
base is important, but how does it contribute to national secur
security?
Whether the promotion of industrial policy relates to national
security is another question that we need to explore in the fut
future.
Regarding the proposed, a much smaller, agile export control
group with like-minded countries with certain technologicalcapabilities is very understandable, and I encourage METI to
move forward with this idea. The question remains whether it isgoing to be a new export control regime or a group within a cer
certain
regime, particularly in the Wassenaar Arrangement. I think theinternational regime is basically the coalition of the willing. It’s not

13

GLOBAL INTELLIGENCE PROJECTRIETI Open BBL Webinar: Global Intelligence Series

Mongolia Long-term Vision 2050 and Expectations
for Japan, Presented by Former Chairman of
the National Development Agency of Mongolia
Date: April 7, 2021
Speaker:

Bayarsaikhan Banzragch, Ph.D.
(Former Chairman of the National Development Agency of Mongolia / Counsellor, Head of Economy andTrade Division, Embassy of Mongolia in Japan)

Commentator: Osamu Onodera(Consulting Fellow, RIETI / Deputy Director General for Trade Policy, Trade Policy Bureau, Ministry of
Economy, Trade and Industry (METI))
Moderator:

Haruhiko Ando
(Vice Chairman, RIETI)

GIP

Sandwiched between China and Russia, Mongolia has a national land area about four times that of Japan, yet a
population of only 3.4 million. That is less than the populations of Hong Kong (7.5 million) and the Uyghur people(12.8 million), who are currently the focus of international discussions. Amid the harsh geographical circumstancesof a landlocked country, Mongolia maintains independent peaceful diplomacy with an emphasis on ties to Japan.
In October 2019, Mongolia revised its Constitution, indicating its intent to carry out “sustainable and stabledevelopment policy.” In May 2020, Mongolia formulated its Long-term Vision 2050, a plan that looks back on the
country’s 30-year path following democratization while setting out policy for long-term development over the next
30 years. At this seminar, Bayarsaikhan Banzragch, a former Chairman of the National Development Agency ofMongolia who worked on formulation of the long-term vision, explained in fluent Japanese the future vision for
Mongolia and the potential for cooperation with Japan.

The aims of Mongolia’s Long-term Vision 2050

commercialize nomadic culture tourism and a sustainable livestock

The creation of Long-term Vision 2050, Mongolia’s roadmap forindustry unlike any other in the world. It also seeks to make tthe capital

long-term development policy, was overseen by the country’s National

region a hub for logistics in Northeast Asia by 2050, by developing a

Development Agency under the leadership of then-Chief of the Cabinet

new international airport and satellite cities.

Secretariat and current Prime Minister Oyun-Erdene Luvsannamsra
Luvsannamsrai

Mongolia’s population of 3.4 million is increasing by 100,000 yearly

and with the participation of over 1,500 bureaucrats, researche
researchers, andand is expected to reach 5.4 million by 2050. Given the importa
importance ofother parties. The Constitution of Mongolia was amended to specify that

economic development that secures stable employment and income for“development policies and plans should be sustainable and stable.” To

the Mongolian people, the country hopes to maintain its current annualthat end, development policy-related laws were also amended in May

economic growth rate of 5% to 6%.

2020. The maintenance of long-term development policy as top-level
policy was guaranteed under law, regardless of elections and changes ofadministration.
Every program of Long-term Vision 2050 is associated with theThis year marks the fifth anniversary of the Economic Partnershi
Partnership
Agreement (EPA) between Mongolia and Japan that came into effect

SDGs. On that topic, the Mongolian Minister of Finance and I prpresented

on June 7, 2016. There are many projects that offer potential forthe country’s Voluntary National Review 2019 at a session of thecooperation. In international supply chains, the two countries cooperate

United Nations in July 2019. Regarding air pollution, the topic of focus,

on the development and maintenance of logistics infrastructure. The

Mongolia cut air pollution in the capital region by 40% in 2020.

installation of sprinkler irrigation systems carries the potent
potential to secure

While Mongolia has always ranked among the top 10 countries

14

Expectations for Japanhuge areas of agricultural land. In the livestock industry, we envision

globally in intellectual abilities, this accomplishment has been

the development of processed meat products, cashmere, wool, lea
leatherunderutilized and the country lags the world significantly in a number

products, and lactic acid bacteria-related products. In the tourismof development metrics. The poverty rate is high at 28.4% (2019), while

industry, we envision Roadside Station development and space travel

GDP per capita is $4,294. We aim to raise GDP per capita to $38,000

training centers, among other projects. In the information processing

and reduce the poverty rate to 5% by 2050.

industry, the development of AI, ICT, and large-scale data centers is

The Long-term Vision declares the intent to maintain nomadic

feasible. In the energy industry, including the renewable energy andculture as a shared value of the country’s people. Mongolia seeks tobattery industries, we will promote development, processing, an
and

RIETI Highlight 2022 SPECIAL EDITIONRIETI BBL Webinar: Global Intelligence Series invites leading experts from Japan, the U.S., Europe, and other
Asian countries to give lectures about various global issues. Many policy proposals are derived from informationcollected and discussed in these lectures.

manufacturing involving underground resources. The Japanese company

five related government bodies to launch the One Stop Service Ce
Center to

Megatech Corporation is carrying out a silica mining and processing

attract investment. This center currently offers 62 types of services andproject in Mongolia, and high-quality coke manufacturing and li
limestoneplans to establish a Japanese-speaking contact desk.

projects are also moving forward.

I hope that Mongolian events will be held regularly online in tthe

Mongolia is the world’s second-largest producer of horse meat, andfuture. I invite you to take a look at the monthly information magazines

actively produces mutton and goat meat as well. Sumitomo Corpor
Corporation

distributed online by the Mongolian National Development Agency andis already conducting commercialization studies and is explorin
exploring thethe Embassy of Mongolia in Japan.

potential for exports to the Middle East under the Livestock In
Industry 2.0
initiative, which utilizes IoT for traceability. Transforming the livestock

Comment and Q&A

industry into an export industry is a major mission. Mongolia commands
40% of the world market for cashmere and wool, but 80% of its

Commentator: On the topic of future Japan–Mongolia relations, there

cashmere is exported as raw wool. If half of this can undergo secondary

are three major themes. One is New Ulaanbaatar International Airport,

processing and productization within Mongolia, over 40,000 new jobs

which was constructed through an ODA loan and will become a basewill be created.

for tourism. The second is the utilization of agricultural product andlivestock processing. There are expectations for collaboration with theand joy to many people. We hope to develop a network of Roadsidetourism industry in the Master Plan on the Agricultural Value Chain in

Stations modeled after those of Japan. Constructing distributio
distribution andMongolia that JICA is implementing from 2020 to 2023. It is important

logistics infrastructure in rural areas will also aid regional economic

to determine the best use of Mongolia’s history, landscapes, and otherdevelopment. In short, we believe that bringing together what JJapan andrich materials to create a compelling story. The third theme is the

Mongolia each possesses will enable the promotion of joint projects

development of IT and other new industries. The IT industry is able toin international supply chains. Regarding the just-completed Ne
Newovercome many of the disadvantages of being a landlocked countr
country, andUlaanbaatar International Airport, during my time as Chairman of the

it is becoming clear that Mongolia possesses a large pool of Japanese-

National Development Agency a concession agreement was signed byspeaking human resources who have an affinity for Japan and who arewhich Mitsubishi Corporation, Narita International Airport Corporation,highly skilled in science and mathematics.

Japan Airport Terminal Co., Ltd. (Haneda Airport), and JALUX Inc.

Human resources are the key to these three pillars, and in fact, overwill jointly participate in operation of the airport for 15 yea
years. We hope

3,000 Mongolian international students returning to the country are now

to engage in joint development to make the airport a hub for Ce
Centralsupporting each other through the JUGAMO association for returnees.

Asia. There is also potential for all manner of peripheral projects around

There are also three Japanese-style technical colleges in Mongolia, with

the new airport. These include economic and financial special zones,

close ties to Japan’s National Institute of Technology. JICA’s Mongolia-

integrated resort (IR) tourism special zones, international logistics centers,

Japan Center for Human Resources Development further contributes toand large-scale greenhouse projects making use of the vast land areas.

human resources development in Mongolia. I have hopes that busi
business

We aim to cooperate with Japan on achieving carbon neutrality 30

collaboration between Japan and Mongolia will continue to deepe
deepen.

GIP

The tourism industry is a peaceful industry that provides jobs, income,years from now. As a major coal producer, Mongolia is examining the
introduction of clean coal technology from Japan. Mongolia faces further

Q: I think Mongolia is an ideal location for satellite offices, bu
but what ischallenges in the reuse of resources. The country imports 94% of its

the state of the communication environment, such as 4G and 5G?

automobiles (including used cars) from Japan, and improperly disposed-

Speaker: Mongolia faces very few natural disasters such asof used batteries have become a societal problem. I believe that recycling

earthquakes, which makes it an ideal location for data centers. Regardingthese will make a contribution to society.

the communication environment, optical fiber is being laid in all 21

Human resource development will be crucial in achieving Mongolia’s

provinces and in major towns and villages. Mobile 4G covers mostlong-term plans. The number of Mongolian international students in Japan

residential areas, business areas including mines, tourist areas, andhas increased year by year to reach 3,170. There is a need for further

other areas nationwide, and continues to expand. The development

cooperation with elementary schools, junior high schools, high schools,

and introduction of all manner of application services using 4G andand universities. In the industrial field, technical colleges arare attracting

smartphones by the government, public, and private sectors, and theworldwide attention for the training of engineers. The Japan Internationaluse of these by the general public, are making considerable progress.

Cooperation Agency (JICA) is currently implementing the Project toMongolia's largest mobile phone company, MobiCom, in which

Develop 1,000 Engineers in Mongolia, with 1,000 Mongolians scheduled

Japan's KDDI is an investor, has a Japanese president and leads theto engage in studies at Japanese technical colleges by March 2023.

telecommunications industry in Mongolia. While studying the know-

Mongolia has concluded an EPA with Japan and participates in

how of Japan, Mongolia is also preparing for the introduction of 5G

preferential tariff systems with the U.S. and the EU, which means thatin the near future. In addition, Mongolia is moving ahead with the

products made in Mongolia are able to target Western markets. When I

scheduled opening of its new airport on July 1. I hope you will visit thewas Chairman of the National Development Agency, I brought together

new airport when it opens.
RIETI Highlight 2022 SPECIAL EDITION

15

Climate Change

COP26 Assessment and Challenges
Jun ArimaConsulting Fellow, RIETI

Climate Change
16

Did COP26 conclude “successfully”?
On November 13, COP26 concluded “successfully” withthe adoption of the Glasgow Climate Pact. I enclosed the word
“successfully” in quotation marks because there have been a varietyof assessments as to what the convention actually achieved. For
example, environmental activist Greta Thunberg denounced thesummit: “It is not a secret that COP26 is a failure … Two weeks
of business as usual, blah, blah, blah!”1 Prime Minister Boris
Johnson of Britain, the host country, enumerated what he aimed atachieving at COP26: (1) securing global net zero by mid-century
and keep warming to 1.5°C within reach; (2) adapting to protect
communities and natural habitats; (3) mobilizing finance; and(4) completing negotiations on the Paris Agreement’s rule book.
Although incomplete, it may at least be said that these results havebeen achieved. It is with mixed feelings that I believe COP26 was a
success, surpassing previous expectations.
Of the above expected outcomes, Britain placed the greatestemphasis on its aim of holding the global average temperature to
an increase of 1.5°C. The Paris Agreement states: “This Agreement… aims to strengthen the global response to the threat of climatechange … including by: Holding the increase in the global averagetemperature to well below 2°C above pre-industrial levels andpursuing efforts to limit the temperature increase to 1.5°C above preindustrial levels” and “In order to achieve the long-term temperature
goal … Parties aim to reach global peaking of GHG emissions assoon as possible … and to undertake rapid reduction thereafter … soas to achieve a balance between anthropogenic emissions by sources
and removals by sinks of greenhouse gases in the second half of thiscentury.” Consolidating the most demanding target of 1.5°C from therange of temperature targets provides a basis for aiming to achieve
global net zero by 2050, a 45% reduction in global emissions by2030, phasing out coal power, ending the sale of internal combustion
automobiles, and other goals.
That is why, at the G7 Cornwall Summit which Britain hosted, it
first incorporated into the Summit Communiqué the 1.5°C target, net
zero by 2050, transitioning away from unabated coal capacity, halting
public financing for coal power abroad, and other initiatives. Britain’s
next strategy was to align with Italy, the G20 host, to have the similar
messages reflected in the G20 Leaders’ Declaration, but China,
India, Saudi Arabia, Russia, and other countries strongly opposedsuch a move. They argued that attaching particular emphasis on the
RIETI Highlight 2022 SPECIAL EDITION

1.5°C and 2050 net zero goals was almost equal to the renegotiationof the Paris Agreement. China and India, both of which are highly
dependent upon coal, pushed back strongly against eliminating coalfrom their domestic energy mixes, and Saudi Arabia and Russia
also followed suit over concerns that elimination of coal might beextended to all fossil fuels including oil and natural gas. The result
was that the G20 summit only reconfirmed the temperature targets
instituted under the Paris Agreement. Phasing out of domestic
coal capacity was not included as a G20 commitment. That is why
President Biden and Prime Minister Johnson were disappointed with
the G20 outcome on climate.
Based on this series of events, I forecasted that COP26 would
probably not reach an agreement beyond what was agreed to at theG20 summit. However, the Glasgow Climate Pact adopted at COP26
includes, among other commitments: (1) a resolution to pursue efforts
to limit the temperature increase to 1.5°C; (2) recognition that limiting
the rise in temperature to 1.5 °C requires reducing global emissions
by 45% by 2030 relative to the 2010 level and to net zero around
mid-century; (3) consequently, the 2020 decade is regarded as the“critical decade” and calls on COP27 to adopt a work plan to scale
up the level of ambitions during this period of time; and (4) a request
for the parties to revisit and strengthen their nationally determined
contributions (NDC) as necessary to align with the Paris Agreement
temperature goal by the end of 2022. This clearly surpasses what wasachieved at the G20 Summit. Predictably, China, India, Saudi Arabia,
and other nations reacted negatively to broaching the 1.5°C target.
G20 is a forum where clashes arise between G7 nations and emerging
countries. However, COP offers a strong voice not only to major
economies but also to vulnerable, less-developed nations and small
island nations that are susceptible to the damage wreaked by climatechange, as well as the influence of environmental NGOs inside anandoutside of the chambers. China, India, and other emerging nations
are concerned about the effect that the 1.5°C target will have on theireconomic growth. Resource-rich nations are worried about the effecton their fossil fuel exports. On the other hand, small island nations
and less-developed nations anticipate that raising the temperaturetarget hurdle will increase the need for assistance for climate change
adaptation as well as loss and damage due to its effects. During theinformal stocktaking plenary by the COP26 President, massive
pressure to conform emerged. The plenary erupted into great applause
whenever strong support for the 1.5°C goal was expressed. Britain

Climate Change

Heavy consequences of the 1.5°C goal
While Britain’s diplomatic skill in working out an agreement
beyond the line agreed at the G20 deserves accolades, the author
cannot simply be jubilant because Britain’s strong push of the 1.5°C
target and net zero in 2050 has significantly altered the nature of theParis Agreement, which was established while striking a delicate
balance between the top-down approach of setting temperature targets
for the entire world and the bottom-up approach where each country
sets targets according to its specific national circumstances. Aiming
for global net zero by 2050 will likely create a fierce battle between
developed and developing nations over limited carbon budgets
through the year 2050. Already India has argued that if developed
nations strongly push global net zero by 2050, they should achieve
net zero much earlier than 2050, go into negative emissions thereafterand give carbon space to developing nations. It has also contended
that if developed nations are demanding that developing nations raise
their NDCs in order to ultimately achieve net zero emissions, tthey
should substantially increase financial flows to developing count
countries
to $1 trillion annually. While the world is significantly off track fromthe 2°C pathway, Europe and the U.S. pushed through a further
ambitious target related to 1.5°C. This will likely come back to haunt
developed nations over the coming decade in the form of incessantpressure from developing nations calling on them to achieve carbon
neutrality much more rapidly and to significantly increase assistanceto developing countries.
Will the COP standard make the world happy?
The Agreement calls for NDCs to be strengthened in line with
the Paris Agreement temperature goal and be submitted by the endof 2022, but it is very unlikely that China and India will revise theirtargets. Both nations, which have embraced the 2060 and 2070
net zero targets, will no doubt argue they are respecting the Paris
Agreement provision of “net zero in the second half of this century”
Rather, as the host country of the 2022 G7 Summit, Germany, which
has the Green Party in the coalition, could propose that G7 nations
move forward the 2050 net zero target and further raise 2030 NDCs
with a view to urging China and India to follow suit. The result would
be further expansion of the market for Chinese made solar panels,
windmills, and storage batteries, creating a windfall for China.
The argument over coal phaseout is likely to resurface with acertain target year. This could further extend to the phaseout of all
fossil fuels. Such a discussion is completely divorced from the realityof the energy landscape. A major cause of the energy crisis, whichis overwhelming Europe and spreading to Japan, is that supply has
not kept up with the increase in energy demand generated by the
economic recovery. A significant cause of that imbalance is thestagnation in upstream investment in petroleum and gas. Meanwhile,in the COP world, the U.S. and EU nations have put their nameson the joint declaration to end public financing for the fossil fuelsector. This could further stagnate upstream investment, resulting intightening of energy supply in the future as well. The environmental
fundamentalism originating in Europe has been demonizing coaland resulted in the global rise in gas demand. While the Biden
administration is prohibiting domestic oil production on federal lands,
it has called on OPEC and Russia to ramp up production. While
Britain is at the forefront of coal bashing, power shortfalls due to very
weak wind and skyrocketing gas prices obliged it to mobilize oldpower plants in order to maintain power supply. These are contrary to
the climate narrative, which is calling for the phaseout of fossil fuels.
This shows that when secure and affordable energy supply, as themost fundamental policy requirement, is at risk, the climate agenda
could easily be set aside.
Will global dissemination of the standard created at COP, which
has excluded this realistic discussion, really be a positive step for theworld? I believe that we need to think long and hard about that.

Climate Change

succeeded in leveraging that conference sentiment to push the 1.5°C
goal to the forefront.
In addition, the Agreement includes the wording “… to accelerate
the … phasedown of unabated coal power and phase-out of
inefficient fossil fuel subsidies…” At the United Nations General
Assembly in September 2021, President Xi announced that China
would not build any new coal-fired power projects abroad. That
is why the G20 included in its message, just as the G7 had, a halt
to public financing for new coal capacity abroad. Despite that, theCOP26 agreement extends to domestic coal capacity. The original
proposal was worded “phase-out coal,” which was much broader inscope than the electricity sector alone. Encountering strong opposition
from China, India, Saudi Arabia, South Africa, and other nations,just as with the 1.5°C target, the wording was modified to “phaseout of unabated coal power.” However, even at the final stage of theconvention, India, China, South Africa, and other nations were still
not satisfied. India argued that “inexpensive and stable electric powerfor poor people is the top priority for countries.” Considerations
were added that revised “phase-out” to “phasedown” and included
the wording “while providing targeted support to the poorest andmost vulnerable in line with national circumstances and recognizing
the need for support toward a just transition.” Even though the EU,
small island nations, and other countries rallied in unison against this,they accepted it reluctantly from the standpoint of passing a packagethat would achieve an overall consensus. Nevertheless, it deservesattention that wording targeting specific energy sources was included
for the first time in the Paris Agreement and related decisions.
In this way, the 1.5°C target was strongly highlighted and theformulation of a very ambitious work plan in line with that wasincorporated. Together with the coal phasedown, while toned downfrom the original proposal, the Glasgow Climate Pact is lauded byenvironmentalists as a historic agreement.

