ISSN co7S-6tK)7

BUSINESS
29th

REPORT
ANNUAL{clillig6"o,'sekv

RESEARCH INSTITUTE FOR ECONOIVllCS

AND BUSINESS ADMINISTRATIONKOBE UNIVERSITY
1983

KOBE
ECONOMIC & BUSINESSREVIEW
29th

ANNUAL REPORT<Bvny3RESEARCH INSTITUTE FOR ECONOMICSAND BUSINESS ADMINISTRATIONKOBE UNIVERSITY

1983

CONTENTS
Page
An Interpretation of Conventional Accounting
IncomeInformation ,....................,...................,.........IsaoNAKANo 1

AProduction System for Transport Services .....................Tetsuji SHiMoJo 9Some Evidences between Foreign Direct Investments

and Foreign Exchange Rates:
APreliminaryNote ................................................KazuhiroIGAwA 21

Two Types of Railroad Regulation by Statesin the 19th Century of the U.S.

-Search for the Social Foundation ofModern Corporate Financial Reporting- ..................Hidetoshi YAMAJi 33

AN INTERPRETATION OF CONVENTIONALACCOUNTING INCOME INFORMATION
Isao NAKANO

The purpose of this article is to explore a semantic content of conventional financial

accounting information, especially net income information, which generaily arises
from (a) the recognition of annual revenue on the "sales basis", (b) inclusion inperiodic expenses of the valuation losses by the "lower-of-cost-or-market" ruleand (c) the emphasis of "normality" in measuring acquisition costs. One of themeanings of historical cost valuation may well be understood by the idea of the"maintenance of nominal capital". Semantic diMculty and complexity with current
accounting data seems to emerge when we try to interpret the information outputs
from simultaneous application of the above three measurement procedures.
Obviously, actual financial accounting measurements are predicated upon much
more than those three characteristics. Their isolation is admitted to reflect our "bias",

and thus we will be studying a simplified model of accounting practice, not theactual accounting measurement system as an integrated whole.

1. Utilization Value versus Ownership Value of Goods and Services
In considering the value concepts of economic resources, Ijiri insists that they arecomposed of "benefit" value and "sacrifice" value, and that they have opposedcharacteristics as utility and disutility." Specifically, obtaining an economic resource

usually demands a sacrifice (cash payment of one hundred thousand yen, for example),
which is a sacrifice value. By contrast, goods give the possibility of providing a benefit(e.g. satisfaction of one's wants by direct consumption, or incoming of money bysale), which we call "benefit value".

We suspect, however, that these two aspects are not so diametrically opposedin reality. It is so because the sacrificed cash expenditure is a sort of utility in thatthe resulted ownership of the good obviates, unless it is lost by the firm, further

payment of the same amount of money just for maintaining the invested monetary
capital. In other words, cash paid is a disutility only if considered as an isolated
event, whereas it is a utility when the state of a good being obtained (and held) is

compared with another possible state of the good being deprived by theft or sale1) Y. Ijiri, The Foundation of Accounting Measurement, Prentice-Hall, Inc., 1967, pp. 57-58.

ISAO NAKANO

2which would have resulted in the loss of the money connected with the good.

[Example]
Assume that a firm acquired an economic resource for payment of a hundred
thousand yen. If the good should be somehow lost again, the firm could not maintainthe monetary capital entrusted by the investors and not account for good stewardshipto them unless the lost money identified with the good deprived (or the good per se)

would not be replaced from any additional fund source such as a donation or sales
revenue. Accordingly, as far as the good is in fact safely being held by the firm, thepast expenditure of one hundred thousand yen represents an advantage (a sort ofbenefit as "money saving") which generates from the unnecessity of compensating
the assumed deprival loss of money from another source.
We thus conclude that in the last analysis the so-called "benefit value" as wellas "sacrifice value" both reflect a desirableness or advantage with respect to the goodobtained. The former will be called "utilization value" for it derives from using theresource. The sacrifice value, on the other hand, finds its utility in holding, not losing,

the good, so that we may properly designate it "ownership value".
Our discussions to follow are oriented towards consistently explicating a semantic content of conventional financial accounting information as a refiection of"ownership yalues" of the firm's assets and their changes.

2. A business income concept as a difference in ownershipyalues and the sales basis
Relying upon the above analysis, "ownership value' of a good will be defined, fromthe perspective of maintenance of nominal monetary capital, as the sum of money
which is deemed as invested in it and which would be regarded as lost if the goodwere deprived.2)

A corollary of this definition is that ownership vaiue must be potentially "re-coverable" from current or future cash inflows. If a part of money invested in an
asset were nowjudged as irrecoverable, it would mean that the loss had been induced
by some extant factor(s) such as its value (or price) change or obsolescence, and notby the assumed deprival. In this sense, that part ofinvested money would not belong
to ownership value.

2) Such ownership value concept-defining a good's value as "money saving from its avoiding
deprival"-is the product of our extension of the "deprival value" concept as adopted in the current

cost accounting proposal by the Sandilands' Report. (Cf. Report of the Inflation Accounting
Committee, lnflation Accounting (Sandilands Report), Her Majesty's Stationary OMce, London
1975, pp. 58-61).

AN INTERPRETATION OF CONVENTIONAL ACCOUNTING 3
INCOME INFORMATIONLet us apply this value concept to asset measurements.
(1) With respect to a firm's monetary assets such as cash, accounts receivable,
notes receivable etc., their amounts net of the expected bad debt losses are the money

being invested jn their respectjve asset forms-"inyested" in the sense that thosemonetary claims consist in "lending" occasioned by the selling, etc. (As for cash, its

total amount simply is what remains invested.) Thus, the "ownership value" of each
asset, i.e., what would need to be replenished on deprival for maintaining nominal

monetary capital, can be measured by the net monetary amount of the asset (or by
the total sum in case of cash).

(2) How can we approach "ownership values" of intermediate goods (W) in the

firm's money circulation process G->W-->G'? Normally, a progress in processing
activities (from raw materials through goods in process to finished products) will
add to their economic values in the sense of their estimated net realizable values ortheir present values. But this sort of value is a mere reflection of future probablemoney infiow, not of the actual invested money in the goods. Therefore, its amount

can never show our ownership value. On the contrary, this is estimated at the recoverable part of the total historical acquisition prices of the economic resources(production factors) consumed up to the present stage.

Note a circulation of monetary capital, "cash-raw materials.goods in process.finished products--.accounts receivable.cash". In every stage of goods until thefinished products, the ownership value is normally measured, as stated above, by the
total invested money in the consumed production inputs. Thus, historical acquisition
costs are appropriate valuation bases for all goods up to the finished goods, so longas that total amount can be expected to be recoverable. Upon converision of the
products into accounts receivable by a sale, the ownership value of the receiyable is

now equal to its net money amount. When accordingly a difference emerges between
the acquisition cost of the product and the net amount of the receivable (i,e., its
recoverable amount), this stage of "products to the receivables", that is, the sales

stage, is seen to be the time point when the major income ofa company is to berecognized and measured. This in turn suggests that a consistent measurement andapplication of "ownership value" for ali resources in each stage of G.W->G' will
naturally and logically require the trading profits to be recognized at the time ofsale, which serves to explicate the semantic content of the "sales basis" for revenue

recogmtlon.
The net income concept under current business accounting thus can be seen to
be interpretable as "a difference between ownership values" between goods delivered
and received (the latter usually being a monetary asset). In contrast, the dominantaccounting theory seems to be still defining income as a "difference between sacrificevalue and benefit value, which, however, is not so persuasive for this author. To show

4

ISAO NAKANO

this, suppose one gets $1oo cash or account receivable from making a sale. If thisfirm is expected to sustain a relatively high profitability the $1oo money received
surely will have a "benefit value" (i.e., the present value of future net cash inflows

by the most favorable investment of the money) in exoess of that quantity ($1oo) of

the monetary units. But such a number of the received monetary units per se are
now being recorded as the sales revenue in current practice. Hence, our conclusion
is that current accounting measurement is not reflecting "benefit value" in actuality.

3. Losses from "the lower-of-cost-or-market" yaluation

as a decrease in ownership value
Imagine an item of inventory asset with its acquisition cost of $1oo, whose expected

recoverable amount (as approximated by its net realizable value) at this year-end,
however, has fallen to $80. Now, if the good were deprived at this point in time, we
argue that it would be only $80 in the historical cost ($1oo) that would have been lostby such assumed disappearance of the good. That is, the remaining invested money$20 had already been denied any prospect of recovery because of the price (and value)
decline, prior to the assumed deprival. It suggests that that $20 cannot properly becalled "deprival loss". We may therefore generally state that if the historical costis in excess of the net realizable value, ownership yalue of the good is measured at
the latter, lower amount ($80 in our example).

Furthermore, we will bring the year-end replacement cost of the above good
into consideration. In case this should be greater (say, $90) than the net realizablevalue $80, its replacing at the deprival time is not worthwhile (i.e., revenue 80<cost90), so no replenishment will be made. But if the replacement prioe is smaller (e.g.,$70) than its net realizable value $80, our rational manager will replace it. In thissituation, the assumed deprival would make the invested recoverable capital $80 lost,

but a possibility of its recovery would now be provided by the reacquisition of asimilar good at the lower replacement cost $70. In summing up this analysis, theownership value of the inventory good (i.e., of the future cash inflow $80) can beconsidered equal to its year-end replacement cost $70 in the sense that its deprival

would lead to the $70 replaoement outlay of cash.
Table 1 is our result of full extension of this kind of analysis. For detailed ex-

planation, cases (1) and (4) give the possibility of full recovery of the acquisitioncost. Hence, ownership value as the lost invested money upon hypothetical deprival
is clearly equal to the historical acquisition cost (HC).

Consider next cases (2) and (6). This is a situation of the recoverable amount(NRV) being smaller than the historical cost (HC), with no prospect of replacement
after the deprival. The above analysis in the top paragraph of this section has shownAN INTERPRETATION OF CONVENTIONAL ACCOUNTINGINCOME INFORMATION

ownership

Table l. Historical cost (HC), net realizable value (NRV), replacement cost (RC) andvalue of an inventory good*
(1)

(2)

(3)

(4)

(5)

(6)

RC
NRV

RC
HC

NRV
HC

NRV

HC
NRV

HC

Ni"Y.

BLC

!LC

RC

uc

gLC

5

RC

NRV

Ownership value at year-end is indicated by the underlined value in each column.
*The values in each column are shown in decreasing order of amounts.

the net realizable value to be the ownership vaiue in both cases.

And last of all, in cases (3) and (5), the recoverable invested amounts consistof all (in case (3)) or part (in (5)) of the respective historical costs. If deprived of therecoverable capital, our manager would be justified in replacing another good by$RC expenditure, thereby restoring an opportunity of recovering the invested money(HC) from future operations. In consequence, ownership values in both cases areequal to their year-end replacement prices as additional losses occasioned by hypothetical deprival.

As for fixed assets like buildings, machines and land, immediate replacement
after the assumed deprival would be almost impossible. So much time is required forthe selection of the supplier, contracting, constructing as well as for delivery. Anotherelement is loss from stopped business activities between the deprival and the com-pleted replacement which would naturally have to be included in "deprival loss"(i.e., in "ownership value"). But estimation of such a loss would be subjected to ahigh degree of uncertainty. In addition, the amount of future recoverable capitalby the good would also be diMcult to measure correctly in case of fixed assets. So,
our conclusion is that no downward revaluations of costs of fixed assets are justified

unless a major and probably persistent fall in their replacement costs andlor recoverable capital invested in the goods has occurred. And this conclusion seems tofairly well correspond to fixed asset valuation in practice.

4. Normality of costs and ownership yalue
The Japanese "Cost Accounting Standards" state, "Costs should be normal. They
are measured value consumptions which would have resulted from normal business
operations, to the exclusion of any value declines from abnormal business situations."

If we apply our "ownership value" concept and define cost as the ownershipvalue of a good or service at the time of its acquisition, we can show that costs inthis sense must logically possess a sort of normality.

To see this, note Table 2. Actual expenditure for the acquisition (AE), average(normal) acquisition price in the market at this time-point (MP), and a maximumISAO -NAKANO

6

Table 2. Acqnisition expenditure (AE), mean acquisition priee (MP), maximum expected net inflow(NRV) and normality of cost"
(1)

(2)

AE

AE

MP
N.-R-Y

NRV

MP

(3)

(4)

(5)

(6)

MP

NRV

NR-V

MP

MP
NRV

NRV
MP

ALE

AmEnt

AE

AE

The underlined item is the "norrnal cost" as the ownership value at date of acquisition.

*The amounts in each column are shown in decreasing order of size.

expected net money inflow from the good's future utilization (NRV) are the elements

we consider. Table 2 is a combination and comparison of them.