Footnote
1. “COP26: Greta Thunberg tells protest that COP26
has been a ‘failure’,” BBC News, November 5, 2021
https://www.bbc.com/news/uk-scotland-glasgowwest-59165781
RIETI Highlight 2022 SPECIAL EDITION

17

Collapse of the CDM Scheme under the Kyoto Protocol
and Its Spillover: Consequences of “carbon panic”
Kazunari Kainou
Fellow, RIETI

Climate Change
18

Collapse of the first international carbon financeschemeThe Clean Development Mechanism (CDM) under the
Kyoto Protocol represents the world’s first international carbon
finance scheme that was prescribed under Article 12 of the
Kyoto Protocol, which was adopted in Kyoto in 1997. This is ascheme whereby investing companies acquire CER (certified
emission reduction) credits when it has been confirmed thatthey have made investments in energy conservation and newenergy projects in developing countries in accordance with therules and methodologies determined by the Conference of theParties and the CDM Executive Board, and that the investments
have contributed to reductions in carbon emissions. The initial
objective of the CDM scheme was to make it easier for the EU
and Japan, which were obligated to reduce carbon emissions
under the Kyoto Protocol, to achieve emission reduction targets
by enabling the acquisition of credits through investments indeveloping countries.
CERs issued under the CDM scheme have been traded andpriced in major commodities exchanges around the world. In
2008, the first year of the first commitment period, the CER
price hit a record high of 25 euros per ton of CO2. At first, theoperation of the CDM scheme was successful. For example,
between the launch of the CDM scheme and 2012, the final yearof the first commitment period, a total of around 6,600 projects
were registered under the scheme, while CERs totaling around
1.2 billion tons of CO2 were issued. In line with an increase in
CER issuance, the CER price gradually fell, down to 10 euros
per ton of CO2, but the price decline is considered to have been
appropriately reflecting the CER supply-demand balance at thetime.
However, in 2012, at the end of the first commitment period,
the CER price crashed, falling to a meager 0.5 euro per ton of
CO2 or so. Eventually, the CER market tumbled into a situationof “carbon panic,” with its pricing mechanism breaking down
completely. This was how the world’s first international carbon
finance scheme collapsed just five years after its launch. In
this article, I would like to offer my personal opinions on the
background to the collapse of the CDM and its spillover as

RIETI Highlight 2022 SPECIAL EDITION

viewed from my perspective as a member of the CDM Executive
Board who experienced the scheme’s collapse from the beginningto the end and who is still dedicated to the scheme’s operation.
Background to the “carbon panic” of 2012
The primary background factors of the carbon panic thatstruck the CDM scheme in 2012 are problems created mainly
by emission credit buyers, namely 1) the EU’s isolationist
carbon policy that prohibited the use of CERs in the EU area,and 2) Japan’s retreat from the commitment to its numericaltargets. These problems led to the loss of the market’s
confidence in the CDM scheme.
The European Commission was operating the EU-Emissions
Trading System (EU-ETS) alongside the CDM scheme, but
the slumping price of the EUR intra-regional emission permits
became a cause for concern for the Commission against the
backdrop of economic stagnation in the former Soviet bloc
countries in Eastern Europe. The EU was aiming to implementa “European Green Economy” initiative under which generous
quotas of emission permits granted to the former Soviet bloc
countries would induce capital investment and help to promoteeconomic revitalization and mitigate unemployment. However,what actually occurred in those countries was a nightmare
situation: Coal-fired power plants and coal mines eligible forgenerous quotas of emission permits were closed one after
another, with coal replaced by cheap natural gas from Russia,
resulting in massive surpluses of emissions permits and swarms
of jobless people on the streets across the region. Therefore,
although the European Commission initially allowed CERs to
be used in place of EURs, it announced an isolationist policy
reminiscent of the bloc economy era, under which the use of
CERs was banned, starting in 2012, for existing and future
projects other than those in least developed countries (LDCs)
as part of efforts to raise the EUR price1 through a supply
reduction.
In the case of Japan, as all nuclear power stations were shut
down due to the accident at Fukushima Daiichi Nuclear Power
Station following the Great East Japan Earthquake in 2011,a political decision was made to set no numerical target forthe second commitment period from 2012 under the Kyoto
Protocol. Naturally, it was also decided that the Japanese
government would not purchase CERs.
Consequently, those actions of the European Commission
and the Japanese government, which happened to counter the
CER trading apparatus, triggered the carbon panic, resulting in
the CER price crash and the collapse of the CDM scheme.
The beginning of the liquidation of the world’s firstinternational carbon finance scheme
The atmosphere of the first meeting of the CDM Executive
Board in 2013 was combative, as if this was a gathering of
distressed creditors of a failed company. Executives representing
developing countries directed harsh criticism at the attitudes of
the EU and Japan. As I felt compelled to speak up, I presented
the following proposal in reference to the U.S. trading system forsulfur emission credits.2
1) Establishment of a voluntary cancellation system: At
that time, only the EU and Japan were intended to purchase
CERs under the CDM scheme. My proposal called for theestablishment of a voluntary cancellation system under which
restrictions on the scope of purchasers would be fully abolished,allowing any country or individual around the world to directly
purchase and cancel CERs. Of course, this would not restore
liquidity for the whole 1.2 billion tons of CO2 of emission creditsthat had remained unsold. But the idea that the Executive Board
should at least do what little it could do appeared to have gained
sympathy from other board members.
The atmosphere of the Executive Board’s meeting changed
immediately, perhaps because my proposal had a disarming
effect. One after the other, executives and secretariat officials
started to present proposals of their own for facilitating theliquidation of the CDM scheme, including 2) recommending
the use of CERs by developing countries and internationalorganizations, and 3) selling CERs for use in carbon offsetting ofsoccer and other international events. Even though the use of theterm liquidation was avoided as requested strongly by executives
representing developing countries, the board decided to go ahead
with the de facto liquidation of the CDM scheme, which started
in 2013.
Therefore, at least in 2013, nobody imagined that the CDM
scheme would ever achieve a revival, as it has actually done
thanks to support from unexpected quarters. Fed up with talkabout dismal prospects for the CDM scheme, many executives
left the Executive Board. However, I remained on the Board,
despite the fact that doing so felt like sitting on a bed of thorns,
because I was somewhat interested in the unusual situation of aU.N. scheme being liquidated.

Relief coming from unexpected quarters and revivalof the CDM scheme
Fortunately, the liquidation of the CDM scheme, whichcentered on the abovementioned cancellation system, wasalmost completed by 2020. The greatest factor of the completionof the liquidation was the fact that many investing companies
begrudgingly accepted loss-cutting cancellation of CER upon
expiry of the project period (10 years, or 7 years with two
possible renewals). However, it was quite unexpected that the
CDM scheme would be revived thanks to unexpected support
coming from the U.S. and developing countries as explained
below.
1) The volume of CERs cancelled under the voluntarycancellation system has amounted to 77 million tons of CO2,
larger than expected. Surprisingly, U.S. companies and citizens
account for most of the users of this system. In terms of purchasevolume, companies eligible for the emission credit trading
systems of California and 13 East Coast states account formost of the total, while in terms of the number of purchases,
U.S. citizens are by far the largest user group. It is a uniquecase where citizens are willing to purchase CERs at their own
discretion despite the government having avoided engagementwith both the Kyoto Protocol and the Paris Agreement.
2) As a result of the recommendation of the use of CERs bydeveloping countries and international organizations, many
developing countries, including China, South Africa, andMexico, decided to allow the use of CERs under domestic
environmental tax systems and emission credit trading systems.
A typical example is South Africa’s carbon tax system, whichcame into force in 2019. Under this system, major carbon
emitters, such as electric power and mining companies, aretaxed according to their emission volume at a nominal tax rateof around 8 U.S. dollars/ton of CO2 but are exempted from tax
payment for the portion of their emissions that is covered byvoluntarily canceled CERs.
As a result, in recent years, the CDM scheme has been on thepath of recovery. Since 2013, 1,200 projects have been newly
registered with a cumulative total CER issuance amount at 2
billion tons of CO2. Most of those new projects and newly issued
CERs represent investments made by companies in China,
South Africa, and Mexico in order to accumulate CERs for
future use as the use of CERs is allowed under those countries’
systems. For example, a financially struggling South African
electric power utility is snapping up CERs, which are available
at a “very affordable price,” and building up holdings of CERs
as intangible assets, as it is necessary to make some preparations
for unforeseen emergencies, including extreme weather eventsand abrupt tax hikes, according to an account given by an officialof the utility.

RIETI Highlight 2022 SPECIAL EDITION

Climate Change

Climate Change

19However, assuming that prospects for the CDM scheme arebright is misguided. From my point of view, the current favorable
outcomes for the CDM scheme are nothing more than accidental.
Given that the CER price has remained stuck in the range of 1 to
2 euros/ton of CO2, the present situation should be regarded as atemporary phenomenon.
At a more fundamental level, there has been no change in thefact that the world of carbon finance, including the CDM scheme,
is structurally prone to panic because supply is potentially muchgreater than demand. Moreover, as the world is full of investing
companies that were forced to swallow huge losses and financial
institutions that had a frightening experience with carbon
finance, it is overly optimistic to assume that the situation has
taken a turn for the better overnight following the arrival of theParis Agreement in place of the Kyoto Protocol.

to emission reduction targets, was accepted widely amongdeveloping countries, allowing the EU to exercise leadershipin negotiations. However, the U.S. has already withdrawn fromthe Paris Agreement, and it has become clear that the EU’s true
objective under the agreement is realizing and protecting its own“green economy.” In this situation, it is entirely misguided toassume the EU can again exercise leadership within negotiations.
As long as the EU tries to bind the hands of developing countries
under the pretext of environmental integrity, the negotiations
over the Paris Agreement will continue to become more
complicated and the conclusion of negotiations will remain out ofreach.
Footnotes
1. The EU’s isolationist carbon policy still continues to havenegative effects. I have heard that as a series of policy

Climate Change
20

Spillover of the CDM collapse—Why do negotiations
over the Paris Agreement remain deadlocked?
Under the Framework Convention on Climate Change,negotiations over the Paris Agreement, which came into force
in 2016, are ongoing. One reason why the negotiations haveremained deadlocked is the EU’s proposal for restricting thecarryover of CERs to the Paris Agreement regime.
As I already explained, companies in developing countries
such as China, South Africa, and Mexico have been major
investors in CDM projects since 2013. They have assiduously
amassed holdings of CERs for future use in preparation fordeveloping countries’ upcoming participation in the Paris
Agreement. Naturally, the EU’s proposal for invalidating CERs
all at once in the name of “environmental integrity” has invited afirestorm of opposition. After all, the EU is one of the culprits ofthe carbon panic of 2012. Moreover, developing countries havenow become major players in the CER market on both the buying
and selling sides. Therefore, in the eyes of developing countries,
the EU is simply a bully trying to ruin a system that they are nolonger party to.
On the other hand, from the viewpoint of people involved ininternational carbon finance, it is doubtful whether emission
credits will be able to find buyers in the period beyond 2030
under the Paris Agreement because the compliance systemthrough which the achievement of targets is assessed is much
more lenient than under the Kyoto Protocol. In particular,
concerns have been raised that if the massive holdings ofcheap CERs are not to be carried over to the Paris Agreement
regime, credit prices may become volatile under the agreement,
prompting developing countries to refuse to purchase credits as ameans of compliance and triggering a new carbon panic.
Under the Kyoto Protocol regime, the EU’s argument that only
developed countries, including the U.S., should be committed

RIETI Highlight 2022 SPECIAL EDITION

measures taken by the European Commission to limit the
supply of quotas of emission permits worked too well, the EUR
price rose to 30 euros per ton of CO2 in 2020 and that this isburdening low-income earners through general price inflation.
The European situation is an indication of how difficult it isfor governments to control prices and the market, and Japan
should learn from the EU’s problem.
2. Under California’s sulfur emission credit trading system,as anyone can purchase or cancel sulfur emission credits,
environmental conservation groups purchase credits using
donations collected from individuals when the price falls.
Unfortunately, environmental conservation groups in the EU
area or Japan do not seem to be engaging in similar activities
at any significant level.

Climate Change
SPECIAL INTERVIEW

EBPM Also for Climate Change Countermeasures
Toshi H. Arimura(Faculty Fellow, RIETI / Professor, Faculty of Political Science and Economics, Waseda University)
Interviewed by RIETI Highlight Editorial TeamThe process of trial and error for new polices as well as validation of any improvements, or what might also becalled the perspective of evidence-based policy making (EBPM), is essential for making use of never-beforeattempted climate change countermeasures and green innovation to restructure industry. The question of whether
different environmental measures are really effective is one that we posed to Toshi H. Arimura, Professor in the
Faculty of Political Science and Economics at Waseda University. Professor Arimura has conducted groundbreaking
EBPM research in the field of environmental economics and we talked with him about results produced in research

Professor Arimura, you are a leading authority in thefield of environmental economics and the recipientof many awards. Could you please tell us about yourresearch?
I wrote my Ph.D. dissertation on trading of sulfur dioxide (SO2)emission allowances as it relates to acid rain countermeasures andhave always pursued research in which I attempt to use markets
to solve environmental problems. In 2000, I returned to Japan.
Japan does not have any mechanisms where markets are used forenvironmental measures, so I conducted research to verify whether
the ISO14001 certification, which was popular at the time and asystem whereby companies voluntarily adopted environmental
measures, was really effective. My research papers on this subject
have also been cited by highly reputable academic journals.
Also, during a sabbatical leave that I took from 2006 to 2008,
I went to Resources for the Future (RFF), a research institutionin Washington DC, where I did research on carbon pricing (CP),emissions trading, carbon border adjustment mechanisms, andother devices that may serve as measures to address climatechange. Around that time in Japan as well, the Ministry of
Finance’s Customs and Tariff Bureau started consideringsuch measures together with the Ministry of Economy, Tradeand Industry, Ministry of Foreign Affairs, Ministry of theEnvironment, and competent experts, taking into account thatcarbon tariffs could be introduced with border measures. So,with my collaborators, I conducted an input-output analysis
to determine which industries would be burdened if CP was
introduced and to what extent. Further, we used an applied generalequilibrium analysis to research the effects of border carbon
adjustment. We found that, because Japan exports steel and iscompetitive overseas, placing tariffs on imported products toprotect the industry would have no effect at all. If export rebates
were applied, then the measures would be somewhat useful forindustry protection, but export rebates pose quite a problem in theeyes of the WTO. They are not a part of the EU proposal, either.
From an economic perspective, the best thing was actually outputbased allocation. It’s an idea that says that when the amountproduced is increased, a more generous emissions allowanceis allocated. In fact, this is also the most effective measure forenergy-intensive industries. Japanese industry at the time was
opposed to CP in the first place and their straightforward reaction
was that carbon border adjustment mechanisms, in particular,
would likely block trade, so they did not support the idea ofcarbon tariffs.
The EU is already starting to institute carbon border adjustmen
adjustment
mechanisms. A RIETI project which began in 2021 has beenverifying what sort of impact that will have on Japan.

Climate Change

and policy implementation.

Specifically, what sort of things have you learned?
If we want to introduce CP while continuing to protect Japan’s
industrial competitiveness, instead of carbon border adjustments,
it would be better to have an output-based allocation that takes
into account how to allocate emissions quotas. I proposed thisabout 10 years ago, but the official in charge at the time said,“The system is too complex, and it won’t get through the Diet.”
Incidentally, this system was adopted in Australia, but abolishedwhen a new political administration came to power.
In Japan, Tokyo and Saitama Prefecture have alreadyintroduced emissions trading schemes. Saitama Prefecture’s
system was launched right when the Great East Japan Earthquake
struck, so it did not get much media coverage.
What is interesting about Tokyo’s emissions trading scheme isthat Tokyo doesn’t have many factories, so it is the first systemin the world that focuses on office buildings. The interesting
thing about Saitama’s system is that it also focuses on factories,of which the prefecture has quite a heavy concentration, but the

RIETI Highlight 2022 SPECIAL EDITION

21

Climate Changesystem levies no penalties. So, it is merely a scheme in which
companies voluntarily participate in tacit agreement between the
Saitama Prefecture business community and the prefectural office.

Climate Change

You have also served as a member of the Tokyo
committee on emissions trading, haven’t you?
What I found interesting about that was evidence-based
policymaking (EBPM), which was used by the committee, andwhich RIETI is also promoting now. EBPM determines whethera policy is effective or not. For example, it has been said thatemissions have decreased in Tokyo, but we make use of data to
analyze what factors have contributed to that decrease. The Great
East Japan Earthquake hit, after which the local government
requested that people use less electricity. Also, because Tokyo is
within the TEPCO service area, there was a sharp rise in electricity
charges during the first few years. Was less power consumed
because of the rise in electricity charges or was it an effect ofemissions trading? We sought to shed light on that question.
There was a certain effect on office buildings with a little morethan half due to emissions trading and a little less than half due
to the higher electricity charges during the first four years (2010–2013). Mitsutsugu Hamamoto, Professor at Dokkyo University,
conducted an analysis of Saitama Prefecture, which revealed
a reduction in emissions due to the emissions trading scheme.
These research results received recognition upon receiving
the Commentary Award from the Society for Environmental
Economics and Policy Studies (Arimura, Toshi H. and Shigeru
Matsumoto (Eds.)(2020), Carbon Pricing in Japan, Springer).
This publication is available through open access and has been
downloaded some 39,000 times.
As we also proposed in the book, we believe economic growth ispossible while reducing emissions if tax revenue from carbon taxes
is used wisely. When a carbon tax is introduced in the future, itwill probably be a tax on petroleum and coal and used for researchand development or something related. However, it is importantto also use it to reduce corporate or consumption taxes. This isreferred to as the “double dividend of the carbon tax,” which I havealso presented at RIETI workshops and seminars. The economic
analysis concluded that, if this is done, both the environmental
countermeasures and economic growth will likely do well. Because
the Japanese government has been faced with a budget deficit for
decades, the carbon tax should also be wisely used.
I feel that we are beginning to see what sort of system
we should have.
Environmental economics in Japan previously was not very
quantitative in nature. It was more about discussing how systems
should be constructed and function. Instead, I am attempting to
generate quantitative results about costs and benefits. The bookin which I compiled that research is An Evaluation of Japanese

22

RIETI Highlight 2022 SPECIAL EDITION

Environmental Regulations (Sophia University Press (SUP),
2011).
My hope is that EBPM will also be used for environmental
measures and that academic knowledge will be reflected in policy.
I think there have been times during the pandemic when scientificknowledge has not been reflected well in policy.
I also think it is necessary for us to take an overall
comprehensive view of policies. It is important that we do this notjust for environmental measures but also look comprehensively atthe economy and public finance.
One more thing that I would like to talk about is related to the
Global Intelligence Project (GIP: research on transformationof the international order and Japan’s medium-to-long-termcompetitiveness) that RIETI is now engaged in. Southeast Asian
nations have started to consider adopting emissions trading. The
EU system stipulates that a border carbon tax be paid in the EU
on products that the EU imports or countries are asked to create
their own carbon pricing system. If the border carbon tax is paid in
their own country, then it does not have to be paid in the EU. Since
Japanese companies have created global supply chains, they haveto be mindful of developments occurring overseas. Such initiatives
will probably need to be put in place across the entire supply chain.
I am currently conducting research for a Ministry of theEnvironment project on what kind of an impact the Tokyo andSaitama Prefecture schemes have had. I think that the Tokyo andSaitama models could be role models for Asia. However, we arelosing the international debate to China and Korea. China haslaunched emissions trading and Korea also introduced an emissions
trading scheme for the country. These are influencing ASEAN
nations, and we are losing ground in the competition among
countries. Tokyo and Saitama have been properly conducting
their schemes, so I hope that they will draw a little more attention
internationally. Nevertheless, Korea has brought in EU officials
as advisors and is creating a system that copies EU-ETS. China isconducting trials in seven or eight provinces. It appears that theseare going well in some areas and not so well in others.
There is one more thing that we should pay attention to. On
the very same day when the detailed design of the border carbon
adjustment mechanism was announced in July 2021 by the EU,
the Chinese government announced that it rolled out emissions
trading of the electric power sector nationwide. Not surprisingly,
China is closely watching what the EU is doing. When President
Obama and President Xi Jinping met in 2015, China declared that
it would engage in emissions trading. Even so, it has taken about
six years. That’s how difficult it is to implement such a scheme.
In the book I mentioned earlier, research results are presented
showing that the Energy Conservation Act has had a certain
positive effect. When I talk to different people around the country,
they are surprised that this sort of intangible system without
penalties, where industry does the best that it can, works.

RIETI Special Seminar for the MediaWill Raising the Minimum Wage Take Away Jobs?

– Considering a desirable minimum wage policy –Date: May 18, 2021
Speaker:

Daiji Kawaguchi(Program Director and Faculty Fellow, RIETI / Professor, Graduate School of Economics and Graduate
School of Public Policy, The University of Tokyo)

With the goal of accelerating evidence-based policy making (EBPM) RIETI launched the “Policy Assessment”
program in the Fifth Medium-term Plan to simultaneously promote two research subjects: the optimal configurationof EBPM and the assessment of individual policies. On May 18, 2021, RIETI invited Professor Daiji Kawaguchi of
Graduate School of Economics and Graduate School of Public Policy at the University of Tokyo, who is also theProgram Director of the program, to speak at RIETI’s Special Seminar for the Media. As a leading expert in policy

As wages have stagnated and the criticism that the fruits

Raising the national average minimum wage to ¥1,0001

of economic growth have not been passed on to workers has

On May 14, 2021, at a meeting of the Council on Economic

heightened in countries all over the world, a broad debate is

and Fiscal Policy, Prime Minister Suga expressed his resolve totaking place about raising the minimum wage. Japan is nosoon realize a national average minimum wage of ¥1,000. The

exception. All major political parties, from the ruling party

current weighted average of the minimum wage is ¥902. With an

to opposition parties, support a minimum wage hike. Japan’s

across-the-board raise of ¥100, the ¥1,000 level is achievable.

minimum wage is essentially decided once a year by the central

EBPM

evaluation research, Professor Kawaguchi shared his insights on a desirable minimum wage policy in Japan.

There are two types of minimum wages. The first is thegovernment, which determines the levels for each of the 47

regional minimum wage set for each prefecture and the other isprefectures. However, concern has also been voiced about thethe minimum wage set for specific industries. However, the role

degree to which a wage hike will reduce employment of low-of the industry-specific minimum wage seems to be coming to anskilled workers. This presentation provides an overview of theend and greater attention has been given to the regional minimum

policy debate on the minimum wage in Japan.

wage. The highest regional minimum wage is ¥1,013 in Tokyo

The hike in the minimum wage for 2020 was limited due toand the lowest is ¥792 in Akita, Tottori, Kochi, Saga, Oita andconsiderations about the effect of the pandemic. For small andOkinawa prefectures. The minimum wage is high in large cities,

medium-sized enterprises, in addition to a loss of employment,

and lower in more rural prefectures. In today’s presentation, I

raising the minimum wage puts pressure on management andwould like to consider what needs to be done to realize a national

leads companies to close their doors, so strong arguments haveaverage of ¥1,000.

always been made that minimum wage increases should beconsidered very carefully before they are enacted. On the other
hand, of course, the main argument for increasing the minimum

How minimum wages are set
Similar to many labor policies, the minimum wage iswage is to improve the livelihoods of minimum-wage workers.

determined by a council. Members representing public interests,

Recently, there have also been strong arguments that raising theworkers, and employers meet to determine incremental increases

minimum wage encourages the exit of inefficient companies

in the minimum wage. First, the Central Minimum Wage Council

and enhances productivity. Does increasing the minimum wage

meets and divides the 47 prefectures into four ranks ranging fromtake away jobs? Or can a wage increase be realized without a

A to D. It then recommends a proposed incremental raise fordecrease in employment? Moreover, can a minimum wage hikeeach rank by around the end of July. Following this, the regional

improve corporate productivity? Evidence is necessary to tackle

minimum wage councils hold meetings where members takethese questions. Moreover, we need to determine what happened

into account the actual circumstances of their own prefectures

when Japan previously raised the minimum wage in the past.

and make minor adjustments to the minimum wage, after whicha new minimum wage comes into effect for each prefecture

RIETI Highlight 2022 SPECIAL EDITION

23

sometime between early and mid-October of each year. Of theCouncil. That same trend has also been observed with regard to

steps in this process, the proposed incremental raise set by theminimum wages.

Central Minimum Wage Council is the primary factor taken
into account when increasing the minimum wage. The pattern is

Are regional minimum wages really that low?

pretty much the same each year. Worker representatives demand

When decisions are made in a discretionary and politicalan increase in the minimum wage and employer representatives

manner, a responsibility is incurred to explain the reasoning

reject that. The opinion of the public-interest members isbehind such decisions. Evidence-based policy making fulfills thisrespected and serves as a middle ground. Then, the guideline

responsibility. But, recognizing that the regional minimum wageamount is determined.

must soon be increased in order to achieve a national average

It has been commented that Japan’s minimum wage is notminimum wage of ¥1,000, we need to ask whether regional

determined based on evidence. Yet, no guideline wage could be

minimum wages are really that low, which means that we need to

set without there being some sort of basis from which to proceed.

consider this question while also taking into account wage levels

This basis is the Ministry of Health, Labour and Welfare’s wage

in rural regions of the country. Every year a very large survey isrevision status survey. The guideline wage has been decided for

conducted of more than one million people known as the Basic

many years based upon the results of this survey. The survey

Survey on Wage Structure. This survey samples short-term

focuses on business establishments with less than 30 workers.

workers and people working at business establishments withEnterprises are sampled at random from locations around local

between 10 and 99 workers. The reason for this is basically that

prefectural offices as well as two other areas in each prefecture,people working for minimum wage are mostly part-time workers

and questionnaires sent out to these companies. What is uniqueand employees at small companies.

EBPM

about the questionnaire is that it asks about the wage status of

In 2020, for example, the average hourly wage in Aomori

the same workers during June of the previous year and June

Prefecture was ¥924 and the minimum wage was ¥793. Theof the current year. On that basis, the questionnaire is able to

Kaitz Index divides the minimum wage by the average wage,

look at what the average wage is of the same workers and how

and the index is 0.86 for Aomori Prefecture and 0.71 for Tokyo.

much wages have increased. The table, which classifies the rate

In effect, the comparison with market wage shows that Aomori

at which the average wage increases into rank A through D and

Prefecture has a higher minimum wage. The closer the Kaitz

reports these, is known as Table 4. Traditionally, the minimum

Index is to 1, the more people there are working at a wage close

wage has been determined in a way that very closely aligns withto the minimum wage. This suggests that a hike in the minimum

the figures in Table 4.

wage in Aomori Prefecture would affect a larger percentage

Professor Keiko Tamada of Fukuoka University wrote aof the prefectural population compared to a hike in Tokyo.

research paper about this in which she essentially found that

Accordingly, there naturally is concern that jobs might be lost if

it would be no understatement to say that the policy has been

the minimum wage is raised.

determined in a non-discretionary manner with a rule being
followed that actual wage increases at small companies betaken into consideration in raising the minimum wage. On

It has been said that policies are not really formulated based

the other hand, in response to the inclination of government

upon evidence in Japan, but that is not true. According to aadministrations in recent years to raise the minimum wage, theliterature survey of 18 research papers conducted by Shuichi

Central Minimum Wage Council has gradually issued guideline

Matsuta of the Cabinet Office, of the 11 papers that studied

wages that are slightly higher, even though an increase in thethe effects of minimum wage on employment, seven reported

minimum wage according to the wage revision status survey

finding a negative effect, three the absence of any effect, and one

would be within a range of 1 to 2%. Particularly since 2016, areported finding both positive and negative effects.

recommended increase of 3% or more has been made each year.

24

Relationship between minimum wage and employment

If we ask why these results vary, it is because the effectIt has recently been pointed out that even though laborcannot be appropriately estimated with small studies. Anotherpolicy is set by a council comprised of members representing

important point is that the timing when the minimum wage ispublic interests, workers, and employers, the way in which theraised has traditionally been when the local economy experiences

minimum wage is determined has changed. One example is thea boom. On account of that, even supposing that an increase

work-style reform bills. Even though working hour restrictions,in the minimum wage might decrease employment, economic

fixed- and part-time labor legislation, and other provisions have

expansion offsets that impact. That being the case, one might

been addressed, the policy framework has been determined at

think that it is okay to raise the minimum wage when thethe nexus of political power, then sent back to the Labour Policy

economy is expanding. However, despite the offset, the impact

RIETI Highlight 2022 SPECIAL EDITION

of economic expansion should expand employment when theeven if wages increased for such businesses, employment would

minimum wage is not increased. Therefore, there is no change

not necessarily decline. Because there is a disparity between

either way in the finding that minimum wage has a negative

productivity and wages, even if the minimum wage is increased

effect on employment.

and wages have to be raised, that increase is able to be absorbed

It is necessary to focus on situations where the minimum

by reducing profit.

wage increases regardless of the employment situation andto look at the impact of minimum wage on employment. An

Identifying areas where productivity is higher thananalytical method used recently references the 2007 revision

wages
When we consider regions in which to raise the minimum

considered, it was noted that even if someone worked full-wage in the future, the research results produced by Okudaira ettime at minimum wage, that person’s monthly income would

al. offer a wealth of suggestions, hinting that it is important tobe below the ceiling for public assistance. The public assistanceidentify areas where productivity exceeds wages (monopsony).

ceiling is determined by living expenses, so the amount of public

A situation where productivity exceeds wages is realized whenassistance benefits provided is high in urban areas where living

the labor market is not competitive. When the labor market is

expenses are high.

competitive, employee poaching frequently occurs. When that

To resolve this inversion, the Minimum Wage Act was revised

happens, businesses whose productivity is higher than wages

in 2007. It stipulates that a balance between the minimum wage

gradually expand employment. This pushes wages up so that theyand the amount of public assistance be taken into consideration.

are on par with productivity. That does not happen, conversely, in

The inversion phenomenon was substantially resolved oversituations where an employer has the power to decide wages in aroughly five years. Two academic papers have used this point

labor market.

to analyze the impact on employment. The first is a paper

Countries’ competition authorities have always measured therecently co-authored by Yuko Mori, Associate Professor at Tsuda

extent of competition in the market. When reviewing corporate

University and this author. When she conducted her analysis

mergers, Japan’s Fair Trade Commission and other competition

using a monthly labor force survey of 50,000 households, sheauthorities have always calculated the Herfindahl–Hirschmanfound a decrease in employment among junior high school andindex, which indicates the extent of industrial concentration,high school male graduates aged 19 to 24. A 10% increase in theand they do not permit mergers if this concentration intensifies.

minimum wage had quite a substantial impact, lowering their

Research is now underway to measure the extent of competition

employment by 12%. On the other hand, no effect was seen on

in the market in this way and might show that employment is notjunior high school and high school female graduates or otherreduced even if the minimum wage is raised in areas where thismale besides junior high school and high school graduates.

index is low. We will probably need to watch this to determine

The other is a paper authored by Hiroko Okudaira, Associate
Professor at Doshisha University, Miho Takizawa, then associate

EBPM

of the Minimum Wage Act. When revision of the act was being

which areas will not lose jobs if the minimum wage is increased.
I believe that another important unresolved issue is the great

professor and currently Professor at Gakushuin University, andimportance of using employment insurance data to analyze

Kenta Yamanouchi, then lecturer at Keio University and currently

which businesses are absorbing workers who have lost jobs. In

Associate Professor at Kagawa University. They used the Census

Germany, such research is already being conducted.

of Manufacturers to focus their analysis on the manufacturingindustry. Their analysis showed that a 10% increase in theFootnote

minimum wage would have the effect of reducing employment

1. ¥1,000 is about U.S. $8.70 at the current rate as of March 1,

by 5%.

2022.

What is very interesting about their research is the calculationof a gap between worker productivity and wages. Because theyused industrial statistics, they were also aware of shipments andlabor inputs. They used this information to analyze the extent
that labor contributed to production. Additionally, information
about costs was also included, so the labor share was expressedas the percentage that total labor costs account for out of total
expenditures, to find both labor’s contribution to production andthe amount paid for that contribution. This margin was large forbusiness establishments where productivity exceeded wages, but

RIETI Highlight 2022 SPECIAL EDITION

25

SPECIAL INTERVIEW

Establishing EBPM in Japan – The benefits of using nudges –Fumio Ohtake(Faculty Fellow, RIETI / Specially Appointed Professor, Center for Infectious Disease Education and Research(CiDER), Osaka University)
Interviewed by Masataka Saburi (Director, International Coordination and PR Strategy, RIETI)

Making policy proposals based on objective data is a crucial mission for RIETI. Four years ago, we launched anevidence-based policy making (EBPM) research project. Has the EBPM approach become established in Japan
during the past four years? How should EBPM be used to respond to life-threatening crisis situations such as
torrential rain disasters and COVID-19? We asked Fumio Ohtake, Specially Appointed Professor at Osaka University
and member of the Japanese government’s Advisory Council on Countermeasures against Novel Influenza andOther Diseases, who has played a leading role in RIETI’s EBPM research from the start.

EBPM
26

Please tell us about the EBPM research you haveundertaken at RIETI so far.
At RIETI, we have held research meetings on evidencebased policy making (EBPM) for the past four years. We also
hold annual symposiums. The primary purpose of the researchmeetings has been to establish the EBPM approach to policy inJapan. Before that, however, we had to begin by defining what
EBPM means. The Japanese government had previously carriedout policy assessments, but these were focused on assessing
whether budgets were allocated and used in accordance with theoriginal plans. Yet the essential purpose of policy assessment
should be to ascertain whether or not the established policy goals
have been achieved. In other words, policy assessment should
include outcomes, which measure the results of policy goals,
and outputs, which measure the effectiveness of the projects
themselves. However, we found that in many cases it was not
outcomes or outputs that were being assessed, but rather inputs;that is, whether the project had been implemented according
to plan. We therefore started by establishing a common
understanding of goal setting for outcomes and outputs. To begin
with, in many cases we found insufficient explanation, based on
scientific knowledge and evidence, of the logical mechanismsthat would cause a policy input, say Project A, to lead to thedesired outputs and outcomes. This was the first step toward
establishing EBPM as a general approach.
Next, we were faced with the problem of how to measure theeffectiveness of a policy. This was often measured by comparing
the situation before and after the policy was implemented, but
this does not constitute an accurate policy assessment in terms ofthe causal inference approach used in fields such as statistics andeconomics. When testing the effectiveness of a particular policy,
it is crucial to compare the results after policy implementation

RIETI Highlight 2022 SPECIAL EDITION

with counterfactual assumptions regarding what the situation
would have been like if the policy had not been implemented.
During the initial research meetings and symposiums, wetherefore aimed to define the goals of EBPM, and to establish
general methods for evaluating policy effectiveness. I feel that
this approach is now beginning to sink in.
We also considered that it would be beneficial for those
entrusted with policy implementation if we provided specific,
practical examples in addition to evaluation methods. Through
RIETI research meetings, symposiums and other forums, wehave provided EBPM case studies across a range of fields suchas education and disaster prevention, as well as COVID-19
countermeasures, which we presented at the symposium in
December 2021.
Moreover, through discussions at RIETI research meetings,
we have endeavored to emphasize our ideal vision for EBPM:
conventional policy assessment focused on the a posteriori
evaluation of implemented policies. However, as our mission is“evidence-based policy making,” we consider it vital to establish
a number of policy candidates to achieve a specific goal, andascertain a priori which policy will be most effective, before
moving on to full-scale implementation. We have repeatedly
discussed the idea that EBPM should be carried out as apreparatory step during the policy formulation or budgetingstage and linked to full-scale policy implementation.
After four years of work, I now feel that the EBPM approach is
gradually taking root in Japan.
What kind of research are you engaged in at the
moment? Can you tell us a little about the results ofthis research?
I am currently engaged in two types of research related to“Evacuating to a shelter will help you secure food and blankets”;
and “If you do not evacuate, then you may not be able to secure
food or blankets” (Table 1-D and E).
Table 1: Nudge messages used in the intervention
A. Influence gain nudge

In the past, most people who evacuated in response toevacuation orders during heavy rains did so because othersaround them were evacuating. If you evacuate, you can savethe lives of people close to you.

B. Influence loss nudge

In the past, most people who evacuated in response toevacuation orders during heavy rains did so because othersaround them were evacuating. If you do not evacuate, you are
putting people’s lives at risk.

C. Reference point

When evacuation advisories are issued, due to heavy rains, it isnecessary to evacuate as soon as possible. If you must remain
at home, just in case, please wear something that can help
identify you, as your life may be in danger.

D. Gain-framed relief goods

When evacuation advisories are issued, due to heavy rains,evacuating to a shelter will help you secure food and blankets.

E. Loss-framed relief goods

If you do not evacuate to an evacuation site when an evacuation
order is issued, due to heavy rain, you may not be able tosecure food or blankets.

F. Control

Every year, most rain falls between the beginning of the rainyseason, around the start of June, and autumn, due to the
influence of rainy season fronts and typhoons. In Hiroshima
Prefecture, there have been many disasters, such as landslides,
where mountains and steep slopes collapse. We should learn
about the damage caused by heavy rainfall and protect our lives
from disasters by developing the ability to make good decisions
and taking action when danger is imminent.