We have defined ownership value as inyested money which will be recoverablefrom the future expected cash inflow from the good's use (or sale). Hence, in cases(1) and (3) of Table 2, not all of the actual expenditure (AE) but only the portion of

expected infiow (NRV) would be the money lost by the assumed deprival, which
therefore is our ownership value at the acquisition date. Replacement prices (MP)are here irrelevant because reacquisition outlay of cash (which would be approximatedby MP) is in excess of the thereby recovered future income (NRV), which means thereplacement is not justified.

Next move to (2) and (4), Future incomes (NRV) exceed mean (re-)acquisition
prices (MP) in these cases. So, it would lead to reacquisition of the deprived goodat the expense of MP. Hence, a part equalling MP of the whole outlay cost (AE) isthe loss additionally occasioned by the deprival, that is, the acqqisition cost as"ownership value."
The last problems are cases (5) and (6). In (5), no replacements would be madeafter the assumed deprival because the expected inflow is below the required expenditure. Hence, we would have a loss of NRV in this case. That is, the otherwise
obtainable net profit (NRV-AE) and the actual investment (AE) would both be gone.

Therefore, as for the actual expenditure (AE), its total amount would be lost bydeprival, which is "ownership value." On the other hand, in case (6), the maximum
expected income (NRV) is larger than mean acquisition price (MP), so a deprival
would result in a reacquisition. And this replacement price (MP) is expected to be

recovered by the future income (NRV) probably along with a normal profit (NRVMP). In sum, the amount of deprival loss is equal to the original (not replacement)
cost (AE).

We can summarize and state that if the actual expenditure (AE) is in excess ofthe market value (MP or NRV) significantly a normal cost is obtained by reducing
the actual outlay to the lower of the market prices. This seems to correspond to oursense of normality. And further, in case the acquisition expenditure should turn out

to be lower than the markets, the actual outlay (AE) is our basis for normal cost

AN INTERPRETATION OF CONVENTIONAL ACCOUNTING 7
INCOME INFORMATION

valuation of assets.

This latter prescription may well sound strange in that the market values are
not consistently used as the criterion for normality. But referring to fixed asset valu-

i-"[i]t is possible for assets to be acquired at a bargain price, perhaps in a distress.
atlon ln practlce,

sale. In this event authorities differ as to whether actual cost should be written up

to market value. Since accounting practices tend towards conservatism in this situation, in conformity with the concept of valuation at the lower-of-cost-or-market
Price."3)

Accordingly, the general tendency of accounting practice seems to concur withour conclusion of the lower acquisition price being recquired as the valuation basis

instead of the higher market value (MP or NRV). The apparent inconsistency of
our valuation basis has been shown to be logically explicable as the "ownershipvalue" measurement, even though, of course, the normative theory of "present value

measurement" will certainly insist upon consistent use of the market value. Our
purpose, however, has been a descriptive analysis of the current accounting practice,not extension of any normative accounting theory.
Lastly, the acquisition cost of a donated asset will be considered in the context

of normal cost problem. Conventional accounting practice is arguing that such agood is to be measured at the "fair value."`' To understand and operationalize this,note that acquisition of an asset with no given considerations is almost tantamountto obtaining cash in the amount of the normal (average) acquisition price of thegood, under the condition that the money should strictly be expended for its purchase.

And we can assume as if an immediate outlay of the cash has resulted in acquisitionof the good. Considering now possible relationships between the invested moneysum (MP) and the expected cash infiow frorn the resource (NRV), two cases(a) MPgNRV,

and (b) NRV<MP
are possible. In case (a), an assumed deprival of the good would lead to its replace-ment, and hence deprival loss would be MP, the expected invested money for replenishment, which is the "ownership value" for this case. The other case (b) would
not make the deprived firm replace the lost good. Hence, the deprival loss is equal
to NRV, which is the amount of ownership value in this situation.

3) S. Davidson (ed.), Handbook of Modern Aocounting, McGraw-Hill 1970, pp. 17-18.
4) According to the Japanese Corporate Accounting Principles, "as for donated, or otherwise
costlessly acquired assets, their fair values should be regarded as their costs." (Principle 3-5-F).

For the American accounting rule, see the following provision: Accounting Principles Board,Statement No. 4; Basic Concepts and Aecounting Principles Underlying Financial Statements ofBusiness Enterprises, October 1970, 182.2.b.

ISAO NAKANO

8

In sum, the ownersip value ofa donated asset is the lower ofits mean acquisition

price and its expected future cash inflow. The characteristic of "normality" canproperly be admitted to such market valuation us a refiection of the consensus of
the market participants. In consequence, normal "fair value" measurement in thiskind is seen to have the semantic content of ownership value information.

5. Conclusion

We have demonstrated that three aspects of conventional financial accounting
measurement, viz., (1) sales basis, (2) the lower-of-cost-or-market rule, and (3)normal cost valuation all cooperate to produce a consistent measurement of "ownership value" and its changes. Future studies are needed to investigate applicabilityof this value concept to explanations of the other phenomena in current financial
accountlng practlce.

A PRODUCTION SYSTEM FOR TRANSPORT SERVICES
Tetsuji SmMoJo

I Preface
The transport industry specializes itself in producing and selling transport services.

As often stated, a commodity like service always produces and consumes at the sametime and at the same place, so that service can be sold only while being produced
according to the specification contracted between producer and consumer prior to
production." Almost all services including the transport services, therefore, haveto be sold under an advance contract, and the production and sale of services areindivisible.

Moreover, the transport services are a kind of so-called instantaneous goods,
and they have similar characteristics as other services in general. In addition to that,the transport services have several peculiarities with regard to their suppiy, as they

have a peculiar production system. In this paper, we are going to observe a system
prepared for the production of transport services, and investigate its peculiarities

compared with general visible goods and other kinds of services.
Although general services have been discussed in many papers, no comprehensive
and authorised investigation has been made. There is a variety of definitions forservices according to the .industries designed as service industries.2' According to

Ihara who dealt with a service in the cornmon meaning the peculiarities of services
are as follows:3}(a) impossibility of storage and carriage,(b) dependence of production on demand, and(c) incapability ofplanned production.

Planned production in (c) means not a production according to a specification
given in advance by consumers, but a production for the sake of a future demand,so that all three peculiarities have instantaneousness of services in common.

1) It is not rare that the specification of services is given not by the consumer but by the supplyer. In such a case the consumer will buy a service after he agreed to the specification given by the

supplyer. And further, the production will be commenoed after the supplyer has recieved theconsumer's instruction to do so.

2) Victor R. Fuchs; The Service Economy, National Bureau Economic Research, 1968,
translated by K. Emi, Nippon Keizai Shimbunsha, 1974.
3) Tetsuo Ihara; Service Keizaigaku Nyumon, Toyo Keizai Shimposha, 1979, pp. 31-41.

TETSUJI SHIMOJO

10

Ihara further listed the following peculiar phenomena in the service industry:`'(A) overdemand and oversupply(B) high increase rates ofprice(C) district gathering of supplyers(D) labourintensive(E) small businessThis list proves that he was dealing only with an industry supplying services in
the popular meaning, and that he never aimed at an independent industry producing
and selling a kind of goods named service in the original and genuine meaning.

What we are going to consider in this paper is this kind of goods where
economical goods are classified into three kinds: visible goods, action goods, andintelligence goods. They correspond to the three physical concepts: materials, energy
and information respectively, but it might be better to state that seryice corresponds

to action or work-done by the energy.5)

II Production of Seryices
In accordance with Hicks' definition of production being an action to fulfi11 otherpeople's desires through exchange,"' we can classify production into the following
three concepts:(1) Extraction: the action of extracting resources from nature and transmute
them into economic goods to satisfy human desires,(2) Processing: the action of transforming economic goods into goods of higher
value by changing their physical or chemical character, and(3) Removing: the action of transposing economic goods into goods of higher
value by changing their spacial, temporal or social position.

These actions can be further classified into more detailed actions according torespective objects. The objects of human actions may include, not only materials
as visible goods, but also information as intellectual goods and sometimes humanbeings themselves. The reason why services are not included here is that, as said
before, they cannot be the object of these actions. But it must be borne in mind that

all actions of extraction, processing or removing are nothing other than seryices
themselves.

This can be easily understood when we compare those three kinds of actions
with their respective objects. The action of extracting coal from a coal mine and to

supply it as a commodity can be deemed akin to the action of collecting fruits and4) Ibid., pp. 3-13.
5) Tetsuji Shimojo; Economic Analyses ofShi ping Freights, Kobe University, 1979, pp. 23-29.
6) J.R. Hicks; The Social Framework-An Introduetion to Economics, Oxford, 1942, Chapter 2.

A PRODUCTION SYSTEM FOR TRANSPORT SERVICESlt
animals by using natural growing powers in agriculture, forestry or livestockindustries. Further, a similar kind of productive action exists in the natural andsocial sciences that observe and analyze natural and social phenomena and extract

natural and social rules. They extract information from the natural and social.
envlronment.
The other kinds of actions to process and remove materials or information

extracted from the environment in order to improve human satisfaction can becalled productive actions. Educational, medical or passenger services are production

rendered to the human beings.
Here, what we would like to stress is that all of these actions are fundamentally
human activities. Extraction, processing and removing are, at least primitively, work

done by human beings. Though most of these actions are accomplished with handtools or by machines with mechanical motive power, they are human actions.
If we admit this, we can say that all production activities are services. In mostproduction activities, however, services themselves are not treated as objects of
exchange, and only visible or intellectual goods which are extracted, processed andremoved by the actions of services can be exchanged as commodities. The reason isthat services cannot be separated from the objects of their own actions.

We agree that a kind of goods named services can be exchanged between producer and consumer, but we cannot separate them from the objects for two peculiar
characteristics: instantaneousness and connectiveliness. Services are instantly consumed by their objects while they are produced. Of further importance is that during
the time and the place they are produced, the object must be directly connected withthe service producing facilities.

All production activities are the actions of services. However, the general classification of industries focuses on the point that the objects of services are being ex-changed. The iron and steel industries exchange their products, which were processedthanks to the services from iron ore and coal. In the production process not only
iron ore and coal but also labour and capital are input. Iron ore and coal compose aphysical part of the product, but labour and capital do not compose any physicalpart of the final product. They compose an important part of the cost. Thus, in mostother industries as well, services will not be an object of exchange.

As far as an industry can input its materials and output its products throughexchange, it does not need to separate the services of labour and capital from its
final products, it has only to evaluate their portion in the final value of the products.

There is another kind of industries, however, where, for various reasons, theobjects of services cannot be input as materials into their own production process.
It is easy to see a case where services serve human beings. Even in the case whereservices are rendered on visible goods, there are many industries where the objects

TETSUJI SHIMOJO

12of services are input not as materials but as consigned goods for economical reasonsor for convenience sake. A typical example is the transport industry which specializes

itself in rendering services on cargo entrusted by customers.7)

Hence we can define the service industry in its widest sense as: "An industry
that does not input any materials in its own production process but renders servicesof labour and capital on the objects entrusted by customers." And production ofservices means to render services to some objects by means of labour and capital.
The objects of transaction in this industry, therefore, may be the quantity and valueof services rendered by capital and labour.

M Cooperation of Labour and Capital
It is diMcult to measure directly quantity and value of services. But it is possible toevaluate the total costs of services rendered by labour and capital to some objects.
However it is not always possible to assess the average cost per unit unless the quantityof the objects can be determined. In reality, the quantity of the objects is measured

and the average costs are evaluated very roughly or in some convenient manner.
These facts are based on the inherited characteristics of services. Services eco-nomically speaking are actions or work effectively added to some objects. An action
or work can be rendered only when an object is connected to a power. Even if there

is a power capable to render an action or work, the power can not be significant
without any object,
Power has various physical forms: heat energy, magnetic energy, motion energy,

and so on. These forms of energy can be converted, so that power will be applied

effectively in the most convenient form. There must, therefore, be an equipment
prepared to convert power into the most convenient form. The most primitive typeof heat-converter is human beings. A human being creates energy by means ofmetabolism, and converts it into motion energy of the arms and legs to apply various
actions to surrounding objects. This action is called labour.

The human being invented various kinds of tools in order to save and to amplify
his own labour power, and utilized various kinds of power in his environment, e.g.
animal power like the bull and horse, or natural power like wind and water stream.

This primitive power, however, was much more diMcult to control compared withhis own labour power, and was not always available at any time and at any placeneeded. The invention of steam engines solved such diMculties for the first time, and
7) In its development process the transport industry transformed itself from Private Carrier toCommon Carrier. This means that the industry changed into an industry specialized in producing
only services. See Sernpei Sawa; Kaiun Riron Taikei, Yuuhikaku, 1949, and Sempei Sawa; Kotsu
Gairon (revised edition), Yuuhikaku, 1954.