The results of the questionnaire survey showed that those who
received messages A or B had a strong intention to evacuate.
Moreover, the follow-up survey indicated that those who
received message A still maintained disaster prevention behavior
even eight months after the message was sent. The effect of
the negative message, on the other hand, had disappeared after
eight months. From a policy perspective, we found that positive
messages that emphasize societal impact (e.g., “your evacuation
will save lives”) were extremely effective. As a result, Hiroshima
Prefecture began extensive use of the “your evacuation will save
lives” style of messaging.
I am confident that this research represents a good exampleof EBPM using nudges. We developed a number of message
candidates that we anticipated would be effective in realizing
policy goals from a behavioral economics point of view,
examined the effects of these messages, and implemented thosethat we ascertained were effective and deployable from an
administrative standpoint.
Another example I would like to talk about is the messaging
used for COVID-19 countermeasures. A state of emergency
was declared in Japan from April 2020, and a policy goal wasestablished of reducing interpersonal contact by 80% during
the Golden Week holiday from the end of April to early May.
The message most utilized at the time was “Stay home.” Wedeveloped other candidate messages and evaluated which
was the most effective (Table 2). Was it best to simply provide
information? Or was it better to have an altruistic message
like “By refraining from going out, avoiding the ‘3 Cs (closed
spaces, crowded spaces, and close contact),’ washing your hands,

RIETI Highlight 2022 SPECIAL EDITION

EBPM

EBPM. The first is the validation of policy effectiveness. This
includes, among other work, the analysis of education policy
effectiveness in collaboration with Amagasaki City in Hyogo
Prefecture and Nara City in Nara Prefecture. For example,
we have examined the impact of factors such as small classsizes, special abacus zones, temporary school closures due to
COVID-19, and poverty on academic ability and soft skills.
The preparatory work before beginning the actual research
was quite demanding, as we needed to start by constructing
datasets. The second type of research I am engaged in is closer
to the original EBPM approach. It involves a priori analysis ofwhat kind of policies will be effective, finding evidence, andlinking it to policy decisions. Here, I would like to mention myresearch in Hiroshima Prefecture, where many lives were lostin torrential rain disasters. Hiroshima Prefecture has introduceda system of disaster prevention education, and a very large
proportion of residents are aware of shelters and evacuationroutes. However, not many residents actually evacuated when
torrential rain struck the prefecture in 2018, leading to significant
casualties. We therefore examined the effectiveness of policies
using the behavioral economics concept of “nudges.” We used
a method known as a randomized controlled trial (RCT), basedon the results of questionnaire surveys by 10,000 respondents.
We sent respondents one of six types of messages, selected at
random, and examined how much their evacuation awarenesshad changed. We also conducted a follow-up survey of the same
respondents eight months later, to determine whether or not they
were continuing to engage in disaster prevention behavior.
The main issue we encountered with the surveys was whatkind of messages to send. From interviews and surveys of people
who had evacuated during the torrential rain disaster, we foundthat the vast majority had evacuated only after seeing thosearound them evacuating or being warned to evacuate by those
close to them. Phenomena such as this, where people determine
their own actions with reference to the behavior of those aroundthem, are referred to in behavioral economics as “social norms.”
It was therefore clear that expressions like “those around you
are evacuating” would effectively promote evacuation, but such
expressions could not be used in situations where many people
have yet to evacuate. Such expressions were also unsuitablefor community education activities, so we had to use a little
ingenuity. We came up with the following message: “If you
evacuate, you can save the lives of people close to you” (Table
1-A). Using this message in community education activities
promotes the awareness that evacuating is an altruistic act
that can save the lives of others. We also developed a negative
message—“If you do not evacuate, you are putting people’s
lives at risk” (Table 1-B)—and messages indicating the benefit
of being able to obtain supplies by evacuating to a shelter—

27

and wearing a mask, you can protect the lives of people close
to you” instead? Or was a selfish message—“By refraining
from going out, avoiding the ‘3 Cs,’ washing your hands, andwearing a mask, you can protect your own life”—better? Wealso developed a range of other messages based on behavioral
economics, including a loss-framed altruistic message, and a
combination of altruistic and selfish messages. Throughout
the 2020 Golden Week, we implemented an RCT using online
surveys. As a result, we found that a gain-framed altruistic
message (Table 2-B) was the most effective.
Table 2: Nudge messages used in the intervention
A. Control

To prevent infection, reducing contact with others, avoiding the“3 Cs” (closed spaces, crowded spaces, and close contact),
practicing proper hand washing, and wearing a mask are
effective.

B. Gain-framed altruistic message By refraining from going out, avoiding the “3 Cs,” washing yourhands, and wearing a mask, you can protect the lives of people
close to you.

EBPM

C. Loss-framed altruistic
message

By going out, not avoiding the “3 Cs,” and not washing yourhands or wearing a mask, you will put the lives of people close
to you at risk.

D. Selfish message

By refraining from going out, avoiding the “3 Cs,” washing yourhands, and wearing a mask, you can protect your own life.

E. Altruistic and selfish message

By refraining from going out, avoiding the “3 Cs,” washing yourhands, and wearing a mask, you can protect your life and thelives of people close to you.

F. Simple message

Stay home. You can protect the lives of people close to you.

In 2021, we went on to examine measures to promote
vaccination. In Japan, vaccinations for the elderly began inearnest from May 2021. We began research into effective
messaging from around January 2021, so that our research
results could be utilized in the actual vaccination drive. Throughour research, it became increasingly clear that people are
significantly influenced by social norms. There is not a strong
desire for vaccination while the number of vaccinated people
is still low, but as that number increases, so does the desire to
get vaccinated. Of course, just like in the case of evacuations,vaccination programs are always going to start with only a few
people. We developed and tested three candidates messages tosend at this early stage (Table 3). As a result, we found that again-framed social impact message (message B) was the mosteffective in increasing motivation to get vaccinated, with asignificant effect observed among the elderly in particular. On
the other hand, we found that a loss-framed message (messageC), while effective among some people, also represented a
psychological burden.
Table 3: Nudge messages used in the intervention

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A. Comparison nudge

Seven to eight out of 10 people in your age group answeredthat they would receive this vaccine.

B. Influence-gain nudge

The more people receive this vaccine, the more people have theintention to do so. Your vaccination behavior can encourage thevaccination behaviors of those around you.

C. Influence-loss nudge

The more people receive this vaccine, the more people have theintention to do so. If you do not receive the vaccine, the people
around you may also not do so.

RIETI Highlight 2022 SPECIAL EDITIONIn this way, even before a policy is implemented, it is possible
to test its effectiveness to some extent by using online surveys
such as those where messages are distributed to respondents
at random. I am also involved in research into messages topromote antibody testing for rubella. In this case, we not only
carried out surveys but also tracked participants’ actual behavior,finding a significant correlation between their intentions andbehavior. I believe that if we establish a framework for constant
implementation of surveys using this simple method, then we
will be able to test the effectiveness of messages in real time as
we deploy them in policy, even when faced with policy issues
where the situation is rapidly changing, such as during the
COVID-19 pandemic.
How should EBPM be developed in Japan in the
future?
The EBPM method I have described enables a relatively
simple and logical way to test for the best approach. For
example, in practice, the composition of notices such as posters
and notifications written by those responsible for policy
implementation is left largely to the discretion of the person
writing the notice. When providing information, it is easy for the
person writing the notice to alter the design and composition ofthese notices slightly, without changing their actual content. It
is relatively simple to obtain a comparison of outcomes, such as
which notification elicited the greatest number of applications,and the effectiveness of different approaches can be rapidly
verified. There are various other sophisticated methods used toverify causal inference, but in this way, nudges can be used firstof all to provide an extremely accessible, low-budget methodof testing effectiveness on the level of those responsible on thefront line of policy implementation. I think it’s best to learn thebasics of EBPM from this approach to begin with, also in termsof human resources formation and development. In this way, it’s
possible to gain a first-hand understanding of the entire process,from the reasoning behind policy proposals and methods ofverifying their effectiveness, to actual implementation based onthese results. Of course, many government undertakings are verylarge in scale, and it is not possible to test their effectiveness soeasily. However, even at the policy design stage, personnel withexperience in the kind of approach described above should havean understanding of what sort of policy design will facilitate
the verification of effectiveness later in the process and provide
useful hints for policy improvement.
I think that empirical verification using nudges frombehavioral economics is a highly effective method of gaining
expertise in EBPM. It does not require large-scale surveys or
sophisticated statistical techniques, and I sincerely hope that it ispracticed by as many people as possible.

VoxEURIETI has been partnering with the Centre for Economic Policy
Research (CEPR) since 2014, and articles written by RIETI fellows
have also been published on VoxEU.org, the policy portal site
operated by CEPR. Many columns by RIETI fellows
are listed as “Most Read” articles, and we would liketo share some examples.

Ruo Shangguan

Jed DeVaro

Hideo Owan

Waseda University

California State
University, East Bay

Faculty Fellow, RIETI

It has been argued that when workers are already working long weeks, adding more hours can reduce
productivity. This column tests this argument using evidence from Japan. The authors find that long working
hours of key team members harm team productivity. In contrast, shorter hours cause the opposite effect,
perhaps because workers recover from fatigue and arrive for work with increased energy and focus.
Is it true that less really is more? Can companies, by asking
less of their workers, actually get more out of them? The answer,
at least in some cases, is yes. A historical example happened in
Britain during WWI. Workers, most of them women paid on piece
rates and working long weekly hours, were engaged with the taskof manufacturing artillery shells for the British military. Although
investing more hours allowed these women to increase theirproduction, that was true only up to a point. When the workweek
was already quite long, assigning additional hours reduced
productivity, perhaps due to workers’ fatigue and exhaustion. In
short, the relationship between a worker’s output and her working
hours exhibited an inverted U shape.
This intriguing phenomenon from a century ago—discoveredby Pencavel (2015)—raises important questions for today.
Does this pattern of hours and productivity exist in the modern
workplace? Can it be found outside of the simple, individualistic
production process of military manufacturing? Is it observedin the more complex, team-oriented production settings that
increasingly describe the modern workplace? If so, does the way
in which working hours are allocated across a team’s members
matter for productivity and, if so, how? Does productivity
actually increase if companies impose shorter work schedules to
cut back on labor during a recession?
In a new paper (Shangguan et al. 2021), we tackle thesequestions using project management and personnel data from aJapanese architectural design and consultancy firm. Specifically,
we examine how the firm responded to the Global Crisis of
2008-2009 in terms of the working hours it assigned to the firm’s
project design teams, and we assess how those hours assignments
affected team productivity. We find evidence of the ‘less is more’
result documented in Pencavel (2015) but with some interesting
new twists due to the team setting. One of those twists concerns
how working hours are allocated across team members. Afterthe crisis, hours become more concentrated within the team aswork schedules become shorter. That is, the number of teammembers shrinks, and a higher fraction of the team’s total hours
is contributed by the team member who invests the longest hours
as demand declines.

VoxEU Columns

Teams Become More Productive
When Their Hours Are Shorter

Japan, a country long known for its long working hours andhigh levels of job security, offers an ideal setting in which to
study these questions. Our findings should be of interest froma policy perspective because the country’s tradition of longhours is recently being called into question, as many companies
strive to reduce overtime hours under the banner of ‘work stylereform.’ The impetus for this shift is a pledge made by Shinzo
Abe’s administration in 2016, resulting in the revision of various
labor-related laws (such as setting the upper limit on working
hours) that came into effect in 2019. While there was a sharedunderstanding in society that reducing long working hours was

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VoxEU

necessary for the physical and mental health of workers, there
was persistent concern that reducing long working hours would
further undermine the competitiveness of Japanese companies.
But would it? The lesson from the case of British munitions
workers from a century ago suggests otherwise.
It is well known that when a recession hits, and demand for
products and services drops, companies typically respond withmeasures to reduce labor costs. This can be done in two ways: bylaying off workers or by reducing working hours.

members’ individual outputs are interdependent. Namely, one
member’s high-quality output executed at the right timing also
helps another member to do a good job in a timely manner. Thisis the complementarity between the work of individual teammembers. Second, the assignment of tasks to workers withdifferent abilities will be adjusted if more capable workers canfocus more on a smaller number of jobs in response to a weak
demand. This allows the more capable workers to take moretasks in each of the remaining jobs.
Figure 2: Team-level Average Productivity, 2004–2013

If layoffs are used, labor productivity may increase as workers
try to improve their performance by exerting effort to avoid
being laid off in a situation where it is difficult to change jobs
(Lazear et al. 2016).

VoxEU Columns

In many Japanese companies, because of the high levels ofjob security that workers traditionally enjoy, the tendency is
to respond to a drop in demand by reducing hours rather thanworkers. Particularly if working hours were excessively long
before being cut, labor productivity may increase as workers
who were previously exhausted recover from fatigue and arrive
for work more rested and with greater energy and concentration.
In the firm we study, the turnover rate remained consistently
low during the 2008-2009 recession. The worker attrition that
occurred over time happened mainly through reduced hiring. On
the other hand, as Figure 1 shows, the average monthly overtime
hours decreased significantly during the crisis period.
Figure 1: Average Monthly Overtime Hours, 2004–2016

In the firm that we study, design projects are divided into
phases called jobs, and work is executed by teams. Team
productivity is measured by dividing the income (which is
set in a contract in advance) by the total working hours of theteam’s members. Figure 2 shows that the team-level productivity
index increased after the Global Crisis. The regression analysis
estimates that there was a 7.6% increase in team productivity.
Team productivity is not necessarily an average of individual
productivity because two new factors are added. First, team

30

RIETI Highlight 2022 SPECIAL EDITIONIn the study, we propose and calibrate a theoretical modelto analyze within-team labor allocation and show empiricallythat complementarity and labor reallocation within the teamare important determinants of team labor productivity. In themodel, as the project workload increases, less capable workers
are increasingly assigned to the team as the more capable teammembers become unable to handle the workload themselves.
This leads to a decrease in the team’s average productivity. Thismechanism, operating in reverse as demand fell, was a driver of
productivity growth during the Global Crisis.
Specifically, concerning the firm’s response to the decrease inhours resulting from the crisis:(1) Total productivity improved by more than the increase
in individual productivity, the labor share became moreconcentrated, and team size decreased.
(2) The productivity improvement was greater for larger teams
and less productive teams.
(3) Larger teams exhibited lower average productivity because
weaker workers joined teams when more hours wereneeded than the top performers could handle.
Our analysis shows that overtime caused the productivity
decline, rather than vice versa. In particular, the more overtime
that is supplied by the team member who invests the mosttime on a project, the more damaging is the effect on teamproductivity. We also find that the long working hours of key
team members not only reduce productivity but also contributeto an increased frequency of design defects.

Editor’s note
The main research on which this column is based first appeared
as RIETI Discussion Paper 21-E-040.
References• Lazear, E. P., K. L. Shaw and C. Stanton (2016), “Making dowith less: Working harder during recessions,” Journal of Labor
Economics 34(S1): S333-S360.
• Pencavel, J. H. (2015), “The Productivity of Working Hours,”
Economic Journal 125(589): 2052-2076.
• Shangguan, R., J. DeVaro and H. Owan (2021), “Enhancing
Team Productivity through Shorter Working Hours: Evidence
from the Great Recession,” RIETI Discussion Paper 21-E-040.

VoxEU Columns

These results suggest that when long working hours are
reduced, individual productivity increases, and fewer mistakes
are made at work. This might happen because workers recoverfrom fatigue and arrive for work with increased energy andfocus. The increased productivity of these rejuvenated workers
in turn leads to increased productivity of their teammates incomplementary relationships. Since fewer team members arethen needed to finish the job, there is no need to add less capable
workers to help with the workload. This reduces team size andincreases team productivity. Prior empirical studies suggest
this series of mechanisms, and, along with our work, support
the likely effectiveness of work style reforms aimed at shifting
toward shorter work schedules.

The Impact of COVID-19 on Global Production
Hongyong Zhang
Senior Fellow, RIETICOVID-19 has had large impacts on global production and international trade. The column uses quarterly
aggregate-level data on foreign affiliates of Japanese multinational corporations to show that multinational
production and supply chains were negatively affected by the COVID-19 pandemic, especially in the 2nd
quarter of 2020. The sales of Japanese manufacturing affiliates almost recovered in the 4th quarter of 2020,
indicating the resilience of global production and multinationals’ supply chains. But there are large variations inrecovery across countries.

The COVID-19 pandemic has had substantial impacts on
the world economy. In 2020, world real GDP fell by 3.6%, thevolume of world merchandise trade declined by 5.3%, andforeign direct investment (FDI) flows dropped by 42%.1 Supply
chains have been disrupted and both supply and demand shocks
transmitted through supply chains and propagated acrossborders. As Baldwin and Tomiura (2020) point out, COVID-19
is as contagious economically as it is medically. To slow down
the spread of the coronavirus, many countries imposed someform of restrictions on people and businesses. Previous studies
have shown that COVID-19 had large negative impacts on global
supply chains (Baldwin and Freeman 2020, Bonadio et al. 2020),
international trade (Hayakawa and Mukunoki 2021), and thesubjective uncertainty of global firms (Chen et al. 2021).
Since Japanese multinational corporations (MNCs) are
important drivers and players in FDI and global value chains(GVCs), their overseas production and supply chains were hit
hard by the COVID-19 pandemic. In a recent paper (Zhang
2021), I assess the impact of COVID-19 on global production by
analysing quarterly data on the foreign manufacturing affiliatesof Japanese MNCs.
Impact on sales of foreign affiliates of Japanese
MNCs
In what follows, I document the impact of COVID-19 on the

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VoxEUVoxEU Columns

performance of Japanese manufacturing affiliates in major hostcountries. Figure 1 shows the relationship between the numberof COVID-19 cases (in logarithms) and year-on-year (y-o-y)changes of total sales in 2020. The plots of y-o-y changes in sales
against COVID-19 cases across countries show that sales decline
significantly with increases in COVID-19 cases in each quarter.
In other words, COVID-19 cases are significantly negatively
associated with sales of Japanese affiliates in major countries,
especially in the 2nd quarter of 2020. In Q1 2020, affiliates’ sales
in China (including Hong Kong) and Brazil sharply decreased
by about 20% y-o-y, whilst sales in Taiwan and Singapore only
increased. In Q2, whilst China had almost recovered fromCOVID-19, the sales of Japanese affiliates dropped substantiallyin all other countries. India, Brazil, and Indonesia were the worst
amongst them. Importantly, the fitted lines for Q1 and Q2 showthat the negative correlations between COVID-19 cases and sales
growth rates became significantly stronger from Q1 2020 to Q2
2020. This suggests that the pandemic and the performance ofJapanese affiliates were getting worse in major countries, except
China. In Q3, affiliates’ sales in China continued to increase. The
situation in other countries was improving relative to Q2, but
most of them still had large decreases in sales. In Q4, the salesof Japanese affiliates in most countries recovered but there arestill large variations across countries, implying the differences inrecovery from the pandemic.

exports from China to Japan had a substantial decrease of
17.8% y-o-y. COVID-19 shocks hit China–Japan trade hard as
the supply chains of Japanese firms rely heavily on China. In
contrast, in ASEAN, newly industrialized economies (NIEs),
North America, and Europe, exports to Japan increased by
0.7%, 44.5%, 7.4%, and 11.7% y-o-y, respectively. The sudden
increase in NIEs, especially the Republic of Korea and Taiwan,
may reflect the substitution effect as imports from China were
disrupted in Q1. However, in Q2 2020, although Japaneseaffiliates’ local sales in China almost recovered and increased
by 6.7% y-o-y, their exports to Japan continued to see a y-o-ydecrease of 12%. The situation in non-China regions such
as ASEAN and Europe was even worse (about –20% y-o-y).
ASEAN, which is expected to be an important alternative
sourcing origin, also experienced significant decreases. The
supply chains between ASEAN and Japan were in crisis as well.
In Q4 2020, exports to Japan were recovering in all regions
except the rest of the world (ROW).
Figure 2: Exports to Japan (%, y-o-y)Figure 1: COVID-19 and Global Production

Note: Hong Kong is included in China. NIEs include the Republic of Korea,
Singapore, and Taiwan. ROW includes countries in Africa, Oceania,
and South America.
Source: Author’s own compilation based on the QSOS, METI.

Source: Author’s own compilation based on the Quarterly Survey ofOverseas Subsidiaries (QSOS), Ministry of Economy, Trade andIndustry (METI), and Johns Hopkins Coronavirus Resource Center.

Supply chain disruption and recovery
COVID-19 disrupted supply chains regionally and globally.
Figure 2 shows the y-o-y changes of overseas affiliates’ exports
to Japan by region from Q1 2019 to Q4 2020. In Q1 2020, due
to the rapid spread of COVID-19 in China, Japanese affiliates’

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RIETI Highlight 2022 SPECIAL EDITION

Similarly, Figure 3 shows that Japanese manufacturing
affiliates’ exports to third countries fell sharply during Q1–
Q2 2020. Importantly, the impact was much larger relative toexports to Japan. On average, the y-o-y changes of exports tothird countries were –9.5% and –33.4% in Q1 and Q2, whilst they-o-y changes of exports to Japan were –5.5% and –16.5% during
the same period. Foreign affiliates’ exports to third countries
were recovering in Q3 2020 but did not return to pre-COVID-19
levels. It is also worth noting that ASEAN-based affiliates had
the lowest recovery in Q3. Whilst their exports to Japan were
–7.2% y-o-y in Q3, their exports to third countries were much

lower, at –24.7% y-o-y. This suggests that the negative demand
shock was much larger in the third countries, relative to Japan.
In Q4 2020, exports to third countries almost recovered in all
regions.

standardized inputs easier to replace, identifying places andsuppliers that are less subjective to risk, and assessing thetime to recovery for each type of supplier (Miroudot 2020).
Policies in the future should support business efforts to build
more robust and resilient supply chains.