A PRODUCTION SYSTEM FOR TRANSPORT SERVICES13
in a short period, new techniques to utilize mechanical power were diffused in theworld. Thus, tools that were handled by human labour have evolved to the machineswith their own power generators, and a remarkable change in the cooperative relation-

ship between human labour and machines as capital appeared.
Capital, in general, is input into the production process to render a service toan object on behalf of the human being. In order to make capital work for a certain

objective, however, it always needs more or less support from human labour. There
are still many types of machines that need human labour as an energy source, andeven the machines with their own built-in power generators almost always require

human labour for their maneuvouring control. Further more, we can not imagme
the substitution for the human labour in devising those machines and in designingthese working processes.

Human labour is now working production activities in cooperation withmachines or capital. Thus, we find the following human contribution in the production system of cooperation between capital and labour:8'(1) as power source in the production system(2) as controller of the production system(3) as designer of the production system.

This contribution can be called muscle labour, nerve labour, and brain labour
respectively likening to each function in the production system.
When capital renders its inherent service, it needs cooperation of human labour.

Machines with built-in power generators which do not owe to human labour for the
power need fuel instead of human power. In the cases where natural power like wind
and water stream are utilized, no expense of fuel is needed but highly skilled labour

will be needed to control those powers.

At the present stage, the maneuvouring control of machines owes greatly tohuman labour, and yet, an increasing number of apparatus assist human labour, andwe must not forget that knowledge and techniques are indispensable not only tocontrol those machines but also to design them. Thus, we can say that the production

system is a complex of services rendered by human labour and capital, and that therespective contribution varies corresponding to the stages of development.
As Marshall says, human being inherently creates nothing but ideas.9' Neglecting
the object of services in the production process, all production activities consist of

only rendering of services. Human labour has been rendering these three sphares ofcontribution to the production processes in an indistinguishable manner, but
gradually a distinction among them became apparent as capital became more andmore manifold and production processes became more and more complex. A number8) Shimojo op. cit., p. 29.
9) A. Marshall; Industry and Trade, 1919, III-3(1).

TETSUJI SHIMOJO

14

of firms specializing merely in a few sphares of services can befound. The leaseindustry is an example, it specializes in rendering capital goods toother firms.

IV Characteristics of Transport Services
If we define the transport industry as an industry specialized in producing andselling transport services, then the transport industry is one of the service industries
according to our classification. The transport industry produces and sells services toremove visible goods or cargo entrusted by customers or to carry human beings or
passengers.iO) It is a very important fact that the cargo or passengers receiving
transport services are input into the production process of the industry not throughexchange in the market.

There are various industries whose production process involves a removal ofvisible goods or human beings, and transport services are produced. Nevertheless,unless an industry is specializing transport services, we can not call it transportindustry. The visible goods or human beings receiving such transport services arematerials, fuel or employees input jnto their own production processes.

The transport services are understood to overcome spacial distance or spacial
removal of objects. Capital and labour to produce the services must exist at the sametime and at the same place as the objects receiving the services. Production of services

always needs a certain length of time, during which this condition must be satisfied.

Therefore, capital and labour for the production must be removed along with theobjects or must exist as to cover the whole process of spacial removal, from origin todestination. This is one of the peculiarities of the transport services and of the pro-duction system, as compared with other services.

In order to remove certain objects, they must be separated from other objects
before all. In other words, the objects to be removed must be distinguished fromobjects not to be removed. For this purpose, we preferably use a container with theobjects to be removed instead of carrying them directly.

The carriage of cargo or passengers in a container prepared for this purpose

consists of two functions: to heave the container vertically and to remove it
horizontally.'i' To heave it vertically is to separate the container from the space in10) Communication can be included in the conoept of the transport industry, then it is deemed
as a spacial removal of information. We are concerned with the spacial removal of cargo andhuman being, but our discussion can be applied to the servioe industry in a wider meaning.

11) In dynamics, a quantitative expression of work-done M is dPV=Fdr
denoting a force by Fand a distance by r. If Fcan be expressed as F==maand a considered as inertia in vertical direction, then F will be a weight of cargo and container.

Thus we can see that a work-done of removal is a compound of two components, weight anddistance.

A PRODUCTION SYSTEM FOR TRANSPORT SERVICES15
which the carriage is done, in order to lessen friction and to minimize motive power

needed during the horizontal removal. Rollers or wheels are tools devised for these

purposes, and pavement of roads or construction of railroads make them more
effective. On the water surface, water-tight containers are utilized jn order to realize

a natural power of buoyancy, and number of devices are added to lessen water
reslstance.

Horizontal removal needs a certain quantity of motive power, Primitively humanlabour was used for this purpose, and later animal or natural power like the windor water stream. It is less than two handred years that steam engines became popular.

As stated before much devices were made to lessen friction and resistance during
the removal in order to obtain better movement with smaller motive power.

For the transaction of transport services, the supplyer must remove objects
from one point to another. This implies another type of service to control the direction
from the place origine to the destination. Not only to control the direction and speed
but also to' select a route is a very important function for this type of service, because

the route relates not only to distance but to effectiveness of motive power and safety''
during the removal.
''
Thus transport service is understood as a compound of three kinds of services:to heave objects, tO remove them, and to control the direction and select a route.
AII these services were primitively done by human labour, but in every historicalstage of development a great number of tools, machines and knowledge were intro-

duced to save human labour.
As transport seryice is a kind of services, it has the characteristics of services ingeneral. Physically they have the characteristics of instantaneousness and connectiveliness, which means that power rendering action and objects being rendered
action must always exist at the same place at the same time. This further means thatthe action takes a certain length of time. As every action takes a certain length oftime, the power and the object must be at the same plaoe during the time. The same
applies where the object is being removed.
An additional characteristics of the transport services is that the power rendering

action must remove itself along with the object being removed. A service which gives
the object only inertia and no aftercare is not a transport service.'2' This fact leads

to the unique necessity for the transport service to return capital and labour in the

production process to the original point once the production is over by the removal
along with the objects.

We have rnentioned before that the production of services is significant only

1 2) In case of carriage oflumber on a viver, it is necessary to collect the lumber at the destinationand to put it on the stream avoiding obstacles.

TETSUJI SHIMOJO

16

when the objects exist at the same place as capital and labour in use. In the production of transport services, however, if there is no object to remove, production

can not be rendered while capital and labour are removing themselves to the next
point for the next objects. Can removal of capital and labour themselves be called
production? That may be a point of dispute, while it is true that such a service can
not be sold in any way.i3)

V Components of the Transport System
Production of transport services is done through the cooperation of capital andlabour prepared for this purpose. Let us call this cooperative system of capital andlabour simply the transport system. The transport system, as we have discussed
heretofore, has several unique peculiarities in addition to some characteristics
common to the production system of other types of services.
The transport system, as we understand it, is slightly different from the transportfacilities in texts of transport economics. Transport facilities correspond to a set ofphysical equipments prepared to remove objects,i`) while for us they are a cooperative

system of those equipments and human labour. The transport system can be said tobe, therefore, a perfect system for the production of transport services.

When we say that the transport system is a cooperative system of capitai andlabour, capital is defined as a set of equipments invested by the transport firm for its

own production activities. This means that the sea for sea transportation, the air
for air transportation or the roads for road transportation are not a component of

the transport system. These natural and man-made things constitute no investmentby the transport firms and are only external environment for transport systems, andtheir most effective utilization is the only problem for the transport systems.

Transport facilities as a set of physical equipments are said to consist of threecomponents: (a) way, (b) vehicle and (c) motive power.i5' In contrast, the transportsystem consists of slightly different components. This is due to a difference in definition, and a difference of objectives basing on such a definition.

Transport system, as we understand it, consists of three components corresponding respectively to three kinds of services. As discussed before, transport service

contains actions to heave and separate objects from others, to obtain mainly ahorizontal movement, and to control direction and speed and to select a route. The

13) This is similar to fixed cost in general production. Capital and labour are input into the
production process to supply services but have no exact realation to the quantity of objects reCei Sn4g) geereVisCaeXa, Kotsu Gairon, op• cit•, p• i9'15) Ibid., pp. 20•-.

A PRODUCTION SYSTEM FOR TRANSPORT SERVICES17
components of the transport system corresponting to these three kinds of services are :(a) Vehicle,(b) Motive Power, and(c) Control.
Though the first two are identical to those in transport facilities, there are somedifferences as for thier implication, which we shall discuss hereafter.

(a) Vehicle: The first step to transport cargo or passengers is to heave andseparate them from other things. A single unit of cargo can be removed directly as
it is, but in general it is more convenient to carry it in one lot in a container. Thus,

the container is only an object of transport, and furthermore it can easily be trans-

formed into the most convenient shape. Hence, to serve as a container is the first
implication of the vehicle.

To remove the container itself, it is necessary to lessen friction and resistance

between the container and the earth or water surface. Wheels are suMclent forcomparatively smooth surfaces like pavement, but not for rough surfaces like wasteland, for which railroads or caterpillers were invented. On or in the water, containers

are shaped such as to minimize resistance from the water. For more effective removalof containers the earth surface itself is often transformed. Railroads, pavements or
canals for private use are a few examples for a vehicle as we define it.i6)

Vehicles include another kind of equipment to load cargo or passengers into
the container. Cargo handling equipments in railroad stations or ports are, so far
as they are prepared for the firms' private use, a part of the vehicles. More often,
they are not included in the vehicle in our detinition as they are investments by otherfirms for their respective objectives.i7)(b) Motive Power: Force is necessary to remove something. Steam enginestransform heat energy obtained by burning coal in a boiler into steam energy, andthen into motion energy by pistons and cylinders, and finally into propelling powerby screws or wheels. It is easily understood that such power is the same as human or

animal power of the past, and as the power obtained by electric motors or gasoline.
engmes.
Human and animal power are obtained by metabolism of food which cannot becalled fuel, while mechanical power needs some form of fuel as an energy source, andsome equipment to transform it into propelling power. There are many kinds ofequipment to obtain propelling power through transformation, e.g. from heat energy
by burning of coal or oil, from explosion power of gasoline or heavy oil, from electric16) Here we understand vehicle as private capital invested by a certain transport firm so that
only private roads and canals are our objects. Social capital is not included in our transport system.

17) These firms may be a sort of transport firrns. Shimojo op. cit., deals with them as supplementary transport services.

18 TETSUJI SHIMOJO
power, and so forth. Fuel and such equipments are now the second component of
our transport system.

(c) Control: Removal of things suppose always an origine and a destination,
and a route between them. The transport services constitute removal of objects froma point of origine to a point of destination, The route is usually determined by the
carrier unless it badly affects the object, so that the transport services select the mosteconomical and the most eMcient route for the carriage. Hence, the control of
direction, speed and route are the most important and the most self-controlable
components of the transport system.

This kind of services is so far rendered in most cases by human labour, Or we
can say that service is the least modernized sector in our transport system. More andmore tools and machines, however, assist human labour of this kind. Meters tomeasure distance, speed, height, depth, etc. and various kinds of communicationequipment are now in use. In addition to such hardwares we must not forget a great

number of softwares to make services more effective.
Again, the transport system is a cooperative system of capital and labour, andthe cooperation exists in each of the three subsystems. Sometimes it may be diMcult
to divide clearly one from the other as there are very close and organic relations
between them. Any way, it is certain that every transport system consists of thesethree subsystems.iS)

We find some examples of the close and organic relations between these subsystems. Because railways have adopted railroads as their subsystem of vehicles,
control of direction as an impQrtant part of its control subsystem can be done by
only trifle labour to change points.i9' In general, a transport system giving regularservices on a fixed route enables firms to avoid a bigger part of service of selecting
routes.

If we define the transport system as consisting of capital privately invested bya ttansport firm and labour of people employed by the firm, then a service the firm

receives.from external sectors is the purchased product of other firms. Beginningfrom pavements, highways, etc. to various road-marks or signals, and other traMc
control systems, or up to NNSS, many kinds of services are supplyed by public andprivate institutions. Various forms of charges and fees are payed for these services,
so that there is a sort of exchange of services.20)18) An indirect administration sector is necessary for production, but we neglected it in our19) For this reason Shimojo op. cit., insists that the way as one of the transport facilities isfunctioning by human labour. In this sense, rails and cables can be said to be components of thecontrol system. •20) From this point of view, the railway invested almost all systems by themselves while roadtransport depends entirely on external services.