Figure 3: Exports to Third Countries (%, y-o-y)Editor’s note
The main research on which this column is based first appeared
as RIETI Discussion Paper 21-E-014.
.
References• Baldwin, R. and E. Tomiura (2020), “Thinking Ahead About theTrade Impact of COVID-19,” in R. Baldwin and B. Weder diMauro (Eds.), Economics in the Time of COVID-19, CEPR Press.
• Baldwin, R. and R. Freeman (2020), “Supply Chain Contagion
Waves: Thinking Ahead on Manufacturing Contagion and
Reinfection from the COVID Concussion,” VoxEU.org, April 1.

Note: Hong Kong is included in China. NIEs include the Republic of Korea,
Singapore, and Taiwan. ROW include countries in Africa, Oceania, andSouth America.
Source: Author’s own compilation based on the QSOS, METI.

(2020), “Global Supply Chains in the Pandemic,” NBER Working
Paper No. 27224.
• Chen, C., T. Senga, and H. Zhang (2021), “Measuring BusinessLevel Expectations and Uncertainty: Survey Evidence and
COVID-19 Pandemic,” Japanese Economic Review 72(3):VoxEU Columns• Bonadio, B., Z. Huo, A. Levchenko, and N. Pandalai-Nayar

509–532.

Policy implications
The ongoing COVID-19 pandemic will likely transform
global production. UNCTAD (2020) argues that reshoring,
diversification, and regionalization will drive therestructuring of GVCs in the coming years. This column
provides some policy implications for global production
and the re-evaluation of supply chain strategy in the postCOVID-19 era. To reduce the reliance on supply chains in
China, in April 2020, the Japanese government approved afiscal stimulus package including ¥220 billion (U.S.$2 billion)
for manufacturing firms to move production home and ¥23.5
billion ($0.2 billion) to move production to ASEAN countries.
However, China has brought the spread of COVID-19 undercontrol, and the supply chains and economic activities haverecovered since Q2 2020. On the other hand, Japan, ASEAN,
and the ROW were hit hard by the pandemic at the same time.
As shown in Bonadio et al. (2020), the renationalization of
global supply chains does not make countries more resilient topandemic-induced contractions in the labor supply. Therefore,
it is geographical diversification in sourcing and sales,
not the reallocation of production and supply chains, thatmakes firms and the economy more resilient to supply chain
disruptions and disasters. Resilience in global supply chains
can be increased through building buffer stocks and making• Hayakawa, K. and H. Mukunoki (2021), “Impacts of COVID-19
on International Trade: Evidence from the first shock,” Journalof the Japanese and International Economies 60: 101135.
• Miroudot, S. (2020), “Resilience Versus Robustness in Global
Value Chains: Some policy implications,” VoxEU.org, 18 June.
• UNCTAD–United Nations Conference on Trade and Development(2020), World Investment Report 2020.
• Zhang, H. (2021), “The Impact of COVID-19 on Global
Production: Evidence from Japanese Multinational Firms,”
RIETI Discussion Paper 21-E-014.
Footnote
1. Sources: IMF, WTO, and UNCTAD.

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VoxEU

Impacts of the Vaccine Intellectual Property Rights Waiveron Global Supply
Banri Ito
Research Associate, RIETI

In a policy reversal, the U.S. has announced its support for a proposed temporary waiver of intellectual property
rights on COVID-19-related pharmaceuticals, although it is unclear how much of the undisclosed information
regarding unpatented elements would be disclosed in order to facilitate technology transfer to developing
countries. This column argues that the most efficient way to achieve equitable vaccine access would be toconcentrate production in a smaller number of countries with sufficient production capacity. It also looks at the
implications for Japan, which is caught in a dilemma between the need to vaccinate the population quickly andthe need to secure incentives for developing domestic vaccine capacity for future pandemics.

VoxEU Columns

The U.S. has announced its policy of supporting a proposed
temporary waiver of intellectual property rights on COVID-19related pharmaceuticals that was discussed at a meeting of theGeneral Council of the World Trade Organization (WTO) on
May 5-6, marking a policy reversal from its previous opposition
to the waiver. It is said that behind this change of course is a
growing tide of international criticism, mainly among developing
countries, that the monopoly on vaccines by developed countries
is impeding both equitable supply and the U.S. government’s
attempt to counter the “vaccine diplomacy” being promoted by
China and Russia. Will the policy reversal by the U.S. actuallylead to an improvement in vaccine supply?
Will a waiver of intellectual property protection
promote technology transfer?
Regarding waivers of vaccine patents, there have been somevoluntary initiatives. On October 8, soon after South Africa
and India proposed a waiver of the Trade-Related Aspects ofIntellectual Property Rights (TRIPS) agreement on October
2, 2020, Moderna, a U.S. pharmaceutical company, expressed
its intention not to exercise its patent rights on its COVID-19
vaccine.1 Although Moderna reached an agreement with
South Korean pharmaceutical company Samsung Biologics
on consignment production of the vaccine on May 22, 2021,
so far, there have been very few confirmed cases of efforts to
reproduce Moderna’s vaccine or of licenses being granted toother companies.
With respect to the COVID-19 vaccines developed by Pfizer(jointly with BioNTech of Germany) and Moderna, it appears

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that the whole body of relevant technical knowledge has
not necessarily been patented but that some of the technicalknowledge remains undisclosed as trade secrets. Patenting isonly one means of ensuring “appropriability,” which refers to acompany’s capacity to secure profits from its own technologicalinnovation. While patent information may make it possible
for outsiders to achieve development results similar to thoseachieved by the patented technology through a similar method
without infringing the patent right, keeping the technology
undisclosed as a trade secret or incorporating complex processes
into it may be an effective means of ensuring appropriability.
Pharmaceuticals can easily be counterfeited through “reverse
engineering,” which refers to a process in which the active
ingredients of a drug are identified as a result of deformulation.
Therefore, as a general rule, it is considered important to exclude
the risk of counterfeiting through patenting.
While it is not clear how much of the relevant technologicalknowledge remains unpatented, there are apparently sometechnical reasons for not obtaining full patent protection. The
Pfizer and Moderna vaccines use advanced technology based on
messenger RNA (mRNA), representing the first case of practicalapplication of such technology. Although I, a non-expert inthis field, will refrain from going into further detail, it is highly
likely that those vaccines cannot easily be counterfeited as theirproduction requires complex processes and unique technology.
Patenting involves public disclosure of technical knowledge,
providing information on how to reproduce patented inventions.
It has the function of lowering technology trade costs byPerhaps in view of that risk, in April 2021, the World
Health Organization (WHO) established a COVID-19 vaccine
technology transfer hub as a scheme to promote the sharing ofmRNA-based technology. However, there are no media reports
to date indicating that technical knowledge has been provided
through this scheme.2
Using data from patent applicants for drugs for the three major
infectious diseases (HIV/AIDS, Tuberculosis, and Malaria), we
examined the applicants for their corporate attributes and foundthat pharmaceutical companies that cover various disease fields
have an advantage in drug development for infectious diseases(Ito and Yamagata, 2007). In the case of drug development,
economies of scope may be effective. In fact, there have been
many reports of drug repurposing due to similarities in thetherapeutic drugs for COVID-19, and it seems that drugs used totreat a wide range of conditions may be applicable to COVID-19
treatment, with those drugs not being limited to known
treatments for infectious diseases. Given the economies of scopeentailed in the development of pharmaceuticals, mRNA-based
advanced technology may become applicable to other common
diseases in the future. The scope of the proposed TRIPS waiver
under discussion at the WTO extends beyond patent protection
to include the protection of industrial designs, copyrights, andundisclosed information.3 However, even if the waiver of the
TRIPS agreement is applied to the Pfizer and Moderna vaccines,
it remains unclear for the moment how much of the undisclosed
information regarding unpatented elements will be disclosed inorder to facilitate technology transfer to developing countries.
Will equitable vaccine supply be realized?
If technical knowledge regarding patented vaccines isdisclosed and if it becomes possible to produce the vaccines
in third-party countries, as a general rule, a supply increase
would bring benefits to consumers as the elimination of amonopoly lowers prices. Among past cases, we should look at
the application of the waiver of the WTO TRIPS agreement todrugs to treat HIV/AIDS in 2001. According to an estimate by
Médecins Sans Frontière, the prices of patented drugs dropped
to less than a tenth of the previous level in one year, improving
access to the drugs around the world.4 Given that the principle ofcompetition works, access to the COVID-19 vaccines is expected
to improve.
On the other hand, the successful experience of the waiver
applied to the HIV/AIDS drugs may be hard to replicate if, as thepharmaceutical industry argues, developing countries lack thetechnology necessary for producing and managing the vaccines,
if a rapid increase in demand for the raw materials of thevaccines disrupts production around the world, or if restrictions
are imposed on exports of the raw materials.5 Moreover, even if
a patent waiver is applied, unrestricted dispersion of production
sites would be inefficient given that the principle of economies
of scale applies when fixed costs (costs of factories, storage
facilities, etc.) for vaccine production are enormous. The mostefficient method would probably be to concentrate production
in a smaller number of particular countries with sufficient
production capacity and export the vaccines from there.
Impact on Japan and Japan’s position
For Japan, where vaccination is lagging, it would be desirable
if a waiver of the protection of intellectual property rights on
the COVID-19 vaccines led to an improvement in vaccine
access. However, the proposed temporary waiver of the TRIPS
agreement is primarily intended to assist countries with poor
access, and therefore, the impact on Japan, which has concluded
purchase contracts to cover most of its needs, will be limited.
Rather, Japan, which has maintained opposition to the proposed
waiver, must consider what action to take in response to the U.S.
policy reversal.6

VoxEU Columns

clarifying property rights on technical knowledge. If thetechnical knowledge necessary for manufacturing a certain
product remains undisclosed as a trade secret, it may not berecorded in a written or other tangible form, and it may become
necessary to pass down the technical information as cumulative
implicit knowledge. As a result, technology transfer may become
difficult.

As Japan is preparing to realize the supply of Japanese
vaccines now under development, the country will face a difficult
decision between the need to secure development incentives andthe expectations for the waiver. Even if the waiver of the TRIPS
agreement is applied only to U.S.-developed vaccines, vaccine
producers in other countries, including Japan, are expected to be
negatively affected by it due to the fact that, as a general rule, itwould be desirable for producers if prices remain high across themarket. However, if price competition occurs in an oligopolistic
market like the market for the COVID-19 vaccines, in which thenumber of vaccine producers is limited, a price cut by a producer
will force other producers to lower their prices as well.7
As vaccine projects are subject to externalities, they are prone
to the problem of supply shortages (Kremer 2000). Advancemarket commitments (AMCs) to promote investment in vaccine
development have been successful in supplying pneumococcal
vaccine to developing countries in the past and have been appliedin this pandemic.8 After the policy reversal by the U.S., the

RIETI Highlight 2022 SPECIAL EDITION

35

VoxEU

government of Japan announced a governmental procurement
plan for domestically developed COVID-19 vaccines on May
13, 2021, as an AMC procedure. It is important to secure
incentives for the development of domestic vaccines in orderto prepare for future pandemics. On the other hand, unless the
COVID-19 pandemic is contained everywhere in the world,prospects remain dim for the normalisation of the Japanese
economy, which is internationalized in all aspects. It can besaid that Japan is caught in a dilemma between the need tovaccinate the population quickly to allow for quicker return to anormal situation and the need to secure incentives for developing
domestic vaccine capacity for future pandemics.

Footnotes
1. See the “Statement by Moderna on Intellectual Property
Matters during the COVID-19 Pandemic.” (https://investors.
modernatx.com/news-releases/news-release-details/
statement-moderna-intellectual-property-matters-duringcovid-19)
2. https://www.who.int/news-room/articles-detail/establishmentof-a-covid-19-mrna-vaccine-technology-transfer-hub-toscale-up-global-manufacturing
3. According to a written proposal submitted by India and South
Africa in October 2020 (IP/C/W/669).
4. It is said that the prices of three antiretroviral drugs fell from
$10,000 per annual dose to $700, comparable to the prices

VoxEU Columns

A quick solution would be to expand both production capacityand export capacity within G7 members. Castillo et al. (2021)
insist on the need for additional investment to increase vaccine
supply capacity because of the overwhelming global benefitsof vaccines relative to their cost. Japan started to provide
AstraZeneca vaccines manufactured in Japan, through the
COVAX Facility (COVID-19 Vaccine Global Access Facility),9
to 15 developing countries and also to Asian countries withserious infection numbers such as Indonesia and Malaysia, basedon bilateral negotiations.10 If production and export capacity
were expanded within G7 members, global rollout of COVID-19
vaccines would be accelerated by the international trading
system unless limited by excessive export restrictions.

of generic drugs (https://msfaccess.org/untangling-webantiretroviral-price-reductions-2nd-edition).
5. On May 5, the International Federation of Pharmaceutical
Manufacturers & Associations issued a statement expressing
disappointment at the United States’ decision to support the
proposed waiver of the TRIPS agreement, arguing that thedecision would lead to disruption (https://www.ifpma.org/
resource-centre/ifpma-statement-on-wto-trips-intellectualproperty-waiver/).
6. At a meeting of the WTO General Council on intellectual
property rights in general in October, Japan expressed its
intention not to support the proposed waiver of the TRIPS
agreement while recognizing the need for prompt access topharmaceuticals, arguing that the waiver would undermine
development incentives (directdoc.aspx (wto.org)).
7. This may be true according to an article in Nikkei Asia.
Stock prices of Chinese vaccine makers fell after the U.S.

Editor’s noteannouncement to support the proposal of TRIPS waiverThis column was reproduced in VoxEU with permission from(https://asia.nikkei.com/Spotlight/Coronavirus/COVID-RIETI with some additional information.

vaccines/Vaccine-patent-waiver-COVID-stopper-orinnovation-killer).

References• Castillo, J. C., A. Ahuja, S. Athey et al. (2021), “Market design toaccelerate COVID-19 vaccine supply,” Science 371(6534): 11071109.

commitments (AMC) and show that optimal AMC design
differs depending on development stages.
9. An international framework allowing high- and middle-income• Ito, B. and T. Yamagata (2007), “Who develops innovations incountries to make financial contributions for the supply of

medicine for the poor? Trends in patent applications related tovaccines to developing countries and for the WHO and othermedicines for HIV/AIDS, Tuberculosis, Malaria, and neglectedorganizations to use the financial contributions to implement

diseases,” The Developing Economies 45(2): 141-171.

joint vaccine purchases and internationally promote equitable• Kremer, M. (2000), “Creating markets for new vaccines: Part I:

vaccine supply. For information on the COVAX Facility, access

Rationale,” Innovation Policy and the Economy, Vol. 1, pp. 35-

the website of the WHO (https://www.who.int/initiatives/act-72.
• Kremer, M., J. D. Levin and C. M. Snyder (2020), “Designing36

8. Kremer et al. (2020) theoretically analyze advance market

accelerator/covax).
10. The Government of Japan announced another U.S.$800

advance market commitments for new vaccines,” NBER

million donation at the virtual Gavi COVAX Advance Market

Working Paper 28168.

Commitment Summit on 2 June 2021.

RIETI Highlight 2022 SPECIAL EDITION

ON TECHNICAL SUMMARIESON TECHNICAL SUMMARY

Productivity of Working from Home during the COVID-19 Pandemic:
Panel data analysis
Masayuki Morikawa, President & CRO, RIETI.02 .02.015.015
DensityDensity.01 .01

50
50

100
150
WFH productivity,
100 employees
150
WFH productivity, employees
2021 survey
2020 survey
2021 survey
2020 survey

200
200

2021
2021

62.6%
62.6%

2020
2020

38.1%
38.1%

26.5%
26.5%

36.6%
36.6%

Non Technical Summaries.005.005
0 0

00Figure 2: Intention to Continue WFH after the COVID-19 Pandemic

10.9%
10.9%

25.2%
25.2%

Want to do WFH as frequently as now
Want
as nowthan now
Want toto do
do WFHWFH asbutfrequently
less frequently
Want
WFH
frequently
thanofnow
Want toto do
work
at butmy less
workplaceinstead
WFH
Want to work at my workplace instead of WFH

10 10 20 20
0 0(2) Average WFH productivity was still 20% lower than
productivity in the usual workplace, but an improvementof over 10 percentage points was observed during the past
year. Figure 1 shows a comparison of the distribution of
WFH productivity between the current survey and the one a
year prior. From this Figure, it can be seen that the mode of
productivity has shifted somewhat to the right and the lowest
point of productivity distribution has contracted significantly.
(1) “Selection effect” arising from the exit of low WFHWFH productivity density
WFH productivity density

productivity employees from the WFH practice, and (2) the
improvement in WFH productivity through “learning effect”
contributed almost equally to the improved productivity of
WFH.

-40 -40 -30 -30 -20 -20 -10 -10

2. Key results(1) The latest survey indicated that 21.5% of workers werepracticing WFH, which is quite a decrease from the
32.2% a year prior. When tabulated using only continuing
respondents, the extent of the decline was somewhat large.
Of the employees who continued to reply to the survey, 3.2%
just started practicing WFH during the past year, while
41.7% stopped practicing it. Of the employees practicing
WFH, a large number had reverted to working at their usual
workplace. Also, individuals with lower WFH productivity
had a higher probability of exiting WFH.

Figure 1: Change in WFH Productivity Distribution

Deviation
fromfrom
the average
between20152015
and and20192019(1,000yen)yen)
Deviation
the average
between(1,0001. Background
Following the expansion of the COVID-19 pandemic, there
has been a rapid increase in workers practicing Work from
Home (WFH). Within this context, there has also been a rapid
increase in research on WFH during the pandemic. We havecome to know what characteristics workers need to have in orderto practice WFH as well as what kind of workers are actuallyengaging in WFH. Findings generally show highly-skilled, highwage, white-collar employees who work in large firms tend topractice WFH, meaning that the expansion of WFH has tended
to increase disparity in the labor market. In contrast, formal
research on WFH productivity is still limited to a few studies
both in Japan and abroad. This paper expands upon Morikawa(2020), which was based upon a survey conducted in June 2020.
Another survey conducted in July 2021 is utilized to present
new observations about changes in the practice of WFH andproductivity during a year of the COVID-19 pandemic, thesubstitution of commuting time for working time, as well asother areas of focus.

(3) An average of a little more than 40% of the commuting time
saved due to WFH has been allocated to work time. The
increase in labor input due to this has amounted to 3.0%of the total labor input of employees practicing WFH and
0.7% of the total labor input for all workers. Even taking into
4
5
6
7
8
Month in 2020
4
5 allocation of6 saved commuting
7
consideration
thetime to 8
Month
in
2020
Early group
Late group
95% CI Band
work time,
there is no substantive
change in the conclusion
Early group
Late group
95% CI Band
reached about WFH productivity.
0.07
0.07
0.06
0.06
0.05
0.05
0.04

***
***

RIETI Highlight 2022 SPECIAL EDITION
***

***
***

37

(4) The number of individuals who said they would like topractice WFH at the same frequency as they currently doeven after the COVID-19 pandemic subsides significantly
increased (Figure 2), suggesting a high likelihood that
WFH may become established as a highly-convenient andadvantageous workstyle for workers engaged in work suited
to WFH.