A PRODUCTION SYSTEM FOR TRANSPORT SERVICES19
Furthermore, it must be recollected that transport systems are setting lots ofseryices from nature. The sea for sea transport and the air for air transport, but also

the wind and water stream for water transport are all a gift of nature. People may
enjoy the gift as a reward for their efforts and expenses to utilize them eMciently,

but we would like to warn that pollution ofthe air and the sea water through theiractivities must be reasonably indemnified.

VI Postscript
We have dicussed heretofore implications and production systems of services ingeneral, and then listed peculiar characteristics for the production of transport
services, in order to establish a theory for a cooperative system of capital and labour

and a production system for transport services. This problem has been dealt withas a trifle matter of common sense and seldom discussed in any academic paper.
The words service and transport service themselves, therefore, have been used without
any precise definition nor description.
Transport services, similar to services in general, have the peculiarity that there

is no exact relation between the capacity of production system and the quantity of
products. Thus it is very diMcult to find a production function for services. Though

we tried to establish a sort of production function in our discussion, it is rather

diMcult to define the quantity of products. In the production of services wholy

dependent on demand, idleness of capacity is the most common and inevitablephenomenon.
In addition to the high variety of demand, the fact that an expansion of capacity

can not always conclude an increase of the products discouraged inyestment in the
production facilities for services. This may be the reason why the service industry isoften characterized as labour intensive. It is appropriate that Fuchs classified Trans-

port and Communication in the Mining and Factory Industry, for both require huge
capital facilities and high complex technology.2')

As we have observed, however, the transport system itself has originated froma system of only labour. Since the transport industry specializes itself in the production of transport services, it has always tried to improve the contribution ratiosof capital and labour. For the peculiarities of the transport services, mechanizationof its production system is less easy than the inevitable need for modernization.

Even if the transport industry has many peculiarities different from the service
industry in general, it has nevertheless a number of common merits and demerits
as for production and sale of the products. Our discussion, we trust, could supply
an inertia to the general theory of service. (82111130)
21) Fuchs, op. cit., pp, 39-42.

SOME EVIDENCES BETWEEN FOREIGN DIRECTINVESTMENTS AND FOREIGN EXCHANGE RATES:A PRELIMINARY NOTE
Kazuhiro IGAwA
1. Introduction
It is not sure whether effects of a foreign exchange rate on foreign direct investments

are strong or weak. A generally accepted idea is;(i) In the long-run, the effects are weak, and(ii) In the short-run, they are not weak.
we can find many articles in news papers saying that a foreign direct investment isstrongly affected by movements offoreign exchange rates. The views in news papers aremainly or usually concerned with current (or short-run) problems. However, a foreignexchange rate is neglected or paid only few attentions as a determinant of long-term

capital movements, in a textbook of international economics. The stress is on the"long-term", in this case. It might be interesting to find factors distinguishing theconcepts of the short-run and the long-run. However, it is much more meaningfu1
to see the real facts. This paper is devoted to get some empirical facts of real world,

especially the relations of foreign direct investments between United states andmajor European countries.
It is reasonable to pick up advanced major countries as sample countries offinding a role of a foreign exchange rate in determining foreign direct investments.

This is because, a foreign direct investment to developing countries is probably
determined through many reasons other than a foreign exchange rate. United states
is chosen because of data availability. We take a time period of a flexible exchange
rate system of 1970s, jn our empirical research. Although a direct investment is not

an usefu1 concept in discussing a real capital movement, this is a main problem inthis paper, we use the data of foreign direct investments as a substitute of international

real capital movements. This is because, on the one hand, no available data exist forinternational real capital movements. On the other hand, real capital movements arecaptured as an increase of real investments in one country accompanied with adecrease of them in other countries and foreign direct investments include some ofthese phenonena.
In section 2, we summarize other empirical papers related to our topic and weshow our own results in sections 3 and 4.

22

KAZUHIRO IGAWA

2. Some related works
In his paper [1980], Agarwal gives us a survey of current literatures on determinantsof foreign direct investments, The relation between a direct foreign investment anda foreign exchange rate is summarized as "Currency Area Hypothesis". He saysthat the majority of economists have come to the conclusion;"devaluation encourages inflows of foreign direct investments and discourages
outfiows of foreign direct investments."
This is exactly the proposition which we want to test, in section 3.

There exist many determinants of foreign direct investments and a foreignexchange rate is one of them. The one who take currency area hypothesis does notargue that a foreign exchange rate is a main factor infiuencing foreign direct
investment decisions but wants to show that the foreign exchange rate has some
infiuence on them.

Before going to our empirical study, let us summarize three papers, which areclosely related to our analysis in this paper.

Using a neoclassical investment function, Goldsbrough [1979] explains how amultinational firm locates its production facilities among different countries. Using
the relation that a desired capital stock Ksk' is positively related to a output level, e,

he mostly pays attention to the determination of e. From a profit maximization
condition, e is determined to equalize marginal revenue and marginal cost. When aforeign exchange rate changes, both a marginal revenue and a marginal cost move andan equilibrium output level must be adjusted and thus K" is adjusted. K" has somerelation to direct foreign investment.

Now, problem is how a marginal revenue and a marginal cost are affected and thisdepends on whether outputs and inputs are traded or nontraded goods. He argued
that the subsidiary's final outputs are more likely to be a traded good than are its
jnputs, particularly its labor inputs. In this case, a devaluation of the foreign currency

would tend to increase the outputs of the foreign subsidiary and thus increase a direct
foreign investment. This is a simple application of the theory of currency devaluation

with domestic or non-tradable goods (or inputs). Empirical resutls show significant
relations between relative labor costs and foreign direct investment flows (see Table

1 by Goldsbrough). Furthermore, the relative unit labor costs reflect changes inforeign exchange rates (see Chart 1 by Goldsbrough). Therefore, the relations
between a foreign exchange rate and direct foreign investments are determined.

Kohlhagen's study [1977] showed that the eurrency devaluations of the United

Kingdom, France and Germany during 1960s increase the relative profitability ofdomestic production and decrease the one of foreign production and thus induce

SOME EVIDENCES BETWEEN FOREIGN DIRECT INVESTMENTS 23
AND FOREIGN EXCHANGE RATESTable 1.

Four countries: Cumulative effects on foreign direct investment (FDI) flows of a 1 per centinerease in host• country's rea1 level of demand (Q) or in relative unit labor costs (CAv)i(In per oent)
Increase in

1 Per oent
Increase in

Real Demand

Relative Labor Costs

O.39
1.53

-O.84
-1.49

O.76
O.59

O.29
-O,45

l.60
O.51

-2.48
-O.26

1.83

-1.86

1 Per centCountry and FDI FIow
United States

Inflow
Outfiow
Federal Republic of Germany

InftQw
Outfiow
United Kingdom
Inflow
OutflowJapan

Outflow

iThe figures in the table give the percentage changes in the total fiow of FDI over a four-year
period foIIowing a permanent 1 per cent increase in real demand or in relative labor costs (i.e., for
the United Kingdom, a1 per cent increase in demand causes total FDI infiows over the next four

years to rise by l.6 per cent). .

The estimates are calculated on the assumption that thÅë rate of interest, r, is a constant 10 per-cent. A lower rate of interest would lead to larger' elasticity estimates.

the inflow of foreign direct investments. He correctly pointed that, under a floating

regime, if exchange rates in the long run approach to the purchasing power parity,then the "ayerage" industry should receive nojncentivesfordirect foreign investmentsfrom exchange rate changes, but the timing ofdirect foreign investments will certainly
be affected by anticipated changes offoreign exchange rates. Usjng the expected parity

change dummy of ... -e3, -e2, -e, 1, e, e2, e3 ... for an anticipated devaluation
abroad; of ... e3, e2, e, -1, -e, -e2, -e3 ... for an anticipated revaluation (where
O<e< 1), he got the empirical results (see Table 2 by Kohlhagen). This shows that the

regression coeMcients except for the secend German revaluation are the expected
sign and the coeMcients are significant.

Lupo [1978] investigate the relations between capital expenditures by majority-

owned foreign aMliates of U.S. companies and exchange rates. The regression
equation is of the following form:

lnCEMt Fi lnA+a lnOMt-i+b ln10
MPt ..i+c lnERt-i+EhyDJ
where CEM, is the value of capital expenditures by majority-owned foreign manufacturing aMliates of U.S. companies in year t and OMt-i is output in host-country
in year t-1. rvPt..i is wholesale prices in host-country in year t-1 and ERt-i isforeign exchange rate of host-country currency in year t-1. D] (f=1, ..., 10) is acountry dummy variable. The results are :KAZUHIRO
IGAWA

24

Four countries: Relativechanges, 1961--78

Chart 1.

manufacturing,

unit labor costs inadjusted for exchange rate

(1968 =-1oo)
170

160

s
s
s
s
Jepen ""ss.:.e6ermeny. Fed. Rep. t:
:.

150

140

tltt/eSS)ssssl; .. tttx

130

120

tt """. --.ttt "s

N'N' s.N.-,..,t.iO't'N's.s.

ts

ts
t"
ts'
1
/t"'"'tti,"

s
.I
1

110

;;blg'.e,:Nlttm=s,Nk's.

itS NN""""'
1co.pt "--re". e
""-v
"s"-

et"t

vt

"-sS S.s.
"!' 's. A.t

At sS '
-te---t ""v-t-t- ""

"

's t'
't'

-s.s!

United Kingdomsoeo
United Ste tes

70

oo1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

Source: International Mcmetary Fund, International
vanous lssues.

--

Financial Statistics.

25
EVIDENCES BETWEEN FOREIGN DIRECT INVESTMENTS
SOMEAND FOREIGN EXCHANGE RATESTable 2. The Herring-Willett results for indiyidual countries
earityChangeDependent
Vartable

SamplePertodConstant

DM

T

U?E

1957-73-147S.6S

27.83(2.67)

22.68(-3.47)

19S7-73
19S7-73

CPE

1957-73ueE

1957-73
1957-73
1957-73

1.91

l5.21
(3.38)

19.12(2.62>-133,53(-3.S3)

47.46

.961

1.28

-3S89.34

11.50

lll.31.935.95(1.09)

60.01(3.Sl)-351.06(-4.0S)-997.39

32.21(3.40}

13.93
{O.9)

-307.73(-3.26)

97.55

.939

2.29

-1310.S6-1068.16-4448.78-2503.13(-3.21)
CPE

1957-7]

D.W.

(1.34)(-5.48)
GPE

R2
.916

(-3.63>CPE

S.E.

110.09(-1.23}
FPE

Duurrtry

193.S2(2.20)(-1.68)F?E

DICI-4294.96(-3.10)--<--3.96)

UKD
16ect1.s7(2.13)!t

IS.72(4.63)

l5.21(2.71)-94.63<-3.07)

Sl.29{3.30)

35.7S

.979

2.47

3.74
(O.40)

76.22(4.S9)-335.19(-4.Sl)96.0S(2.5S)

92.95

.9S8

1.85

-194.06(-2.24)9UtZ2-ISI.34(-3.05)

87.01

,963

1.81

-389.23(-3.64)

GD12
43.76(O.67)

113.73

.937

1.13

18.5]
(2.16)
5.93(O.44)

40.45(2.13)

73.0S(2.80)-tl. Delinitions of Variabies and Data Sources
Numbcrs in parentheses are t•statistics
UPE = the total plant and equipment cxpcnditures by all foreign rnanlifacturing aMliates of U.S. corporations in

the U.K. in miNions of dollars.
FPE w thc totat ptant and equiprnent expenditurcs by att fo:cign manufacturing aMtiatcs ofU,S, corporatiotts inFrancc in millions of dollars.
GPE = the total plant and cquipmcnt expenditures by all foreign manufacturing aMliates of U.S. corporations inGermany in millions or dotlars,
UKD = the variables representing the effects of the 1967 pound devaluation on direct foreign investments in the

U.K. (as described in the Appendix).
FD = the variable representing the effects of the l969 French franc devaluation on direct foreign investments inFrance {as described in the Appendix). .
GDI = the variable representing the effects ofthe 1961 Deutschemark revaluation on direct foreign investments in

Gcrmany (as described in thc Appendix).
GD2 tz lhe variable representing the effccts ofthe l969 Deutschemark revatuation on direct foreign investments inGermany <as described in the Appendix).
GD12 = the variablc representing the effects of thc 1961 and 1969 Deutschemark revaluations on direct foreign

investmcnts in Germany (as described in thc Appendix).

a==2.2, b==O.2, c=-O.5
The negative sign of the coeMcient c indicates that as a host country's currency
becomes more expensive relative to the dollar, aMliate's capital expenditures decline.

Therefore an appreciation of a host-country currency has a small negative impact on
capital expenditures.