Reference
Morikawa, Masayuki (2020), “Productivity of Working from Home during the
COVID-19 Pandemic: Evidence from an Employee Survey,” Covid Economics,
Issue 49, pp. 132-147.
* For details of the analysis, refer to Morikawa, Masayuki (2021), “Productivityof Working from Home during the COVID-19 Pandemic: Panel Data
Analysis,” RIETI Discussion Paper 21-E-078
https://www.rieti.go.jp/jp/publications/dp/21e078.pdf

ON TECHNICAL SUMMARY
Non Technical Summaries
38

Impact of Cash Transfers on Consumption during the COVID-19 Pandemic:
Evidence from Japanese Special Cash Payments
Takahiro Hattori, The University of Tokyo / Norihiro Komura, Kyoto University / Takashi Unayama, Faculty Fellow, RIETI

During the COVID-19 pandemic, the Japanese government
implemented a Special Cash Payment (SCP), comprisinga uniform payment of 100,000 yen for each member of theresident population. Similar large-scale cash transfers were also
implemented in many other countries. However, the impact of
the SCP on household consumption was unclear in advance.
Although it was possible that households might not increase
their consumption out of fear of COVID-19, it was also possiblethat the SCP would significantly boost consumption due toan increasing number of households experiencing pecuniary
constraints as a result of the pandemic. There was also the riskthat increased household consumption would lead to the further
spread of infections, depending on the type of consumption.
From this perspective, we estimate households’ marginal
propensity to consume (MPC) out of the SCP. We classify
consumption based on the COVID-19 infection risk, estimate the
MPC for each of these subcategories, and examine the ways inwhich households increased their consumption.
For this research, we use publicly available data from theFamily Income and Expenditure Survey (FIES) publishedby the Statistics Bureau, Ministry of Internal Affairs andCommunications of Japan. The FIES is a fundamental statistic
under the Statistic Act and is regarded as the most reliable
household-level expenditure data. In recent years, trends inthe FIES correspond with GDP final household consumption
expenditure, making it a suitable source of data for a

RIETI Highlight 2022 SPECIAL EDITION

macroanalysis of the SCP. However, the SCP is recorded in the
FIES as “special income” along with other temporary sources ofincome. Therefore, it is necessary to take econometric concerns
into account when estimating MPC.
The SCP was distributed from June to July 2020 amid
dramatic changes in consumption, with the initial state of
emergency declared from April to May, followed by initiatives
such as the “Go To” Campaign in July. This makes it impossible
to assess the effect of the SCP by simply examining household
consumption time series data.
Rather, we use the differences in the timing of SCP
distributions between cities to estimate the MPC. Specifically,
we focus on timing differences in the start date of the acceptanceof payment applications for each municipality. In the Figure(corresponding to Figure 4 in the paper), we divide the cities into
two groups: those that started accepting applications for the SCP
relatively early (on average before May 25; indicated by the solidline) and those that started relatively late (indicated by the brokenline). We refer to these two groups as the “early group” and the“late group,” respectively. The figure represents a comparisonof household consumption trends between these two groups andshows how we used differences in the timing of payments toestimate the MPC.

2020

38.1%

36.6%

25.2%

ON TECHNICAL SUMMARIES
Want to do WFH as frequently as now
Want to do WFH but less frequently than now

20
10
0
-10
-20
-30
-40

Deviation from the average between 2015 and 2019 (1,000 yen)

Figure: Application Start Date and Consumption

4

5

6

7

Month in 2020

Early group8

Late group

95% CI BandIn June, the group for which payments commenced relatively***
0.06 saw a larger increase in household consumption than the late
early
0.05
group,
but this difference gradually diminished over time and was
***
***
0.04
reversedin August. In other words, consumption increased earlier
in0.03
cities that commenced payments earlier. This indicatesthe effect***of0.02the SCP in boosting consumption. In June, the early group had
0.01
received
210,000 yen as a special income, whereas the late group0
received
only 106,000 yen; the difference in the SCP received-0.01
between two groups was 104,000 yen. The difference in household-0.02
consumption between the two groups in June***is 9,000 yen. The
***
-0.03
MPC is theFY2013
ratio of the two,
8.7% (= 9,000/104,000).
In FY2014
the paper,
FY2014FY2013
Received
Appliedwe use a more rigorous regression analysis to calculate the MPC,
producing a baseline estimate of 11%.
The value of this estimate is consistent with previous studies
on cash transfers in Japan. This suggests that, even during the
pandemic, households responded as usual to cash transfers. Ourestimate suggests that the increase in consumption in responseto the SCP was mainly driven by households with liquidity
constraints. It has been pointed out that the macro MPC isclosely equivalent to the proportion of households with liquidity
constraints, which has been estimated at approximately 13% by
previous research. Our estimate of MPC, at around 10%, leads
to a narrative suggesting that it was households with liquidity
constraints that responded to the cash transfers.
This conclusion is highly significant for evaluating the SCP.
Specifically, targeting only households with liquidity constraints
could produce the same stimulus effect on consumption as a
uniform benefit for the entire population. The stated purpose of
the SCP was not purely to stimulate consumption. Moreover,there is no guarantee that government authorities would be able
to accurately identify households with liquidity constraints when
implementing a cash transfer. However, it will be difficult tojustify unconditional uniform payments to the entire population
when drafting cash transfer measures in the future.
Assuming that 10% of the SCP was spent for consumption, thisSales per capita

Number of
employees

Sales

Sales per capita

Number of
employees

Sales

Sales per capita

Number of
employees

Sales

Sales per capita

Number of
employees

Sales

0.07

corresponds to a boost in consumption of more than 1 trillion yen.
This additional consumption may also have contributed to the
spread of COVID-19. To assess this risk, we examine what goods
and services were consumed by households.
By restructuring the detailed categories presented in the
FIES, we are able to classify consumption according to our own
criteria based on the risk of COVID-19 infection, to explore how
households increased their consumption. Specifically, we classify
consumption into four subcategories: spending on “face-to-faceservices” such as traveling and eating out, which carry a relatively
higher risk; spending on “goods/services purchased at home” suchas utilities and internet services, with the lowest risk; spending on“transfer payments” including gifts and remittances; and spending
on other “goods/services purchased at stores.” Our estimates ofthe MPC for each consumption subcategory are presented in thetable below (corresponding to Table 3 in the paper).
We find that consumption of “goods/services purchased atstores” increases by about 8%, and consumption of “goods/
services purchased at home” and “transfer payments” bothincrease by around 2%. By contrast, we do not find a statisticallysignificant change in “face-to-face service” consumption. These
results suggest that households consider the risk of infection when
deciding what to consume using the SCP. Based on these changes
in consumption behavior, the SCP did not significantly increase
the risk of spreading COVID-19.

Non Technical Summaries

Want to work at my workplace instead of WFH

Table: MPC out of SCP by Infection Risk

(1)
Store purchase(2)Home purchase0.083***

0.022***-0.0220.017***(0.029)(0.005)(0.019)(0.005)

Estimation

111.3

111.3

111.3

111.3

Weak IV F-stat Sample

Jan–Dec

Jan–Dec

Jan–Dec

Jan–Dec

Period Observations

624

624

624

624

SCP

(3)
(4)
Face-to-face service Transfer payment

Standard errors in parentheses* p<0.1, ** p<0.05, *** p<0.01* For details of the analysis, refer to Hattori, Takahiro, Norihiro Komura,and Takashi Unayama (2021), “Impact of Cash Transfers on Consumption
during the COVID-19 Pandemic: Evidence from Japanese Special Cash
Payments,” RIETI Discussion Paper 21-E-043
https://www.rieti.go.jp/jp/publications/dp/21e043.pdf

RIETI Highlight 2022 SPECIAL EDITION

39

ON TECHNICAL SUMMARY

The Impact of COVID-19 on Japanese Firms:
Mobility and resilience via remote work
Daiji Kawaguchi, Faculty Fellow, RIETI / Sagiri Kitao, Senior Fellow, RIETI /Manabu Nose, International Monetary Fund and The University of Tokyo

Non Technical Summaries

What effect did the dramatic decline in mobility due to the
COVID-19 pandemic have on the performance of firms? In
our research, we draw on a survey of Japanese firms during the
COVID-19 pandemic to examine how changes in mobility due tothe crisis affected firms’ sales, employment and hours worked per
employee, and how the implementation of Work from Home (WFH)
arrangements helped firms to mitigate negative effects.
Lower mobility resulting from the Japanese government’s
declaration of a state of emergency and fear of infection led to asignificant decline in the business activities of firms. As shownin Figure 1, the impact on performance was greater among firmsthat faced larger changes in mobility. We analyze this impact using
mobility changes observed in the Google community mobility
report and a survey of Japanese firms conducted by the Center for
Research and Education in Program Evaluation (CREPE) at The
University of Tokyo and Tokyo Shoko Research, Ltd. (TSR). We
find that sales declined by an average of 2.8% and work hours byan average of 2.1% in response to a 10% drop in people’s mobility,
but we observe no effect on employment. This muted employment
response is consistent with limited changes in aggregate
employment at the extensive margin during COVID-19 in Japan.
Analyzing this impact across different firm sizes and sectors, wefind that the impact on sales and work hours was greater amongsmaller firms and those in higher-contact sectors such as retail trade
and accommodation.
Did WFH arrangements help to mitigate the impact of thisdecline in mobility on firms’ activities? We find that the impact
on activities was effectively reduced among those firms that had
adopted WFH arrangements by December 2019, prior to theadvent of COVID-19. This result is shown in Table 1. As with
the impact due to changes in mobility, we observe no effect on
employment. However, we find that the adoption of WFH before
COVID-19 mitigated the negative impact of the decline in mobility
by approximately 55% in terms of sales and by approximately 35%
in terms of hours worked. Moreover, we show that adapting to theTable 1: Impact of Mobility Change and the Status of
WFH Arrangements in 2019 on Firms’ Activities
All

Low contact

High contact

Mobility

0.276**

0.256***

0.313***

Mobility x Remote 2019(0.021)-0.153**(0.025)-0.194***(0.036)-0.027(0.061)(0.072)(0.113)

0.011

0.011

0.009

(0.007)0.004(0.023)(0.008)0.008(0.029)(0.014)-0.010(0.034)0.211***(0.013)0.206***(0.017)0.220***(0.020)

Mobility x Remote 2019-0.073*(0.038)-0.079(0.048)-0.049(0.054)

Samples

29,056

19,264

9,792

Panel A: Sales

Panel B: Employment
Mobility
Mobility x Remote 2019
Panel C: Hours Worked
Mobility

Note: Standard deviations are reported in parentheses. * p<0.1, ** p<0.05, *** p<0.01

The COVID-19 pandemic caused a sudden and massive
disruption in firms’ sales and work hours due to a substantial decline
in mobility. In the context of the economic crises resulting fromepidemics such as COVID-19, we find that greater diversificationin labor input through WFH arrangements provides an insurance
device against unexpected shocks. At the same time, however,mobility change does not affect the performance of all firms in thesame way, indicating heterogeneity in the mitigation effect due to
WFH arrangements.
Footnote
1. The figure shows the average year-on-year changes in sales, employment,
and work hours for 20 groups of firms, classified by the change in mobility foreach firm.
* For details of the analysis, refer
to Kawaguchi, Daiji, Sagiri Kitao

1and Manabu Nose (2021), “TheImpact of COVID-19 on Japanese

0

0

0

Figure 1: Mobility and Sales, Employment, and Hours Worked

crisis environment by increasing the number of employees working
from home also helped mitigate the negative impact on sales andwork hours. However, we also find that the mitigation effect of
WFH arrangements differed substantially across firms and waslimited to those in low-contact sectors, with no effect observed inhigh-contact sectors.

YoY Sales Growth-1-0.5

YoY Sales Growth-1-0.5

YoY Sales Growth-1-0.5

Firms: Mobility and Resilience via
Remote Work,” RIETI Discussion
Paper 21-E-063
https://www.rieti.go.jp/jp/

-.5

-.4

-.3

Mobility-.2(a) Sales

40

RIETI Highlight 2022 SPECIAL EDITION

-.1

0

-1.5

-1.5

-1.5

publications/dp/21e063.pdf
-.5

-.4

-.3

Mobility-.2(b) Employment

-.1

0

-.5

-.4

-.3

Mobility-.2(c) Hours worked

-.1

0

.02

WFH productivity density

ON TECHNICAL SUMMARY

Density.01.015

ON TECHNICAL SUMMARIES

0

.005

Are Applying for and Receiving Subsidies Worth It for Small Enterprises?
Evidence from the government support program in Japan
50

Yuki Hashimoto, Fellow, RIETI / Kohei Takahashi, Waseda University

2021 survey

150

200

2020 survey

-40

-30

-20

-10

0

10

20

of employees. We also observe a significant positive correlation
with sales per capita, which we treat as a productivity indicator.
An analysis by industry (for the manufacturing, construction
2021
62.6%
26.5%
10.9%
and service industries) indicates that this tendency is particularly
apparent in the service industry.
We test the robustness of these results using a placebo analysis
and find that the result for FY2013 is both significant and robust.
2020
38.1%
36.6%
25.2%
For FY2014, however, there are indications of possible selection
bias, with firms that could be expected to gain the greatest effects
from the subsidy moreWant
likelyto asactuallyan application.
to do WFH
frequently assubmit
now
Want to do WFH but less frequently than now
To summarize the resultsof our analysis, although we found
Want to work at my workplace instead of WFH
no significant difference in outcomes between firms that received
the subsidy and those that did not, we did find that productivit
productivity
improved for firms that applied for the subsidy compared with thosethat did not. This suggests that the effects were due not to financial
support from the subsidy, but rather to the application processitself. Our findings imply that external advice from organizations
such as chambers of commerce and the preparation of businessplans, which form part of the application process, provide firms
with an opportunity to identify and address their issues, effectively
improving productivity. It may be that the inclusion of suchmechanisms to promote voluntary efforts is an effective design for
4
5 subsidy policies
6
7
8
the implementationofMonth in 2020 aimed at developing small
Late group
95% CI Band
enterprises. Early group
Deviation from the average between 2015 and 2019 (1,000 yen)

Figure: Effects of the Business Sustainable Subsidy (BSS)
0.07
***

0.06
0.05

***

***

0.04
0.03

***

0.02

FY2013

Number of
employees

Sales

Applied***

Sales per capita***
FY2013

Sales per capita

Sales

Number of
employees

Sales

Received

FY2014

Sales per capita-0.03

Number of
employees-0.02

Sales per capita

0
-0.01

Number of
employees

0.01
Sales

Higher labor productivity at small- and medium-sized enterprises(SMEs) is crucial for further economic growth in the context of
population decline and was a focus of the 2020 White Paper on
Small and Medium Enterprises in Japan. However, many SMEs
have made little progress in raising labor productivity since the2000s. This is especially true of firms that cannot make the capital
investments required due to factors such as funding constraints.
Against this background, the Small and Medium Enterprise Agency
established the Business Sustainable Subsidy (BSS) in 2013 toboost SME market development and labor productivity. In thispaper, we examine the impact of application and receipt of the BSS
on small enterprises’ sales and productivity.
We analyze data by combining a list of all the firms that applied
for the BSS in FY2013 and FY2014, and firm data compiled by
Tokyo Shoko Research (TSR). We assess the effects of the subsidy
by examining changes in sales, number of employees, and sales per
capita before and after an application for the subsidy was made andreceived, for firms that applied for and received the subsidy, andcomparing these with firms that did not.
Several opportunities are provided for firms to apply for the BSS
each year, and a separate cutoff point for receiving the subsidy
is established each time. We therefore employ a sharp regression
discontinuity design (sharp RDD) to estimate the effects ofreceiving the subsidy and confirm the robustness of our findings
through a difference in differences (DID) analysis. Regardless of
the analytical method, we did not observe a significant increase inoutcomes such as sales as a result of firms receiving the subsid
subsidy.
However, prospective applicants for the BSS are required toprepare a business plan with support from management advisorsfrom the Japan Chamber of Commerce and Industry (JCCI) or
the Central Federation of Societies of Commerce and Industry(CFSCIJ). The application process therefore gives firms theopportunity to identify the issues they face and examine their futurebusiness outlook. This mechanism may effectively enhance thebusiness performance of subsidy applicants, even if they are notactually selected to receive the BSS.
To estimate the effect of applying for the BSS, we therefore
employ DID analysis of a data sample that includes firms that
did not apply for the subsidy. The Figure shows the results of ourestimation based on application and receipt of the BSS, respectively.
For firms that applied for the BSS, while we observe a significansignificant
increase in sales after the application, when compared with firmsthat did not apply, there was a significant decline in the number

100
WFH productivity, employees

Non Technical Summaries

0

FY2014*** indicates statistical significance at the 1% level.

* For details of the analysis, refer to Hashimoto, Yuki and Kohei Takahashi(2021), “Are Applying for and Receiving Subsidies Worth It for SmallEnterprises? Evidence from the Government Support Program in Japan”
RIETI Discussion Paper 21-E-039 https://www.rieti.go.jp/jp/publications/
dp/21e039.pdf

RIETI Highlight 2022 SPECIAL EDITION

41

I
T
E
RI DATE
UP

Report on Recent Activities
Yasuhiko Yoshida
Vice Chairman, RIETI

RIETI UPDATEThe impact of the COVID-19 crisis has been felt across RIETI’s
activities as significantly as across society. Even under thesecircumstances, RIETI has been vigorously continuing its activities
while diligently adapting to the situation at hand. The various
research project meetings and discussion paper (DP) review sessions
were changed from a face-to-face to an online format. We had to
get used to the unique characteristics of an online environment
for presentations, Q&A sessions, sharing materials, and otheractivities, but we are now in a position where we can take adva
advantageof its benefits, including remote participation, in continuing ourresearch activities. We continue to actively engage in the publicity
and dissemination of research through the transition to online
symposiums, seminars, and other activities.
In terms of research topics, we have seen a rapid development inresearch related to COVID-19, in addition to existing research topics.
We have disseminated the results of this research in DPs, columns on
the RIETI website and in book form, as well as through symposiu
symposiums
and the like, which we report on in our PR magazine ((RIETI
Highlight) and on the RIETI website.
Highlight
The Fifth Medium-term Plan in its second year
RIETI is an incorporated administrative agency established by tthe
government under government law and is operated in accordancewith a medium-term plan and medium-term targets. The fiscal
year starting from April 2021 (FY2021) marks the second year
of RIETI’s fifth four-year Medium-term Plan (FY2020–2023).
Examining the results obtained during FY2020, the first year of
the plan, we published 168 research papers after internal review. In
other words, we were able to publish an extremely large number of
papers despite the COVID-19 crisis. (We published an additional
122 research papers during the period from April 1 to December
31, 2021.) No less than 67 research papers were published ininternationally recognized, peer-reviewed academic journals andother specialized publications. Several papers were published inhigh-impact academic journals (such as Journal of International
Economics, American Political Science Review, Journal of Cleaner

42

RIETI Highlight 2022 SPECIAL EDITION

Production, and ILR Review). We published eight research papers on
evidence-based policy making (EBPM), such as an analysis of theeffect of manufacturing subsidies, the short-term impact of selection
as a “Nadeshiko Brand” (for firms that are outstanding in terms of
encouraging women’s success in the workplace) on stock price,and the impact of minimum wages on employment. In terms of theintegration of natural and social sciences, we published 11 research
papers on topics such as the U.S. Foreign Corrupt Practices Act andmarket quality in emerging economies, and travel and COVID-19
diagnosis. We also published 39 research papers that included
contributions by overseas researchers. Many of RIETI’s research
results were cited in government white papers, such as “White Paper
on International Economy and Trade,” “White Paper on Small andMedium Enterprises in Japan,” “White Paper on Small Enterprises
in Japan,” and “White Paper on the Japanese Economy and Public
Finance.” Our research findings were cited by official government
councils and the like, for example, the Industrial Structure Council,
Growth Strategy Council, and the Central Environment Council. The
number of cases where we provided policy advice to government
ministries and agencies such as METI increased by more than 40%,
compared to the past three years, demonstrating our contribution topolicy formation.
Regarding the research related to COVID-19 mentioned above, we
introduced a Fast Track system to facilitate the swift publication ofresearch results to contribute to timely policy planning, based on threenecessities: 1) urgency, 2) significant potential contribution to policy
formation, and 3) importance for the international competitivenessof Japanese research. A large number of DPs were published throughthis system. In the seventh meeting of the Growth Strategy Council
held by the government, many of RIETI’s research results were citedas basic data on the economic impact of the COVID-19 crisis.
On another front, we launched the Global Intelligence Project,comprised of research into changes in the international order aandJapan’s medium- and long-term competitiveness. We are engaging
in interdisciplinary, cross-cutting research from the perspectives ofinternational political science, economics, and international economic
law, focusing on topics that are expected to shape the international
order in the future. We are also carrying out research into approaches
to risk management in Japan, from a perspective that encompasses
these fields.
These research efforts by RIETI have garnered high praise in Japanand overseas. One example is the 2021 NTJ Richard Musgrave Prizeawarded to Faculty Fellow Takashi Unayama and David Cashin for
their joint research paper “The Spending and Consumption Response
to a VAT Rate Increase” ((National Tax Journal, Vol. 74, No. 2). This
paper is based on a RIETI Discussion Paper (16-E-052).
Enhancing research dissemination activities
At RIETI, we have always published research results widely, anddisseminated them in various different forms. The online publicationand dissemination of research have become more important than everduring the COVID-19 crisis, and we are actively working to furt
further
our initiatives in this area.