3. U.S. Foreign Direct Inyestment Infiows and Outflows
As a first step for the more rigorous empirical studies, we just tested the relations
as follows:(i) U.S. currency depreciation has a negative effect on foreign direct investments

26 KAZUHIRO IGAWA
from U.S. to major countries (France, Germany, U.K. and Japan).
(ii) Depreciation of U.S. currency induces foreign direct investments from thosecountries to U.S.
The first equation for regression investigating the relation (i), is(1) DIt=ai+biERt-i+ctDIt--i
where, DIt is an index (base year is 1970) of foreign direct investments from U.S.

to the countries (France, Germany, U.K. and Japan) in yeartand ERt-i is an index(base year is 1970) ofa foreign exchange rate to those countries in year (t-1).")
The results are:ai=-O.07, bi==O.13, ci==1.n(1.03) (29.98):(t-value)
D/C (determination coeMcient): O.97
D/ PV Ratio : 1.96
These results are very unsatisfactory. First, t-value of bi is small and, secondly, ci islarger than one. Even if we use ERt instead of ERt-i or use time trend instead of
DIt-i, we get worse results. The only reason we showed above results is the sign ofbi which satisfies relation (i),Following Lupo, let us use country dummies, CDF of France, CDG for Germany

and CDUK for U,K.. With these country dummy variables, the equation is(2) DIt==ae+b2ERt-i+c2DIt-i+f2CDF+g2CDG+k2CDUKThe results are
a2 == -O.09, b2=O.24, c2 == 1.11, f2 == -O.09, g2 == -O.06, k2=-O. 1 1(1.31) (28.80) (-1.58) (-1.02) (-1.52)
D/C: O.97, D/M: 2.24
Here we get rather improved results for the t-value of b2 but it is not suMcient.

If we restrict the analysis on manufacturing industries, similar equation as (1)and (2) do not give us desirable results. This is contrary to our expectations that
foreign direct investments in manufacturing industries are more significantly affectedby foregn exchange rate movements.
Next, foreign direct investments to U.S. from four countries, which is the relation(ii) above, are examined in a similar way. Using the following equation:(3) USDIt==as+bsERt+csUSDIt-!
we geta3=1.96, b3== -196, c3== 1,19(-2.53) (20.12)") Data of boreign direct investments is from Survey of Current Business, and data of foreignexchange rates is from International Financial Statistics (IMF).

SOME EVIDENCES BETWEEN FOREIGN DIRECT INVESTMENTS 27
AND FOREIGN EXCHANGE RATES
D/C: O.95, Dl rv: 1.39
where, USDIt is an index (base year is 1970) of foreign direct investment from four

countries (France, Germany, U.K. and Japan) to U.S. in year t.

If country dummy is introduced(4) USDIt=a4+b4ERt+c4USDIt-t+f4CDF+g`CDG+k4CDUK
a4=3.23, b,===-2.87, e4=1.17, f4=-O,68, g4 =O.92, k4=-O.13(-2.32) (19,05) (-1.82) (-2.43) (-O.25)
C/D: O.96, DI PV: 1.80
These are good results for supporting the relation (ii). In the above equations (3) and(4), we have used the current exchange rate index instead of the one of the previous
year, which is used in equations in (1) and (2). Using ER,-i in equations (3) and (4)does not change the results seriously, but give us small t-value for b (-1.26), in thecase with country dummy variables.
In the above equations (3) and (4), both cs and c4 are larger than one and thus
it seems better not to use distributed Iags. Therefore, let us put a time trend insteadof USDIt-i in those equations, which is now equations (5) and (6), respectively.
The results are follows, where T is time trend.

(5) USDIt==as+bsERt+csT
as==5.35, bs= -6.87, cs===O.81(-3.88) (5.99)
D/C: O.66, D/W: O,38

(6) USDIt==a6+b6ERt+c6T+f6CDF+g6CDG+k6CDULK
a6 ==8.01, b6==-9.15, e6 =O.77,fe==O.44, g6==-2.36, k6 =-O.15(-3.34) (6.07) (O.50) (-2.66) (-O.12)
D/C: O.75, DIW: O.62
In both equations (5) and (6), Durbin-Watson statistics are small and thus error
terms seem to have strong positive correlations. We need further investigation, in
this point. However, taking into account ofthe results in equations (3)-(6), it cannot

be denied that foreign exchange rates have some effects on foreign direct investmentsfrom other countries to U.S..

So far, we have used the data from 1970 to 1979, but the data of foreign direct
investments of manufacturing industry, to U.S. from four countries, are not available

for 1970-1972. Therefore, we choose 1973 as a base year and use smaller samples.
Regression, using similar equation:(7) MUSDIt==a7+b7ERt+c7T
gives us the following results.

KAZUHIRO IGAWA

28

a7=3.59, b7 =-2.82, c7=O.34(-5.17) (7.78)
DIC: O.81, D! or: 1.24

Here, MUSDI, is a foreign direct investment of manufacturing industry from thefour countries to U.S. in year t and T expresses time trend, Using the equation withcountry dummies,(8) MUSDIt==a,+bsER,+csT+f,CDF+gsCDG+ksCDUK
we get:as==3.68, bs== -2.50, cs=O.34, fs=-O.49, gs=-O.63, ks=-O.60(-3.59) (8.98) (-2.30) (-2.96) (-2.27)
D/C: O.87, DI PV: 1.81

The above results for manufacturing industry's inflow in U.S. are better than othercases. The developed four countries increase foreign direct investments to U.S. when
their foreign exchange rates appreciate for U.S. dallor and the elasticity is between
2-3 in manufacturing industries.
Summarizing the above investigation in this section, it becomes evident that therelation (i) is not supported and the relation (ii) is supported by our data and simple
regression analyses.

4. Effects of foreign exchange rate variability
When a foreign exchange rate is fluctuating, a timing of foreign direct investments
is a very important factor for investment decisions. Not only the timing but a volumeof the investment may also depend on the exchange rate valiability. For a safetyfirst investor, he will decrease a volume of investments when the fluctuation of foreignexchange rate is large. However, a very aggressive investor may increase it in the caseof large fiuctuations of exchange rates. In this section, we investigate how foreign
direct investments are affected through variabilities of foreign exchange rates.
We now add a new variables, which shows variabilities of foreign exchange rates,

for the equations (1)-(6) in the previous section. The new variable is a standard
deviation of monthly data of foreign exchange rates, more precisely, a ratio of thestandard deviation to mean average of a year.
From the new equations (1)' and (2)', which correspond to equations (1) and (2)respectively, we will get the following results, where, SD, is the new variable.

(1)' DIt=at'+bi'ERt-t+ci'DIt-i+diSDt
at'=-O.12, bi'==O.13, ci'== 1.10, di==O.02(l.11) (30.21) (2.01)
D/C: O.97, D! PV: 2.07

SOME EVIDENCES BETWEEN FOREIGN DIRECT INVESTMENTS 29
AND FOREIGN EXCHANGE RATES(2)' DIt =a'2+b2'ERt-i+c2'DItFi+d2SDt+f2'CDF+g2'CDG+k2'CDUK
a2'=-O.17, bi=O.26, c2'=1.09, d2=O,02,f2'==-O.07, gi==-O.06, k2'=-O.12(1,51) (29.20) (1.99) (-l.21) (-1.07) (-1.74)
DIC: O.98, D/ va: 2.42
The coeMcient of SDt js positive and this show that an increase of foreign exchange

variability increases foreign direct investments from U.S. to the developed four

countries. However this does not necessarily mean that an increase of foreignexchange risks stimulate foreign direct investments and investors are risk-lover.
This is because, an increase of SDt does not necessarily mean the increase of volatile

movement of foreign exchange rates. When foreign exchange rates move fast in one
direction, SDt increases. Therefore, if this is the case, positive values of di and d2

mean that the faster a one-way movement of foreign exchange rates the more a volume
of foreign direct investments is affected. However, as t-values of bi' and b2' are small,

it is diMcult to know whether positive values of di and d2 help to support the relation(i) or not.

'' Next, let us investigate
the case of infiow of foreign direct investments to U.S.,
with additional explanatory variable SDt. Adding SD, to equations (5) and (6), we
have the following equations (5)' and (6)' and the regression results.

(5)' USDIt=as'+bs'ERt+es'T+dsSDt
as'==4.43, bs'==-6.57, cs'==O.77, ds=O.21(-3.71) (5.69) (1.26)
DIC: O.68, D/ Mi: O.47

(6)' USDI,=;a6'+b6'ER,+c6'T+d6SD,+f6'CDF+g6'CDG+k6'CDUK
ae'== 6.01, b6' =-7.97, c6' =O.74, d6=O.29,f6'=O.77, ge'==-2.25, ke'=-O.51(-2.95) (5.99) (1.87) (O.88) (-2.62) (-O.41)
D/C: O.77, D/ PV: O.90
These results again show the existence of positively auto correlated disturbances(i.e. D/Wvalue is small). The t-values of ds and d6 are not very small and if we choose

periods of standard deviation with lags (such as SDt-i is used for SDt) we can get
different t-values. These results from equations (5)' and (6)', show that standard
deviations of foreign exchange rate affect foreign direct investments to U.S. fromother four countries. The positive values ofthe coeMcient of SD will imply a behavior

of investors to accelerate or delay the timing of foreign investiment with someconfidence.

5.

From our own investigation, lt ls

Coneluding remarks
shown that a foreign exchange rate is not an im-

30

KAZUHIRO IGAVVA

portant determinant of foreign direct investments from U.S. to other developed
cQuntries and is one of the determinants of those from the developed countries to

U.S. There wM be some reasonings for this. First, a foreign direct investments
behavior of U.S. is possibly different from those of other developed countries. The

U.S. enterprise usually has advantages for the products with high-technology andwith large R & D (research and development) investments. If this is the case, priceeffects from a foreign exchange rate movement is not a very important factor which
affect foreign investments. On the other hand, developed countries which invest in
U.S. usually consider the competitiveness to U.S. dornestic firms in prices. In thiscase a foreign exchange rate is an important factor for the decision of location of
production points.
Second, the role of U.S. dollor as an international currency might explain someof them. When the developed countries invest in U.S. they often must consider aU.S. dollor value of their funds denominated by their own currencies and thus aforeign exchange rate is a very important factor for their decisions. However, U.S.
firms can use U.S. dollor in other counteies, especially in European countries, andan exchange rate is not a crucial factor for their foreign investments descisions.

Third, wage adjustments or wage indexations may be different between U.S.
and the other developed countries. In the developed countries, other than U.S,, wage

adjustments for price changes are fast and thus advantages or disadvantages forinvestment accompanied with foreign exchange rate movements are canceled out by
the adjustment of wages in those countries, Therefore, U.S. firms can neglect of theforeign exchange fluctuations. On the contrary, wage adjustments in U.S. have timelags for price changes, and thus for foreign exchange rates, there remain advantages

or disadvantages caused by foreign exchange rate fluctuations. Therefore, foreign
investments into U.S. are sensitive to exchange rates.

Lastly, we should mention the problem which is caused by the way of accouting.

Both inflows and outflows of foreign direct investments of U.S. are calculated in
U.S. dollor. With this calculation, the outfows of foreign direct investments areover-evaluated when U.S. dollor depreciates and are under-eyaluated when it appreciates. The inflows of foreign direct investments are over-evaluated when U.S.
dollor is depreciated and are under-evaluated when it is appreciated. Therfore, forthe period of seventies when U.S. dollor depreciated, foreign direct investment
inflows and outflows in U.S. dollor should be adjusted in such a way as outflows
increase and infiows decrease in real term. This adjustment will 'back up to the badresults for relation (i), but will discount the good results for relation (ii).

31
SOME EVIDENCES BETWEEN FOREIGN DIRECT INVESTMENTS
AND FOREIGN EXCHANGE RATES

Reference[1] Agarwal, J.P., "Determinants of Foreign Direct Investment, A Survey," oreltwirtschaftliches Archif, Band 116, Heft 4, 1980.

[2] Baldwin, R.E., "Determinants of Trade and Foreign investment: Further
Evidence," Review ofEconomics and Statistics, Vol. LXI, No. 1, Feb. 1979.

[3] Batra, R.N. & J. Hadar, "Theory of the Multinational Firm: Fixed versus
FIoatiRg Exchange Rates," 0xford Economic Papers, Vol. 31, No. 2, July 1979.