The RIETI website

https://www.rieti.go.jp/en/
The RIETI website is thecenterpiece for announcing theresults of research at RIETI.
All discussion papers (DPs)and policy discussion papers(PDPs) produced by RIETI’s
research projects are publishedon this site and are available
for anyone to read. We operate
English- and Chinese-language sites in addition to the Japanese site.
Research papers published in an academic form feature an abstra
abstract at the
beginning. For Japanese readers, we also publish a separate nonnon-technicalsummary (NTS) for each paper, written by the paper’s authors to explain
aspects such as the paper’s policy implications.
We also publish columns on current issues, written by researchers
participating in RIETI. On the “Perspectives from Around the World”
page, we present research results on a range of topics, as well assuggestions and messages for Japan written by internationally renowned
researchers and experts from the U.S., Europe, Asia and elsewhere.
In addition to this content, the RIETI website features systema
systematic
databases for policy analysis. We provide data through platforms suchas the Japan Industrial Productivity Database (JIP Database), a basic
resource for analyzing Japan’s economic growth and changes in industry
structure, the Regional-level Japan Industrial Productivity Dat
Database(R-JIP Database), a basic resource for analyzing industry structure andregional productivity differences in Japan, the Japan Economic Policy
Uncertainty Index, which comprises part of the results from RIETI’s
international joint research with the IMF Regional Office for Asia andthe Pacific, titled “Policy Uncertainty in Japan,” and the Japanese Studyof Aging and Retirement (JSTAR), containing data from a panel surveyof middle-aged and elderly people aged 50 or older conducted by RIETI
together with Hitotsubashi University and the University of Tokyo.
2

Symposiums and seminars

https://www.rieti.go.jp/en/events/
With the many restrictions imposed to prevent the spread of
COVID-19, we have transferred our symposiums and seminars
from conventional physical participation to an online format. O
Oursymposiums and seminars attract high levels of participation, w
withtimely, varied topics such as the COVID-19 pandemic, the international
economic situation involving the U.S., China, and others, and tthe
environment and energy. (See page 46 for a list)
3

YouTube “rietichannel”

https://www.youtube.com/playlist?list=
PLrKLHCc7FQaNf9aKtY_iEownmnjNtL_e2

With the transition to an online format for RIETI events, the content
presented on our YouTube channel “rietichannel” is rapidly expanding.
The channel was previously devoted to recording and publishing events
held in a physical setting, but now features content produced specificallyfor an online format, with more content that can be viewed more
comfortably online.
In addition to symposiums, research seminars, and Brown Bag Lun
Lunch(BBL) webinars, we present video content such as discussions on issues
facing Japan and interviews with experts and fellows on hot topics
including economic, political, and social issues.
Videos with English titles are presented in English, and the channel
features a “video in English” playlist with over 70 such videos.
4

RIETI Report, Twitter, and Facebook

The public can check the status of RIETI’s latest activities by
subscribing to our bi-weekly English-language newsletter, RIETI
Report, as well as through RIETI’s English-language accounts on
Twitter and Facebook.
• Subscribe to RIETI Report:
https://rieti.smktg.jp/public/application/
add/5257?lang=en• Twitter:
https://twitter.com/RIETIenglish• Facebook:https://www.facebook.com/en.RIETI
5

RIETI UPDATE

1International collaboration

RIETI has been expanding its research network and working tostrengthen its research system in collaboration with researchers fromoverseas universities and research institutions.
Regarding our interaction with overseas research institutions, since2007 RIETI has been partnering with the Centre for Economic Policy
Research (CEPR), one of the world’s top economic think tanks. We
have been working with CEPR in disseminating information since2012. For example, columns and other materials by RIETI have been
published on VoxEU.org, the policy portal site operated by CEPR, andsome columns by VoxEU.org on timely topics have also been repostedon the RIETI website.
Furthermore, we are strengthening ties with the Australian National
University (ANU) through the co-hosting of symposiums and mutua
mutualpublication of research papers. We have signed MOUs with research
institutions around the world to enhance collaboration through aninternational research system. (See page 44)
Looking forward
The COVID-19 crisis has impacted RIETI’s activities in various
ways, but we have also been able to open up new horizons by ada
adapting
to the changes. We will leverage these new insights to drive RIETI’s
research results, dissemination activities, and contribution to policy
planning in an even more dynamic way.

RIETI Highlight 2022 SPECIAL EDITION

43

RIETI UPDATEEUROPE
United Kingdom

Germany❶❺

Centre for Economic Policy Research

IZA Institute of Labor Economics (IZA)(CEPR)
Chatham House

Switzerland

COVID-19 Genomics UK Consortium❻(COG-UK)

Graduate Institute, Geneva
University of St. Gallen❷Saïd Business School, University ofNetherlands

Oxford❼Clingendael Institute❸Durham University

Belgium❽

FranceBruegel❹European Commission (EC)

Banque de France

European Corporate GovernanceFondation France-Japon de l’EHESS

Institute (ECGI)Institut national de la santé et dela recherche médicale (INSERM),

SwedenCreme3❾

Institut Pasteur

Varieties of Democracy (V-Dem),

Organisation for Economic Co-

University of Gothenburg

operation and Development (OECD)

44

RIETI Highlight 2022 SPECIAL EDITIONRIETI UPDATEASIANORTH AMERICA

Republic of Korea

Singapore

United States of America

❿

⓮

⓲

Korea Institute for Industrial Economics andAsian Trade Centre

Council on Foreign Relations (CFR)

Trade (KIET)

Asia-Pacific Economic Cooperation (APEC)

Asia Society Policy Institute (Washington, D.C.

Secretariat

Office)TaiwanISEAS –Yusof Ishak Institute

Brookings Institution⓫

Middle East Institute, National University ofGeorgetown University

Taiwan Institute of Economic Research (TIER)

Singapore

George Washington University
German Marshall Fund of the United States

China

Indonesia

International Monetary Fund (IMF)⓬⓯

Peterson Institute for International Economics

Institute of Japanese Studies, Chinese

Economic Research Institute for ASEAN and

Academy of Social Sciences (IJS, CASS)

East Asia (ERIA)

Peking University

Indonesia Research Institute for

Tsinghua University

Decarbonization (IRID)

Mongolia

India

⓭

⓰

㉑

The Mongolian National Development Agency

Centre for Policy Research

Harvard University

(NDA)

⓳
Syracuse University⓴
Yale University㉒
University of Chicago

OCEANIA
Australia⓱
Australian National University㉓
Portland State University㉔
University of California San Diego*Institutions in blue are institutions with which RIETI has signed Memorandum of Understandings (MoUs) to date.

RIETI Highlight 2022 SPECIAL EDITION

45

List of Events in 2021
In 2021 RIETI hosted 76 events, welcoming various speakers from Japan and overseas. The seminars covered a wide rangeof topics including the impact of COVID-19 on the economy, green growth strategy, geopolitical issues, DX, Japan-Asia
cooperation, and economic security. For the videos and summaries of the events, please visit: https://www.rieti.go.jp/en/events/
Date Event

Date Event

RIETI UPDATE

1/14

RIETI Open BBL Webinar: Global Intelligence Series
The International Economic Policy Challenges for the Biden Administration

6/18

RIETI–ECGI–WBF Webinar Series
A New Concept of the Corporation: [Part 4] The role of institutional investors

1/15

RIETI Open BBL Webinar
Basis & Practice of Management Accounting in the Public Sector

6/22

1/20

RIETI Open BBL Webinar: DX Series
European AI Strategy for Digital Economy: What Japan should learn from the EU

RIETI Open BBL Webinar
The 2021 White Paper on Manufacturing Industries (Monodzukuri): The new normal of manufacturing–industries resilience, green and digital

6/24

RIETI & EU–Japan Centre for Industrial Cooperation Joint Webinar
Toward Carbon Neutrality–Challenge of Japanese & EU industry and system

1/26

RIETI Open BBL Webinar: DX Series
Going Digital: Implications of the COVID-19 crisis on digital transformation

7/1

RIETI-ERIA Open BBL Webinar
How Will East Asia’s Digital Transformation Change the Global Value Chain?

1/27

RIETI BBL Webinar: Global Intelligence Series
Considerations on How Japan Can Unlock Its Full Potential in a Rapidly Evolving World

7/3

FPJ, IPJO, IFRJ-MFJ, RIETI, Kyoto University Seminar
Socio-life Science Interdisciplinary Seminar: Stakes of COVID-19 vaccination

2/4

RIETI BBL Webinar: Global Intelligence Series
Improving Productivity in Japan

7/6

AIG Global Trade Series 2021 Podcast Episode 5
Climate and Trade: On the road to COP26

2/5

RIETI Open BBL Webinar: Global Intelligence SeriesMulti-risk Governance–International and domestic response to emerging and reemerging infectious diseases

7/8

RIETI Open BBL Webinar: DX Series
Blockchain Now: Applications of blockchain in digital ownership and data management

2/9Japan Society for the Promotion of Machine Industry-Economic Research Institute Online Seminar
Autonomous Driving, Driver Assistance, MaaS and ITS

7/12

RIETI BBL Webinar: Global Intelligence Series
European Green Recovery Strategy and Industry Perspectives

Fondation France Japon–RIETI–Banque de France Joint Workshop
How COVID-19 Impacts Supply Chains and the Economy: Evidence from Europe and Asia

2/10

7/15

RIETI Open BBL Webinar: Global Intelligence Series
SDGs (Sustainable Development Goals) and VSS (Voluntary Sustainability Standards)

RIETI Open BBL Webinar
Energy White Paper 2021

2/12

7/20

AIG Global Trade Series 2021 Podcast Episode 6
Digital Transformation: Standards, taxation, and global governance

2/18

RIETI Open BBL Webinar: Global Intelligence Series
Policy Trends Related to the Application of Mobile Payments in China–From restaurant DX to SME credit
ratings

7/21

RIETI–ECGI–WBF Webinar Series
A New Concept of the Corporation: [Part 5] The purpose of the corporation and how to realize its purpose

2/19

RIETI Open BBL Webinar: Global Intelligence Series
Evaluation of China’s Innovation Power: Seen in patent macro data

9/1

RIETI Open BBL Webinar: Global Intelligence Series
Emerging Economies Going Digital: Japan’s potential as a co-creation partner

2/24

RIETI Open BBL Webinar: Global Intelligence Series
Understanding the Turbulent Situation in the Middle East: Turkey’s strategy and approach as a clue

9/6

RIETI Open BBL Webinar: Global Intelligence Series
Economic Security Policy as Growth Strategy and Recent Developments in Trade Rules

3/2

CEPR–RIETI Symposium
Changing Course: Multilateral cooperation toward green growth and digital transformation

9/8

RIETI Open BBL Webinar
Food-tech: Putting Japan’s advantages in food culture to work

3/16

RIETI–ECGI–WBF Webinar Series
A New Concept of the Corporation: [Part 1] The purpose of the corporation and its implication for law andbusiness in Japan

9/9

RIETI Open BBL Webinar: Global Intelligence Series
China–U.S. Relations and Implications for Japan and Taiwan

3/23

RIETI–ANU Symposium
Toward an Asia-Pacific Digital Economy Governance Regime

9/10

RIETI Open BBL Webinar
DX Thinking

3/24

RIETI BBL Webinar: Global Intelligence Series
China’s Medium- and Long-term Economic Outlook: Aiming for both fairness and efficiency

9/10

AIG Global Trade Series 2021 Podcast Episode 7
Trade Integration and the Americas

3/31

AIG Global Trade Series 2021 Podcast Episode 1
Open Strategic Autonomy: Navigating the new direction of EU trade policy

9/16

RIETI Open BBL Webinar
Evolution Thinking and Innovation Strategy

RIETI Open BBL Webinar: Global Intelligence Series
Mongolia Long-term Vision 2050 and Expectations for Japan, Presented by Former Chairman of the National
Development Agency of Mongolia

9/21

4/7

AIG Global Trade Series 2021 Podcast Episode 8
U.S.–China Relations: When decoupling meets dual circulation

9/27

AIG Global Trade Series 2021 Podcast Episode 2
Where Next for the World Trade Organization and Global Trade Rules?

Japan Society for the Promotion of Machine Industry-Economic Research Institute Online Seminar
Solving Social Issues (UN SDGs) with AI and ESG

4/13

9/29

RIETI Open BBL Webinar: Global Intelligence Series
Recycling-based Society: Advanced integration through open innovation

RIETI BBL Webinar: DX Series
Management Structure Reform in the Yamato Group: Integrated promotion of DX and CX

4/14

10/7

RIETI Open BBL Webinar: Global Intelligence Series
The Bureaucrats I Excommunicated

ISEAS–RIETI Joint Webinar
Climate Action by Japan and Implications for Southeast Asia

4/15
4/17

RIETI–CGM–IPJO Joint International Workshop
Socio-life Science: Public health and COVID-19 outbreak

4/20

RIETI Open BBL Webinar
Revitalising Multilateralism: Pragmatic ideas for the new WTO Director-General

4/28

RIETI–ECGI–WBF Webinar Series
A New Concept of the Corporation: [Part 2] Fiduciary duties under the new conception of the corporation

5/12

RIETI Open BBL Webinar: Global Intelligence Series
Preparing for Earthquakes Directly Beneath Metropolitan Tokyo: Amazing economic effects of seismic
motion prediction technology

5/13

RIETI Open BBL Webinar
COVID-19 and the Japanese Economy: How well we have survived and how the economy will recover

10/27 RIETI–TIER–KIET Workshop
Sustainable and Resilient Recovery from COVID-19 in East Asia

5/20

RIETI–ECGI–WBF Webinar Series
A New Concept of the Corporation: [Part 3] Ownership of the new corporation–The role of activist funds

10/29 RIETI Open BBL Webinar: DX Series
The SMBC Group Digital Strategy for Continuous Transformation and Evolution

5/20

AIG Global Trade Series 2021 Podcast Episode 3
Trade and the Indo-Pacific: CPTPP, BRI & RCEP

11/4

5/24

RIETI Open BBL Webinar: Global Intelligence Series
The Geopolitics of Biden’s Green Deal

11/10 Tohoku University–RIETI SymposiumSociety Changed by COVID-19

5/25

ISEAS–RIETI Webinar
SDGs and Business Contribution in Southeast Asia

5/26

RIETI Open BBL Webinar
World Economic Outlook and Asia Pacific Region–Managing divergent recoveries

RIETI BBL Webinar
11/18 Analysis of Competitiveness and Patent Value Using Patent Information and Its Application: Responding to
the publication of the Japan Patent Office Annual Report 2021 and others

5/27

ASEAN–JAPAN Business Week Special BBL Webinar
International Politics and Economics Surrounding Southeast Asia: Perspectives on its relationship with the
U.S. and China

6/1

RIETI Open BBL Webinar
2021 White Paper on Small, Medium, and Micro-sized Enterprises in Japan

6/2

RIETI Open BBL Webinar: Global Intelligence Series
The Xi Jinping Administration and Science & Technology: The international order transformed by his “Chinese
Dream”

6/11

The University of Electro-Communications’ Center for Industrial and Governmental R&D Seminar
The Creation of a Future Society and Security Measures through the Fusion of Culture and Science

6/14

AIG Global Trade Series 2021 Podcast Episode 4
After the Pandemic: Trade, health and protectionism

6/15

RIETI Open BBL Webinar
The Economics of Competition Policy: Population decline, digitalization and industrial policy

10/11 AIG Global Trade Series 2021 Podcast Episode 9
Is Trade Working for All?
10/12 AIG Global Trade Series 2021 Podcast Episode 10
Is the Future Regional?
10/15 RIETI Open BBL Webinar: DX Series
Business Reinvention of Japan and DX: Challenges and opportunities
10/19 RIETI Open BBL Webinar
Autocratization Turning Viral in Pandemic Times
10/21 RIETI Policy Symposium
Work Style Reform and Health Management

RIETI BBL Webinar: DX Series
Hitachi’s Approach to DX

11/19 RIETI Open BBL Webinar
Design and Intellectual Property: After the Design-Driven-Management declaration
12/1

RIETI Open BBL Webinar
World Economic Outlook and the Asia Pacific Region: Recovery during pandemic–health concerns, supply
disruptions, and price pressures

12/3

RIETI Open BBL Webinar: Global Intelligence SeriesWith the 50th Anniversary of the Normalization of Diplomatic Relations, What Current and Future
Contributions Can China and Japan Make to the Global Community

12/8

RIETI BBL Webinar: DX Series
Japan Railway’s Business Strategy and Digital Transformation

12/9

RIETI Open BBL Webinar
Secular Stagnation of Labor Productivity and Real Wages: Analysis using the 2021 JIP database andcompany data

12/23 RIETI EBPM Symposium
Thinking about EBPM based on the COVID-19 Measures*Events highlited in green are special symposiums.

46

RIETI Highlight 2022 SPECIAL EDITIONRIETI’S FIFTH MEDIUM-TERM PLAN
FY2020 to FY2023

Research Programs

I

II

III

Ⅳ

Ⅴ

Ⅵ

Ⅶ

Ⅷ

Ⅸ

Macroeconomy
and Low
Birthrate/Aging
Population

International
Trade andInvestment

Regional
Economies

Innovation

Industry
Frontiers

Raising Industrial
and Firm
Productivity

Human Capital

Integrated
Research

PolicyAssessment

Research Programs

In the Fifth Medium-term Plan period, RIETI will add research on the Fourth Industrial Revolution and the
behavioral economics approach, which has been gaining popularity and credibility, to the AI-related research (e.g.,using AI to analyze corporate performance and consumer behavior) it has promoted to date. The scope of this researchcreates opportunities for the participation of researchers in science disciplines outside economics and will graduallyenable the establishment of a system that allows for integration of the humanities and sciences, including linkages
between research in multiple disciplines and social science/economics. Additionally, RIETI will promote research on
evidence-based policy making (EBPM), which is expected to become increasingly important in the future, to contributeto developing solutions to increasingly diverse and complex economic and social issues toward the formulation of
economic and industrial policies.
Guided by medium- and long-term policy directions from the government, including its economic and industrial
policies, RIETI will continue to engage in research activities while working with experts in other areas to initiate
integration between the humanities and sciences including linkages between research in multiple external disciplines
and social science/economics. In doing so, it will contribute to an evidence-driven transformation of economics andsocial systems.