[4] Boatwright, B.D. & C.A. Renton, "An Analysis of United Kingdom Inflows
and Outflows of Direct Foreign Investment," Review qfEconon?ics and Statistics,

Vol. LVII, No. 4, Nov. 1975.
[5] Goldsbrough, D.J., "The Role of Foreign Direct Investment in the External
Adjustment Process," IMF Staff Papers, Vol. 26, No. 4, Dec. 1979.
[6] Gray, H.P., "United States Foreign Investment and the Dollar Exchange Rate,"

Economia Internazionale, Vol. XIX, No. 3, Aug. 1966.
[7] Hartman, D.G., "Foreign Investment and Finance with Risk," Quarterly JournalofEconomics, Vol. XCIII, No. 2, May 1979.
[8] Herring, R. & T.D. Willett, "The Capital Control Program and U.S. Investment

Activity Abroad," Southern Economic Journal, Vol. XXXIX, No. I, July 1972.
[9] I'shimine, T., "Performance, Motivation and the Effects on the Balance ofPayments of Japan's Direct Foreign Investment," Economia Internazionale,Vol. XXXI, No. 1-2, Feb.-Mar. 1978.
[10] Kohlhagen, S.W., "Exchange Rate Changes, Profitability, and Direct Foreign
Investment," Southern Economic lournal, Vol. 44, No. 1, July 1977.

[II] Kwack, S.Y., "A Model of U.S. Direct Investment Abroad: A NeoclassicalApproach," vaestern Economic Journa4 Vol. X, No. 4, Dec. 1972.
[12] Larkins, D., "The Capital Control Program: Comment," Southern Economic
Journal, Vol. 42, No. 3, Jan. I976.

[13] Lupo, L.A., "Capital Expenditures by Majority-Owned Foreign AMIiates of
U.S. Companies, 1978 and 1979," Surve.v of Current Business Vol. 58, No. 1,

Oct. 1978.
[14] Marston, R.C., "Wages, Relative Prices and the Choice between Fixed andFlexible Exchange Rates," Canadian Journal of Economics Vol. XV, No. I,
Feb. 1982.

[15] Sachs, J., "Wages, Flexibie Exchange Rates, and Macroeconomic Policy"
2uarterly Journal of Economics, 94, June 1980.

[16] Whichard, O.G., "Trends in the U.S. Direct rnvestment Position Abroad,
1950-79," Sttrvey of Current Business, Vol. 61, No. 2, Feb. 1981.

32

[17]

KAZUHIRO IGAWA
Woolley, P.K., "The U.K. Investment Currency Market,"

IMF Staff Papers,

Vol. XXIV, No. 3, Nov. 1977.
[18]

Von-Furstenberg, G.M., "Domestic Determinants of Net
vestment," IMF Staff Papers, Vol. 27, No. 4, Dec. 1980.

U.S. Foreign In-

STATESTWO TYPES OF RAILROAD REGULATIONBY
IN THE 19TH CENTURY OF THE U. S.
-Search for the Social Foundation of Modern Corporate Financial

Reporting-

Hidetoshi YAMAJi

I Introduction
II Inquiry into railroad regulation in the state of Illinois
III Inquiry into railroad regulation in the state of Massachusetts

IV Conclusion

I
There is a certain consensus on the proposition that the economy and the society of
the United States changed at the turn of the century. But, needless to say, the change

did not take place in a short time. Evolutional developments occured in such areas
as economy, society, politics and so on from the latter half of the 19th century to

the early years of the 20th century. Moreover many states in the United States
haven't experienced such a development simultaneously. We can find the time lagof modernization among various states.

Turning our attention to the railroad regulation, some states reguiated therailroads within the state by fixing the rate directly, while the other states regulated

them by using corporate publicity. It seems to me that the difference of regulation

form relates to the difference of extent of modernization between two groups ofthe states.

In taking the cases of two states (Iilinois and Massachusetts) as examples, moredetailed causes of difference between two types of railroad regulation will be
examined in the following sections. This examination will be useful to understandthe social foundation of modern corporate financial reporting.

II
In this section, the railroad regulation of the state of Illinois will be analyzed.

Content of railroad regulation. Many times in Illinois, in the 1860s, public opinion

demanded that the state regulated the railroad companies. But it was not until 1869
when the Act concerning Railroad Rates was passed that the people of Iilinois had

HIDETOSHI YAMAJI

34

a railroad regulation. This Act, however, rejecting the famous pro-rate principle,
didn't have any concrete alternative procedures of rate setting so that it was notenforced effectively.

Thus, it can be said that in Illinois the Constitution of 1870 was the first real

railroad regulation law. When the fourth constitutional convention was held, mostdelegates didn't have a plan to contain the railroad regulation sections in the Con-

stitution. But during the period of the convention opening, the pressure of public

opinion, which consisted mainly of farmers' opinion, forced the delegates to pass
the sections concerning railroad regulation vvhich was proposed by R. Benjamin."This Constitution was decided by the direct voting of electors. In regard to theConstitution as a whole, it was passed by a vote of 134,227 to 35,443 and the sections

concerning railroad regulation were also passed by a vote of 144,750 to 23,525.2'

They were quoted under:
Section 12. Railways ... are hereby declared public highways, and shallbe free to all persons for the transportation of their persons and property

thereon, under such regulations as may be prescribed by law. And theGeneral Assembly shall, from time to time, pass laws establishing reason-

able maximum rates of charges for the transportation of passengers andfreight on the different railroads in this state.
Section 15. The General Assembly shall pass laws to correct abuses and toprevent unjust discrimination and extortion in the rates of freight andpassenger tariffs on the different raitroads in this state, and enforce suchlaws by adequate.penalties, to the extent, if necessary for that purpose,of forfeiture of their property and franchises.3)

Following the Constitution convention, in 1871, was enacted the law establishingreasonable maximum rates of charges for the transportation of passengers whichprescribed many concrete regulatory laws and enabled the Board of Railroad andWarehouse Commissioners to be established. The enactment of the Act of 1871
was partly due to the rise of the Granger Movement in Illinois.

Turning our attention to the content of the railroad regulation prescribed bythis Act, a reporting system, or in other words, a publicity system was adopted toregulate the rates of railroad transportation. That is to say, the railroad companies

were required to report to the Board their annual gross earnings and some otheraocounting data on which it classified railroads from A rank to D rank to recommend
the maximum rate of each rank. After that, the Board disclosed the ranking and the1) J. Cornelius, A History of Constitution Making in lltinois, University of Illinois, Illinois,

1969, pp. 58-59. .

2) S.J. Buck, The Granger Moyement, University of Nebraska Press, Lincoln, Originally pub-lishedin 1913, p. 128. '3) Ibid,, pp. 129-130.

TWO TYPES OF RAILROAD REGULATION BY STATES 35
IN THE 19TH CENTURY OF THE U,S.

rates in the newspapers.`>

But the Board had no means and no power other than publicity to enforce its
recommendations. So it didn't take any real actions even if a railroad violated its

recommendations or adopted discriminative rate system. It was only the person (orparty) concerned who could sue the railroad for damages. Railroads were too big
for an individual to bring an action against them so that he couldn't be paid for thedamage which accrued from illegal rates. This fact means that the railroad regulation
by publicity didn't function effectively."'

Ineffectiveness of the 1871 Act provoked the revision of railroad regulation law

in l873. According to the Act of 1873, the Board could decide the maximum rates
of railroad transportation and could bring suits if necessary. Namely in 1873, therailroad regulation form of lllinois changed from publicity to direct control ofbusiness.6)

It should be added that railroad companies sued the state for the Act of 1873
being in violation of the Federal Constitution. This famous case-Mann vs. Illinois

in 1876-was called Granger Case. The suit was rejected by the Supreme Court.
Subsequently we must make clear the reasons why in Illinois the railroad regulation by publicity became ineffective and the direct control of business could not
help being adopted.
Social Strucrure. First of all, attention must be paid to the conditions of farmers
because the farmer class was thought to be the main social class which established therailroad regulation in Illinois.

In the 1860s, Illinois farmers suffered from the oppressivly high rate system ofrailroad transportation and the discriminative rate system because the farmers had

not yet organized themselves to take some counter measures against railroad companies. At this time farmers throughout the United States suffered from these disadvantages.
Seeing farmers suffer from high rates of railroad transportation, in 1867, O.H.
Kelley organized the first grange in Minnesota. This was the beginning of the Granger

Movement, which developed throughout the United States in provoking the antimonopoly, that is, the anti-railroad sentiment among farmers. The statistics concerning the development of the Granger Movement in Illinois is shown in Table I."
Judging from Table I, it seems that the anti-railroad sentiment of farmers affected
4) First Annual Report ofthe Railroad and Marehouse Commission ofthe State oflllinois, 1872,
pp. 4-5.
5) Ibid., pp. 5-6.

6) Fourth Anntial Report of the Railroad and rvai`ehouse Commission qf the State Qf' IUinois,
1874, pp. 9-10.

7) C.C. Taylor, The Farmers' Movement, 1620-1920, American Book Company, New York,
1953, pp. 135-137.

HIDETOSHI YAMAJI

36

Table I. The number of granges from 1868 to 1876 in I]linois

1868

1869

1870

1871

2

3

8

1872

1873
431

1874
1.503

1875
1.533

1876
646

TaPie Ii.! .Tb.e-Popuia!igp mS. . t{y.c.tllLre-g.f-!1!inois-by- 9p.g. .u-p. a. -S. io"p--

M5nUia-cL-th-IEJ,--All Oocupations
Agriculturel1742,Ol 5
1ooO/.

Professional & Trade &Mechanical

Personal Service Transportation& MiningIndustries! 376,441

1 510/.

E

ISI,931
2oo/.

80,422llO/e133,221180/.

especially the enactment of the railroad regulation law of 1873. Furthermore, it
should be kept in mind the population structure of Illinois by occupation in thisperiod which was as follows. (Table II)8' According to the Table II, about one-halfof population was farmer and the major part of the other half consisted of small
producer and private business so that the polarization between farmers and railroads

could occur. This antagonism was sharply strenthened by the industrial structure in
Illinois. In 1870, the gross value of manufactured products totaled $92 million in

Cook County, where the main oMces of the railroad companies were gathered, while
the next highest county total was only $8 million in Peoria County.9' In Illinois, there

was also antagonism between the urban and the rural communities in regard toindustrialization. These antagonisms necessarily led the railroad regulation of
Illinois to the rigid and direct control of business.

Management of Railroad Company, The factor which forced the state to adopt the
djrect control of business as railroad regulation lies in the state of affairs of railroad

company management. The management of the 111inois Central Railroad serves as
an example.

The conditions which confronted the management of the Illinois Central from1857 to 1870 were peculiar. Panics, crop failures and the Civil War prevented thenatural development of the system and forced it into policies not suited to its geo-

graphical location. Moreover, the odicers of the company were handicapped by its
foreign control and often adopted more conservative methods than would have been
followed under a different system of ownership. It may be said in this connectionthat the securities issued by the company were sold mainly in the British capital
market. As a result, the company couldn't pursue the policy adopted by some of themore aggressive of its competitors and often lost traMc as a result. Moreover, manyof the successes obtained by the Illinois Central from 1858 to 1870 were merely8) Calculated from The 9th Census of the United States.
9) J. Cornelius, op. eit., p. 43.

TWO TYPES OF RAILROAD REGULATION BY STATES 37
IN THE 19TH CENTURY OF THE U.S.

temporary, and they inflicted later losses upon the company.'O}

From these reasons, the company adopted the policies from which weak farmers
suffered and it sold the land which was previously donated by the state.

Judging from the typical railroad management, the railroad companies inIllinois were in a position of free competition which in turn forced them into an

unstable management. In such a condition, railroads couldn't help adopting op-

pressive management policies against farmers. Conversely speaking, railroads
couldn't afford to take the demand of farmers (or the public) into account. It seems
that this fact stimulated the anti-railroad sentiment of farmers and led necessarily
the railroad regulation to direct control of business.

llI

In this section, the railroad regulation ofthe state of Massachusetts will be examined.

Content qf the railroad regulation. In the state of Massachusetts, the Act of 1869
regulated railroad companies within the state and established the Board of Railroad

Commissioners to which the following duty was assigned:
The first duty imposed upon the Commissioners was to examine therailroad of the State, with a view to keeping themselves informed as totheir condition, the manner in which they are operated with reference tothe security and accommodation of the public, and the compliance of theseveral railroad corporations with the provisions of their charters and thelaws of the Commonwealth.ii)
To perform its duty, the Board had two measures; one was to require the railroad

companies of the State to report their business conditions and to inform them of

the improvements and changes which the Board adjudged to be proper; the otherwas to visit and inspect all the railroads within Massachusetts if necessary.'2} That
is to say, it can be said that only publicity was given to the Board as a regulatory
measure. This measure is similar to the one adopted in Illinois in 1871. In Illinois
this regulatory measure was forced to change while in Massachusetts it didn't change.

And according to A. T. Hadley, the railroad regulation of Massachusetts was successfu1,i3' vvhich would be partly shown in Table III.i`' Table III tells us that in two10) H.G. Brownson, History of the Illinois Central Railroad to 1870, University of IIIinois,
Illinois, 1915 (Reprinted in l967), p. 73.