Research Process
RIETI provides forums for discussion (e.g. brainstorming workshops and discussion paper/policy discussion paper seminars) andinvites policymakers to these forums to improve the quality of our research and to build linkages between our research and future
policies.

Brainstorming Workshops( BSWS )Launching of a new research projectDiscussion Paper (DP) /Policy Discussion Paper (PDP)
Seminars
Deepening the analysis of individual papers

Symposiums, Workshops,
Seminars, Publication of
DPs and PDPs,
Book Publication
Dissemination of research findings

RIETI Highlight 2022 SPECIAL EDITION

47

Introduction of the Nine Research Programs
Program I

Macroeconomy and Low Birthrate/Aging Population

Program Director: Keiichiro Kobayashi
Faculty Fellow, RIETI / Professor, Faculty of Economics, Keio University /Research Director, The Canon Institute for Global Studies /Research Director, The Tokyo Foundation for Policy Research

Sustaining long-term growth is a common challenge for the global economy; however, Japan isfacing a rapidly declining birthrate and aging population ahead of other countries. We will conduct
research that will contribute to policy recommendations to help maintain the economic vitality ofJapan and contribute to the future development of the global economy. Specifically, we will analyze the role of supply chains within
and between industries in the Asian region, the trends in international finance and the global economy, and the mechanisms behindprolonged economic stagnation. In addition, we will engage in multifaceted, integrated research to analyze comprehensive panel data
for the elderly, the direction of reform for the integration of social security and tax/fiscal policies, and policy recommendations for
economic change and the transformation in the industrial structure caused by the coronavirus pandemic.

Active Projects
Macroeconomic Policy and Political Philosophy toward Economic Growth
Project Leader: Keiichiro Kobayashi (Faculty Fellow)

Research Programs

East Asian Production Networks, Trade, Exchange Rates, and Global
Imbalances
Project Leader: Willem Thorbecke (Senior Fellow)

Program II

Macroeconomic and Social Security Policies under Demographic Aging:
Dynamics of firms, individuals and inquality
Project Leader: Sagiri Kitao (Senior Fellow)
Exchange Rates and International Currency
Project Leader: Eiji Ogawa (Faculty Fellow)

International Trade and Investment

Program Director: Eiichi Tomiura
Faculty Fellow, RIETI / Professor, Faculty of Economics, Hitotsubashi University

Formulating economic and industrial policies requires a deep understanding of domestic and overseas
economies; however, as globalization intensifies, research on the international economy has become
even more significant. Amidst the increasing global uncertainty related to trade and investment, itis necessary to address policy concerns and to understand long-term trends. Thus, we will empirically analyze international trade,
foreign direct investment, and various other international economic activities in the real economy using a variety of data including
microdata from government statistics and our own surveys. We will also examine topics such as Japan’s external economic
policy, trade policies in other nations, rules on international trade, and the global activities of firms from both legal and economic
perspectives.

Active Projects
Empirical Analysis of Firms amidst Globalization, Digitization and the
COVID-19 Pandemic
Project Leader: Eiichi Tomiura (Faculty Fellow)

Research on Relationships between Economic and Social Networks andGlobalization
Project Leader: Yasuyuki Todo (Faculty Fellow)

Comprehensive Research on the Current International Trade/Investment
System (pt.V)
Project Leader: Tsuyoshi Kawase (Faculty Fellow)

Studies on Foreign Direct Investment and Multinationals: Impediments,
policy shocks, and economic impacts
Project Leader: Naoto Jinji (Faculty Fellow)

Globalization and the Japanese Economy: Firm adjustment and global
trade governance
Project Leader: Shujiro Urata (Faculty Fellow)

Empirical Studies on Crises and Issues in Global Supply Chains
Project Leader: Hongyong Zhang (Senior Fellow)

Economic Policy Issues in the Global Economy
Project Leader: Jota Ishikawa (Faculty Fellow)
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RIETI Highlight 2022 SPECIAL EDITION

Restructuring the International Trade Law System Based on Sustainability
Project Leader: Junji Nakagawa (Consulting Fellow)

Program III

Regional Economies

Program Director: Nobuaki Hamaguchi
Faculty Fellow, RIETI / Professor, Research Institute for Economics and Business
Administration (RIEB), Kobe University

We will systematically organize place-based policies (PBPs) that take the uniqueness of each
locale into consideration. For large cities, which are expected to take a leading role in innovationand international competition, we will identify both the infrastructure that utilizes the economic
advantages of agglomeration while curbing the harmful effects caused by congestion and the methods of assisting economic actors.
For non-metropolitan regions, we will identify the network and community structures and system designs that will promote structuraltransformation toward production activities that will generate high-added value via the innovative and sustainable use of eachregion’s locally specific resources. We will also study policy measures that can optimize the balance between large cities and nonmetropolitan regions.

Economic Policy for Post COVID-19 Japanese Regional Economies
Project Leader: Nobuaki Hamaguchi (Faculty Fellow)

Urban Policy from the View of Consumer City
Project Leader: Kentaro Nakajima (Faculty Fellow)

Regional Economy and Roles of Regional Finance in the Post COVID-19
World
Project Leader: Nobuyoshi Yamori (Faculty Fellow)

Geography, Inter-firm Network and Socio-economic Structural Change
Project Leader: Yukiko Saito (Senior Fellow (Specially Appointed))

Verification of Regional Revitalization and Regional and Urban Economies
after the Coronavirus Pandemic
Project Leader: Ryohei Nakamura (Faculty Fellow)

Program IV

Research Programs

Active Projects

Innovation

Program Director: Sadao Nagaoka
Faculty Fellow, RIETI / Professor, Tokyo Keizai University

The creation of knowledge and its exploitation for solving economic and non-economic problems are
the foundations of innovation, including the Fourth Industrial Revolution. We will develop original
data that will allow us to understand this process, conduct cutting-edge research using these data, andperform analyses that will contribute to the formulation of policies for accelerating innovation. Specifically, we will examine theinnovation capability of industries, the mechanism of the development of innovation-enhancing industrial organizational changes,
such as vertical specialization, government policies that support research and development (R&D), including the intellectual property
regime and setting of technological standards, and industry-academic collaboration. We will undertake research from an international
perspective that will include international comparisons of innovation performance.

Active Projects
Building Innovation Capability and Incentive: Evidence from microdata
Project Leader: Sadao Nagaoka (Faculty Fellow)
Developing an Entrepreneurial Ecosystem
Project Leader: Yuji Honjo (Faculty Fellow)
Research on Innovation Ecosystem Formation Processes
Project Leader: Kazuyuki Motohashi (Faculty Fellow)

Quantitative Examination of the “Design” Effects on Organization
Management
Project Leader: Yuichi Washida (Faculty Fellow)
Innovation, Knowledge Creation and Macroeconomy
Project Leader: Makoto Nirei (Faculty Fellow)

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Program V

Industry Frontiers

Program Director: Hiroshi Ohashi
Faculty Fellow, RIETI / Dean, Professor, Graduate School of Public Policy, The Universityof Tokyo / Professor, Faculty of Economics, The University of TokyoAs the public implementation of digital technology occurs and the integration of digital and real space
gradually becomes a reality, it is necessary to redesign Japan’s socioeconomic system and create newindustrial frontiers in order to effectively incorporate technological progress. We are entering an era
in which various economic activities are merged around data. In this context, we will study the nature of the policies for overcoming
the challenges that Japan’s economy faces by considering not only the traditional industry-specific policies but also cross-industrial
policies.

Active Projects
Policy Analyses on Industrial Organization
Project Leader: Hiroshi Ohashi (Faculty Fellow)
Institutional Design for Desirable Acceptance of AI Technology
Project Leader: Shunsuke Managi (Faculty Fellow)

Research Programs

Macroeconomy under COVID-19 Influence: Data-intensive analysis andthe road to recovery
Project Leader: Hideaki Aoyama (Faculty Fellow)

New Indicator Development and Economic Analysis Using Big Data:
Service industries
Project Leader: Yoko Konishi (Senior Fellow)
Study Group on Corporate Finance and Firm Dynamics
Project Leader: Iichiro Uesugi (Faculty Fellow)
Heterogeneity across Agents and Sustainability of the Japanese Economy
Project Leader: Hiroshi Yoshikawa (Faculty Fellow)

Globalization, Innovation, and Competition Policy
Project Leader: Noboru Kawahama (Faculty Fellow)

Program VI

Raising Industrial and Firm Productivity

Program Director: Kyoji Fukao
Faculty Fellow, RIETI / Specially Appointed Professor, Institute of Economic Research,
Hitotsubashi University / Professor Emeritus, Hitotsubashi University

Since the 1990s, Japan has fallen behind other developed countries, such as the United States, theUnited Kingdom, and Germany, by a large margin in terms of its gross domestic product per capita
and the increase in its real wage rate. The main factors causing this include the stagnation of the totalfactor productivity (TFP) and the significant slowdown in capital stock accumulation, including intangible assets and informationand communications technology (ICT), particularly since the mid-2000s. This program will update and develop databases related
to industry-level productivity and the factor inputs in Japan and China (Japan Industrial Productivity [JIP] Database and China
Industrial Productivity [CIP] Database) and the Regional-level Japan Industrial Productivity (R-JIP) Database, which measures
the TFP for each industry by prefecture. The program will also examine the types of policies required to improve productivity andfacilitate investment via empirical analyses using these databases and firm/business-level data.

Active Projects

50

East Asian Industrial Productivity
Project Leader: Kyoji Fukao (Faculty Fellow)

Capital Accumulation and Productivity Growth after the COVID-19 Crisis
Project Leader: Tsutomu Miyagawa (Faculty Fellow)

Determinants of Firm Dynamics: Causal inference approach
Project Leader: Kaoru Hosono (Faculty Fellow)

Human Capital (Education & Health) Investment and Productivity
Project Leader: Tomohiko Inui (Faculty Fellow)

RIETI Highlight 2022 SPECIAL EDITION

Program VII

Human Capital

Program Director: Kotaro Tsuru
Faculty Fellow, RIETI / Professor, Graduate School of Business & Commerce, Keio
University

It is expected that our society and economy will be significantly transformed by the current decreasein population caused by the rapid acceleration of population aging, the intensification of global
competition, and new technologies such as information and communications technology (ICT) andartificial intelligence (AI). Therefore, for resource-poor Japan to maintain and strengthen its economic vitality and innovation anddrive its growth potential while leveraging its strengths, the utilization of human resources will be of critical importance. We will
undertake multifaceted and comprehensive research on the redesign of employment/labor systems suitable for the age of AI, thedevelopment of capabilities/skills to complement AI, the required reforms in education/training for such purposes, and the ideal
methods of improving the well-being of workers, such as health management. Greater use will be made of original datasets.

Employment and Educational Reform in the AI Era
Project Leader: Kotaro Tsuru (Faculty Fellow)
Empirical Studies on Issues of Foreign Employment and Technology
Progress in a Society with a Persistent Labor Shortage
Project Leader: Yang Liu (Fellow)

Fundamental Research for Restoring Vitality and Improving Productivity
in the Japanese Economy and Society
Project Leader: Kazuo Nishimura (Faculty Fellow)
Wage Inequality and Industrial Dynamics
Project Leader: Ryo Kambayashi

Productivity Effects of HRM Policies and Management Quality
Project Leader: Hideo Owan (Faculty Fellow)

Program VIII

Research Programs

Active Projects

Integrated Research

Program Director: Makoto Yano
Chairman, RIETI / Project Professor, Institute of Economic Research, Kyoto University /Professor by Special Appointment, Sophia University

One of the major issues afflicting the Japanese economy is the existence of barriers, such as thebarriers between permanent and non-permanent employees and between men and women in theworkplace. RIETI has been addressing various problems concerning these barriers in the economy.
Academia has also been suffering from this problem of barriers, for example, barriers between humanities and sciences, between
legal studies and economics, between microeconomics and macroeconomics, and between theory and empirical testing. It isessential to remove these barriers to increase the capacity for innovation and enable organizations to become more sophisticated. The
Integrated Research program uses this perspective to undertake research and incorporate knowledge from other disciplines, such as
natural sciences, law, political science, and sociology, into economics and policy studies.

Active Projects
Social Scientific Studies on Self-replicating Natural and TechnicalPhenomenon
Project Leader: Yuichi Furukawa (Faculty Fellow)
Toward Building Socio-life Science
Project Leader: Shigeru Hirota (Faculty Fellow)

Advanced Technology and Democracy: Does new technology help or hurt
democracy?
Project Leader: Yoshikuni Ono (Faculty Fellow)
Frontiers in Corporate Governance Analysis
Project Leader: Hideaki Miyajima (Faculty Fellow)

Basic Research for Exploring the Ideal Medical Intervention after the
Advent of the New Coronavirus
Project Leader: Yoichi Sekizawa (Senior Fellow)

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Program IX

Policy Assessment

Program Director: Daiji Kawaguchi
Faculty Fellow, RIETI / Professor, Graduate School of Economics, The University of Tokyo/
Professor, Graduate School of Public Policy, The University of Tokyo

The Policy Assessment program will accelerate evidence-based policy making (EBPM) by
simultaneously researching the ideal form of EBPM and evaluating individual policies. Regarding the
research on the nature of EBPM, we will employ a meta-perspective to analyze how policymakers
should prepare evidence and formulate policies based on such evidence, as well as the extent to which EBPM is practiced. Regarding
the evaluation of individual policies, the program will use high-quality microdata and empirical microeconomic techniques toprovide credible evidence to contribute to policymaking in education, labor, tax, social security, and other areas.

Active Projects
Implementing Evidence-Based Policy Making in Japan
Project Leader: Fumio Ohtake (Faculty Fellow)

Empirical Analysis on Japanese Labor Market
Project Leader: Daiji Kawaguchi (Faculty Fellow)
Comprehensive Research on Evidence-Based Policy Making (EBPM)
Project Leader: Yoichi Sekizawa (Senior Fellow)

Research Programs

Microeconometric Analysis of Education Policy with Large Administrative
Data
Project Leader: Ryuichi Tanaka (Faculty Fellow)

Editorial Note:

about
The Research Institute of Economy, Trade and Industry(RIETI) is a policy think tank established in 2001. Our mission
is to conduct theoretical and empirical research, to maximize
synergies with those engaged in policymaking, and to makepolicy proposals based on evidence derived from such research
activities. RIETI has developed an excellent reputation both inJapan and abroad for its work in these areas.
Chairman: Makoto Yano
Vice Chairman: Yasuhiko Yoshida
President and CRO: Masayuki Morikawa
Vice President: Tetsuya Watanabe
Honorary Research Advisor:
Dale W. Jorgenson (Samuel W. Morris University Professor, Harvard University)
Advisory Committee Member:Richard E. Baldwin (Professor, Graduate Institute, Geneva)

Some people may imagine Tokyo to be cold andgloomy in the winter, but Tokyo in winter has a highrate of sunny days. It's cold, but I see the blue sky
outside my window and the sun is shining warmly as I
write this text.
Since the start of the COVID-19 epidemic, themembers of RIETI have all started to work from home,and meetings, interviews, and seminars are now all
done online. While I am glad for the convenience ofbeing able to instantly connect with people from allover the world at home, I am sure I am not the only one
who misses the pleasure of chatting with others face
to face and traveling and experiencing the culture andatmosphere of other countries.
By the time you read this issue, Tokyo will be in thebeautiful cherry blossom season. I hope that it won't
be too long before we will be able to hold seminars
and symposiums in person and be able to welcome allof you to Tokyo again.

(As of March 2022)

For comments and suggestions on this issue, please contact: pr-general@rieti.go.jp

52

RIETI Highlight 2022 SPECIAL EDITION(RIETI Highlight Editorial Team)RIETI Books

Socio-Life Science andthe COVID-19 Outbreak
Edited by:

Makoto Yano (RIETI) /Fumihiko Matsuda (Kyoto University) /Anavaj Sakuntabhai (Institut Pasteur) /Shigeru Hirota (RIETI)
Publisher: Springer / December 2021

silos makes perfect sense, but in today’s world ofdrastically and rapidly changing technologies, rigid
silos only hamper innovation. I want to experiment
how one could “flatten” these silos in the field of
science and create a new scientific approach forJapan.
Facing the COVID-19 pandemic, all the studies inthe book emphasized the role of behavioral change
and governmental policy to combat the menace thispandemic represents. In my own research, I foundthat political factors matter quite a lot in determining
the spread of a pandemic at an early stage of an
outbreak. Obviously, the spread of a disease is anatural phenomenon, but what political leaders
do is critical in determining the way in which it
spreads. The way in which political leaders deliver
messages is also important. What political leaders
do sometimes overwhelms such social-scientificfactors as education, employment, and income. Thisis perhaps because information that political leadersdeliver to the public is highly important in controllinga pandemic.
It is noteworthy that a chapter on sharing ofresearch data using blockchain is included in thisbook. Blockchain is an internet technology that makes
it possible to assign unique ownership to each pieceof digital data. It is also possible to run programs on
the blockchain. What makes blockchain unique is that
all transactions can be done in a very secure mannerat a very low cost. For the scientific community, data
sharing is important to advance scientific knowledge.
I am hoping that our initiative contributes to thecreation of low-cost and secure data sharing methods,
and it will also contribute to the sharing of medical
data for the better use at the level of medical practicein the future.
Our research on COVID-19 should continue evenafter this pandemic subsides. The data we are putting
together right now is important in understanding how
to induce behavioral change in the face of any similarcrisis.
Makoto Yano

RIETI Books

In this book, we proposed research on what we callsocio-life science. By socio-life science, we mean afield of research in which both social- and life-science
factors are integrated in the study of humanity. 29
authors with different sets of expertise contributed
to this book. Faced with the COVID-19 pandemic,
the authors all saw the great importance of building
socio-life science.
Personally, life science is one of the most exciting
fields of science right now. Many new discoveries
are being made on what life is about. I hope this may
provide a new key to understanding what society is
and what human beings are as social creatures.
Social science and life science complement eachother very well. As a social scientist, I have always
been interested in what holds a society together. In
social science, social bonds are measured by meansof what is called social capital. It is often assumed
that the amount of social capital depends on suchsocial scientific factors as income, wealth, education,
sex, job experience, and childhood experience, etc. At
the same time, however, it depends on genetics andphysical and mental health. For a life scientist, what
determines human health is an important question.
It obviously depends on physical and mental factors
as well as genetic factors. At the same time, healthdepends on social scientific factors. As this shows,
it is impossible to understand humans without
evaluating all these social scientific and life scientificfactors together. This is what I want to understand asa social scientist and what my colleague Professor
Fumihiko Matsuda of Kyoto University wants tounderstand as a life scientist. This is how we started
our project seven years ago.
More generally speaking, I believe that the
integration of social and natural sciences is one of
the most urgent issues facing Japan. The problem
is that many specialists are too focused on their
specializations. Many observers have found that
too many silos exist not just within the scienceand technology fields but in other domains suchas bureaucracy. In a stable environment, having

RIETI Highlight 2022 SPECIAL EDITION

53

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