I1) First Annual Report of the Board of Railroad Commissioners, Massachusetts, 187e, p. 4.
12) Ibid., Pp. 5-6.
13) A.T. Hadley, Railroad Transportation, Its History and Jts Laws, G.P. Putnam's Sons, New
York, 1903, pp. 137-139.
14) Sixth Ann"al Report of the Railroad and rvarehouse Coinmission of the State of' Iltinois,
1876, pp. 446-447. Seventh Annual Report (Appendix), pp. 70-71. Eighth Annual Report (Appendix),
pp. 84-85. Tenth Annual Report, p. 17. Twelofth Annttal Report of the Board of Railroad Commissioners of the State of Massaehusetts, 1881, p. 12.

HIDETOSHI YAMAJI

38

Table III. The Average Fare per Mile Received from Each Passenger (e)Year

Massachusetts

Illinois

1873
1874
1875
1876
1877
1878
1879

2.32
2.30
2.42
2.40
2.40
2.40
2.12
2.24

3.42
3.33
3.19
3.10
3.07
3.18
3.14
2.89

1880

states, the average fares per mile gradually dropped down regardless of the differenceof regulations.

Then, why in Massachusetts was the railroad regulation by publicity successful?
The reasons will be made clear in this section, following the same course as previous
section.

Social Structure. The state of Massachusetts was a center of the 13 Eastern States

after the Independence. And it had perhaps already a large population in about
1800, judging from the fact that the population increased by degrees.
Boston, the leading city in Massachusetts was also the central port of the worid-

trade. Thus, Boston and sorne other cities in Massachusetts could early have had alarge capital by accumulating the profits accrued from the trades. But as New Yorksupplanted Boston as a center of world-trade, it became necessary for merchants
and industrialists of Boston to invest their large capital in railroads for the purposeof organizing the transportation system within the state and of securing the connection with the inland area.'5)

Moreover, when Boston lost in a contest with New York for supremacy ofworld-trade, the capital used in the trades began to seek other investments. This extra-

capital raised textile industry and iron industry in Massachusetts, which was the
beginning of the industrial reyolution in the United States. The industrial conditionsof 1830s in Massachusetts was shown in Table IV, derived from the McLane
Report.'6' In addition, agriculture developed in Worcester. In the 1830s-1840s there

had already appeared in Massachusetts a mature economy where commercial capital,banking capital, industrial capital and agriculture were established as stable interest

groups. These interest groups in turn had enough countervailing power to checkrailroad managements, which was one of the main reasons why in Massachusetts therailroad regulation by publicity was successful.
15) S. Salsbury, The State, the Investor, and the Railroad; The Boston and Albany, 1825-1867,
Harvard University Press, Massachusetts, 1967, chapter I.
16) From, T. Kusui, Ameriean Capitalism and Industrial Revolution, Kobundo, 1970, pp. 463497, which explains the McLane Report minutely. (in Japanese)

TWO TYPES OF RAILROAD REGULATION BY STATES 39
IN THE 19TH CENTURY OF THE U.S.
Table IV. Industrial Development in Massachusetts

Textile Industry

Iron Industry (stee1)

employee factory capitaJ

employee factory capital

Berkshire638

18

341,1oo

(1oo)

(1)

(11,Ooo)Bristol

2,404

46

1 499 7oo261

3156,OOO

Essex
Franklin

355
15

2

270,OOO

28

4

1

4,5oo

4,030
1,550

Hampden

1,329

5

1,O14,OOO

Hampshire391

4537,2ooMiddlesex
Norfolk

3,577

12

4,070,699

649
388

19

585,900
193,390

Plymouth13

p)Boston (Suffork)

Worcester

2,839

45

1,938,250

3

567

14

86,82577,350709,684(12)(3)(8,2oo)341

4
16744,800

11

77

86

7

53,370Management of Railroad Company. Next, the conditions of railroad managements
should be analyzed. In particular, the ones of the Boston and Worcester Railroad

and the Western Railroad would be quoted as examples.
The Boston and Worcester Railroad, opened to traMc in 1834, was one of theoldest railroads in Massachusetts. An interesting occurrence concerning management

policy was the controversy between D. Denny, C. D. Henshow and W. Hale over therate policy. D. Denny and C. D. Henshow asserted that the rate of transportation
should be low for the purpose of meeting the demand of the public, while W. Haleinsisted that the rate should be raised to satisfy the profit maximizing principle.
The overcoming ofW. Hale temporarily brought the rate to be raised. But a few years
later, the rate was cut when the earnings of the company increased,'7) because theboard of directors realized that satisfying the public interest was prudent management policy.

Turning to the Western Railroad, while under construction, in Worcester amass meeting was held to demand to the company the joint resolution concerning
the location of railroad stations upon which the value of real estates depended. On
the other hand, the railroad published bulletins titled "Address to the People" topersuade the public opinion.iS)

The controversy over rate policy also arose between E. H. Derby and W. Jackson
who were directors of the Western Railroad. In this dispute, E. H. Derby disclosed

accounting data concerning the rate making in a newspaper to obtain the supportof the public opinion.`")The above-mentioned cases tell us that railroad companies in Massachusetts17) S. Salsbury, op. cit., p. 125.
18) Ibid., p. 146.

19) Ibid., pp. 213-214.

HIDETOSHIYAMAJI

40

were forced to adopt managernent policy in taking many interested groups into ac-

count. Under such a circumstance, checking railroad managements by publicity
could be a good measure to regulate railroad companies.
Viewed from the railroad company side, railroads had enough reserve to consider
many interested groups, that is, the public interests and realized that they could

maximize the long-term profit on condition that they met the public interest.20)

This conjecture couid be also drawn from the fact that the dividends of the two

Table V.

Boston
Year
1834-

Gross

Eamings

Development of diyidends of two companies& Worcester R.R.

Tota] Dividend
Costs Rates$ 161,806.95$ 85,533.28 2

183,189.03
209,261.31
212,325.03
231,807.18
267,547.41
310,807.87
349,206.67
383,367.10
428,437.34
487,455.53
554,712.46
722,170.32
716,284.11
703,361.15
757,946.79
743,922.60
758,819.47
887,219.87
952,895.28
1,oo8,oo4.90
1,108,781.90
1,O19,148.70
923,223.63

103,674.69
119,062.49
93,492.97
126,384.83
140,441.oo
162,998.58
168,509.51
206,641.42
233,273.92
249,729.50
283,876.11
381,985.63
381,917.42
405,551.05
377,041.03
393,687.03
409,740.26
455,528.01
594,528.56
603,542.89
671,719.87
612,686.42
570,929.36
565,434.51
606,398.88
520,338.40
515,g25.72
714,296.29
984,520.45

4
5-3
3-3

1,160,1oo.47
1,424,528.21

5-4i/2lWestern R.R.
Gross
Earnings

Total
Costs

Dividend
Rates

1835
1836
1837
1838
1839
1840
1841

1842
1843

18"
1845
1846
1847
1848
1849
1850
1851

1852
1853
1854
1855
1856
1857
1858
1859
1860
1861
1862
1863
1864
1865
1866
1867

1,067,070.73
1,045,683.01

928,932.79
1,oo6,129.82
1,202,654.05
1,471,985.08
1,697,164.1O
1,914,729.54

20) A.T. Hadley, op cit., p.

3-3 i/2

3-3
3-3

"
"

3-3

3-3 i/2

4-4
4'-5

54i/2
4-3
3-3
31/2-3i/2
3i/2-3i/2
3i/2-3i/2
3i/2-3i/2

3-3
3 i/2 -3

43
3-3
3-3

""
""

5-5

5i/2-55-5

138.

$ 17,609.15
112,347.39
182,308.99

512,68828
573,882.51
753,752.72
813,480.15
878,417.89
1,325,336.06
I,332,068.29
1,343,810.57
1,366,252.47
1,353,894.63
1,339,373.09
1,525,223.02
1,763,944.26
1,858,861.75
2,115,820.05
1,910,342.48
l,7oo,293.50
1,767,068.13],881,3SO.72
1,894,567.96
2,095,922.50
2,435,712.14
2,994,998.74
3,431,584.10
3,932,O17.29
4,086,707.63$ 14,380.64
62,071.72
132,501.45
266.619.30
303,973.06
314,074.20
370,621.25
412,679.80
676,689.75
652,357.11
588,323.58
607,549.36
597,756.20
656,687.17

3-3
2-3

34
4-4
4-4
4-4
4-4
43i/2

778,48792

3-3i/2

1,045,241.19
1,236,659.74
1,228,219.46
1,084,118.55

3i/2-3i/2

890,930.40
936,920.12
993,096.30
1,081,571.17
1,111,358.20
1,207,oo6.90
1,818,141.71
2,204,925.58
2,525,226.58
2,837,411.77

3i/2-3i/2
31/2-3i/2

4-4

"tM
"
"
4-4
tV4
5-5

54
6L5
5-5

TWO TYPES OF RAILROAD REGULATION BY STATES 41
IN THE 19TH CENTURY OF THE U.S.

companies gradually arose and were kept stable as shown in Table V.2')

Then, what do they mean the suMcient reserve and the stable dividends? Theymean that the railroad companies in Massachusetts had already enjoyed the oligopolistic (or monopolistic) stability. Generally speaking, it can be said that theoligopolistic stability of railroads could assure high quality transportation andmanagement, while the free competition accelerated railroad constructions.

IV
As a conclusion, we summarize the discussions which were developed in previous
sectlons.

As in the 1860s-1870s there didn't yet emerge the modern socio-economic struc-ture whose nucleus was big business, the antagonism between farmers and railroads
as a new comer of big business appeared in Illinois. And it was in turn the main
reason why railroad regulation by publicity was rejected and the direct control ofbusiness was forced to be adopted as regulatory measure in Illinois.
On the other side, it should be kept in mind that in 1830s-1840s of Massachusetts

there had already emerged many interested groups in contrast to the antagonistic
condition ofIllinois and there had also appeared the oligopolistic stability of railroad

companies as compared with the free competitive condition of Illinois. These factors

could explain why the railroad regulation by publicity was valid in Massachusetts.

Furthermore, it should be added that there was a democratic tradition in the
United States. This means that the senses of "the public's right to know" and "thesovereignity rests with the people" were firmly established in the American people's
mind. It seems that these senses of rights also validated the big business (railroad)regulation by publicity. Namely the regulation by publicity is valid provided thatthe public expect that they can watch the behavior of big bpsiness and can regulatethem through democratic government if necessary.
We can say that only when socio-economic factors and an ethical and ideologicalfactor (democracy) are met simultaneously, the regulation or control by publicity
becomes valid. This proposition is very significant for accountancy because it meansthat corporate financial reporting can be established as a social institution only inmodern democratic society which satisfies those factors.

Referenee[1] Adams, C. F., Jr., and H. Adams, Chapters of Erie, Augustus M. Kelly,York, 1967, originally published in 1871.
21) S. Salsbury, op. cit., pp. 307-312.

NewHIDETOSHI YAMAJI

42

[21

Bemis, E. W., f`The Discontent ofthe Farmer," The Journal ofPolitical Economy,
Vol. I, (March, 1893).

[3]

Boockholdt, "Infiuence of Nineteenth and Early Twentieth Century Railroad

Aocounting on the Development of Modern Accounting Theory," vaIork Paper
No. 31, July, 1977, Academy of Accounting Historians.
[4]

Brownson, H. G., History of the Illinots Central Railroad in 1870, University
of Illinois, Illinois, 1915 (reprinted in 1967).

[5]

Buck, S.J., The Granger Movement, University of Nebraska Press, Lincoln,
originally published in 1913.

[6]

Cootner, P. H., "The Role of the Railroads in United States Economic Growth,"[7]

Cornelius, J., A History of Constit"tion Making in Illinois, University of

The Journal of Economic Histor], Vol. 23, No. 4, (December, 1963).
Illinois, Illinois, 1969.

[8]

Fishlow, A., American Railroads and the Transformation of the Ante-bellum
Economy, Harvard University Press, Massachusetts, l965.

[9]Galambos, L., The Public Image of Big Business in America, 1880-I940, The
Johns Hopkins University Press, Baltimore, 1975.

[1O]

Hadley, A. T., Railroad Transportation, Its Histry and Its Laws, G. P. Putnam's

Sons, New York, 1903.
[11]

Harlow, A. F., The Road of the Century, Creative Age Press, Inc., New York,[12]

Kennedy, C. J., "The Early Business History of Four Massachusetts Railroads,

1947.

I-IV," Bulletin of the Business Historical Society, Vol. XXV, No. i--4, 1951.
[13]

Moody, J., The Railroad Builders, Yale University Press, New Haven, 1920.

[14]

Previts, G, J., and B. C. Merino, A History of Accounting in America, A
Ronald Press, New York, 1979.

[15]

Ripley, W. Z., Railroads; Rates and Regulation, Longmans, Green, and Co.,New York, 1913.
[161 Salsbury, S., The State, the Investor, and the Railroad; the Boston & Albany,

1825-1867, Harvard University Press, Massachusetts, 1967.
[17]

Schannon, F,A,, The Farmer's Last Frontier, Holt, Rinehart and Winston,

New York, 1961.
[18]

Taylor, C. C., The Farmers' Movement, 1620-I920, American Book Company,

New York, 1953.
[19]

Veblen, T. B., "Price of Wheat Since 1867," The Journal of Political Economy,
Vol. I, (December 1892).

[20]

Yamaji, H., "The Function of Corporate Financial Reporting in a Mass Democratic Society," Kobe Economic and Business Review, 27th Annual Report, 1981.

& BUSINESSREVIEW
KOBEECONOMIC
CONTENTS
NO. 20 (1973)
An Analysis of the Brazilian
Balance of Payments: 1960-1972.............,.........................Fukuo Kawata

International Money Flow and
the Multinational Corporations ...,........................,..........Masahiro Ful'ita

Estimation of Investment Allocation
Ratios of Japanese Economy: 1960-1969...........................Hikoji Katano
Available Jobs and Employment inJapanese Foreign-going Shipping..............................Hiromasa Yamamoto
Homomorphism and Business Income Measurement.................................lsao Nakano
Assets Choice and Optimal International Reserves ..............................Kazuhiro Igawa

NO. 21 (1975)
Regional Development Policies of Japan in Recent Quarterof the Twentieth Century .....,......................,...................Minoru Beika

National Income and Expenditure
at Factor Cost in Japan 1955-1970:
A Macro-Accounting for Growing Economy .....................Nobuko Nosse
EMciency and Acceptability in Optimal Growth Path...........,.....................Hikoji Katano

An Equitable Distribution of the Costs and Benefits of Economic
Integration ..........................,....,............................Yoshiaki Nishimukai

Japanese Business Abroad: Past, Present and,Future ..........,................Hideki Yoshihara

NO. 22 (1976)
Pioneering in Australian Direct Trade
Life of F. Kanematsu, 1845-1913 ....................................Tadakatsu Inotte

Productivity Bargaining and the Change of Labour
Management Relations in the Japanese Foreign-going
Shipping: 1965-1973 ...........,....................................Hiromasa Yamamoto
On an Interpretable Depreciation Method ................................................Isao Nakano

A New Type of Data Banking System-BEICA System- .......................................,...........Hiroshi Sadamichi
Expectation in the Shipping Exchange ..........,........................................Tetsuji Shimojo

International Capital Movements andReal Capital Aocumulation ..................,.........................,Kazuhiro Igawa

Legal System of the Free Movement of Workers and Migration
Trends in the European Econornic Community ...........................Kunio Soh

NO. 23 (1977)
Alternative Approaches to the
Aocounting for Education ................................................IVobuko IVosse

Personnel Management of Japanese Companies
in Thailand:AField Paper .............................................Hideki Yoshihara

Evaluation of Performance Using
Multiple Criteria ............................................................Komayuki Itow

Some Bargaining Process Models in
the Shipping Exchange ..........,.........,..............................Tetswfi Shimojo

Asset Diversification under the Flexible
Exchange Rate System ............................,.....................

NO. 24 (1978)
The Demand for International
Currencies and Reserves ....................,...........................Masahiro FuJ'ita

Nobuo Miyata
Studies for the Prediction of Shipping Markets-A Survey and their App!ications- ..............................Tetsuji ShimoJ'o
A Note on the International Transmission of
Policy Effects under Flexible Exchange Rates ..................Kazuhiro Igawa

A Control Estimation Approach toTime-varying Parameter Models...:......................................Yukio Uehida

NO. 25 (1979)
Redundancy of Seafarers and the PracticeofPermanent Employment .......................................Hiromasa Yamamoto
Japanese Multinational Enterprises:
A View from Outside ...............,.........,..................,......Hideki Yoshiltara

ACommentontheBayaraa'sAlgorithm .............,...........,...................KomayukiItow
Effects of Ship's Size and Cargo Lotson the Ocean Freight Rates ........,....................................Tetsufi Shimofo

Direct Foreign Investrnents and Foreign Exchange Rate:
A Model of Specific Factors and Non-tradable Goods.....,......Kazuhiro• Jgawa

NO. 26 (1980)
Economic Policies under the F!exible Exchange
Rate System : a Stock Approach and a Long-run
GovemmentBudgetConstraint...........................,..............KazuhiroIgawu

Estructurade las ventajas comparativasy .
politica comercial-El caso de las exportaciones deproductos industriales en el Brasil ........,...........................Shoji Nishi'ima

Technological Progress and Capital Aocumulation ..............................Kazuo Shimomura

NO. 27 (1981)
Accounting Systems of Non-Market Oriented Activities ' ...........................Nobuko IVosse

Current Situations of World Economy andGlobal Adjustment of Industries ......................................,Hikoji Katano

Current Cost Aocounting and the Conceptof Specific Purchasing Power Capital ....................................Isao Ntrkano

An Input-Output Table for Evaluation of the
Shipping Activities ....,..........,.......................,.................1 etst{ii SItimqio

The Function of Modern Corporate Financial Reportingin a Mass Democratic Society ........,......................,.....,.Hidetoshi YamaJ-i

NO. 28 (1982)
The Internationalization of Japanese Commercial Banking-Experienoes in the 70's- ..................,,.........,..,............Masahiro FaJ'ita

Keniehi Ishigaki
A Synthesis of Simultaneous Equations Estimators ..........,.............HiroshiSadamichi
A Database System of Economic Time Series ....................................Hriroshi Sadamichi

Yasuo IVunokami.Kazuhiro Igawa

KOBEUNIVERSITYECONO]S,flC REVIEVV27, 1981
Edited by Faculty of Economics,
Kobe University, Kobe, JapanCONTENTSThe Japanese LandIord-Tenant Tenure System in the Meiji Era ...............,........Osamu Tanaka

The Present Financial State of Japanese Government and
the Prospect of the Escape from Financial Crisis,...................................Kazuo IVakamura

Analysis of Industrial Adjustment in a Dynamic Specific Factor Model ............Ki7oshi Ikemoto
Jevons and Fleeming Jenkin ......................,...........................................Shoiehiro Uemiya

On Investment jn Human Capital under Uncertainty ....................................Yasahide Tanaka

The Theory of Labor Managed Firrns under Uncertainty:
Correction and Comment....................;...................................................Shoji Haruna

The Theory of Labor Managed Firms under Uncertainty: Reply........................ PVatara Fukada.,ltlellth•h,,,-ny-lell"lt-i-,,,..illllltli,•h,,t,.`tlllllee,•,hb,,-illlllni,•'h,v,qlltlSte,•et,-".,llMlli,,"h,r.,11Tlllttb.ie,t,rel{ltlll,"L,,,,.Tilllltl)i,t,-,i.titllllel),d,,,rttllllllP,bi

OF
THE ANNALS OF THE SCHOOL
BUSINESS ADrmSTRATIONKOBE UNIVERSITY 1982
Edited by the School of Business Administration,

Kobe University, Kobe, JapanCONTENTS
Die Bedeutung der handlungstheoretischen Konzeption
fUr die Betriebswirtschaftliche Theorie .....................................,..............,.Helmut KochVerbraucherschutz in der Versicherungswirtschaft-Eine Okonomische Studie unter Berticksichtigung der Erfahrungen in Japan..............................................,...............................,.................KazayaMizushima

International Trade in a Growing Economy ......,............................................Akihiro Amano

Vergleichende Analyse der Jahresabschlifsse japanischer und deutscher

GroBunternehmen-am Beispiel der Aktiengesellschaften der Industrie ...,..Masatoshi Kuroda,illfllltt.",,v,tlltllll-,A",v.ttllllllt'"-,,'ttlllllel'"'-,-qtltl"I"'i,,,,',11111111'h',",11UIIti'"',vtllllllll,-'b',g',11111III,,i',",,ll"llle--'",,r,tllSIIIIb.t',,ir,tllllllt,.t,

KOBE UNIVERSITY LAW REVIEWInternational Edition No. 15, 1981

Edited by Faculty of Law
Kobe University, Kobe, JapanCONTENTS
Recognition of New States and Japanese Practiceafter the Second World War (1) ....,.................................,....................,Kentaro Serita

Verwaltungs-Realakt und die Lehre von den Handlungsformen der Verwaltung-Ein Kontrast zwischenjapanischer und deutscher Lehre- .....................Hikaru Takagi
NISHI Amane and G.H. Lewes (1) .............,...........................................Keisuke Hasunuma

RESEARCH INSTITUTE FORECONOMICS AND
KOBE UNIVERSITY
BUSINESS ADMINISTRATION,HISTORICAL SKETCH
In 1919, a research organization named the Institute for Commerce was foundedin Kobe Higher Commercial School, one ofthe chiefpredecessors of Kobe University,with a gift made by F. Kanematsu & Company, a leading mercantile firm in Kobe.
The organization was designed to carry on and facilitate integrated research on
business and commerce and to formulate and publish the results of these studies andinvestigations in such form as to make them available to the business community.

With the founding of Kobe University of Commerce, successor of Kobe Higher
Commercial School, in 1929, the Institute extended its research activities by adding

several divisions. One was the famous Latin-American Library, which soon became
the center of research in this field in Japan. A room for statistics equipped withvarious computing machines was established and began publication of Jtiyo' To-kei

Keizai monthly and Sekai Bo-eki To-kei annually. A filing room was prepared todeposit press clipping files systematically arranged by topics and dates. Anotherroom was designed to become the center of all possible original records and data
having to do with the beginning and progress of Japanese business.

On the campus of Kobe University of Commerce, another organization named
the Institute for Business Mechanization was founded in 1941 utilizing businessmachines donated by the IBM Corporation and others. With Professor Yasutaro

Hirai as its head a broad and forward-looking plan for business mechanization in

Japan was developed.
In 1944, Kobe University of Commerce changed its name to Kobe University of
Economics. After the War, however, the University was consolidated with three othercolleges in Hyogo Prefecture to become Kobe University. With this development, thetwo Institutes were also amalgamated into the Research Institute for Economics andBusiness Administration, Kobe University. At present, the Institute, with its seventeen

full-time professional staff members, carrjes on studjes and investigations in inter-national economic, international environment, comparative economic, international

business and management information systems.

LOCATION AND BUILDINGSThe Research Institute for Economics and Business Administration is located on
the campus of Kobe University, Rokko, Kobe. It consists of two three-storiedbuildings. One is named the Kanematsu Kinenkan and has a floor space of about
2,9oo square meters, which includes a president's room, forty-one oMces, six rooms
used as a library, a room for statjstics, etc. Another is built in 1964. It has a floor

space of about 1,9oo square meters, which is chiefly used as the Documentation
Center for Business Analysis, a library and a conference room.

ORGANIZATION
Under the directorship of the president, the Institute operates
sections. Each section and its research subjects are as follows:

1. International Economic Studies

International Economics
International Monetary Economics

Maritime Economics
International Labor Relations
2. International Environmental Studies

Resource Development
International Organizations
International Industrial Adjustment

3. Comparatiye Economic Studies
Pacific Basin I(Oceanian Economy)
Pacific Basin II(North and South American Economics)
4. International Business Studies

with five researchComparative Business
Multinational EnterpriseInternational Business Finance

5. Management information Systems
Business and Accounting Information
Information Processing System
International Comparative'Statistics
Besides the regular work of the Institute, research committees may be created tobarry on special works requiring joint studies of academic and business circles. At

present, there are five standing research committees, as follows: Experts Group on

the World Trade Structure, Committee oC International Finance, Committee ofInformation Systems, Committee of Oceanian Ecbnomy and Committee of Maritime
Economics.
' For conyenience and greater eMciency in carrying out its research activities, theInstitute has a general othce which is responsible for 1) the collection and preservationof a comprehensive collection of books, periodicals, pamphlets, and original records
and data of finance, trade, commerce,.industry and business generally; 2) the classi-

fication, cataloguing, indexing arranging, annotation and compilation of theseresearch materials; and 3) the formulation and publication of the results of theinvestigations and studies accomplished by the professional staff members of theInstitute.

As an aMliated institute, the Documentation Center for Business Analysis has
been• established in 1964. It is the first systematic information facilities in the field of

business administration in Japan that has been recognized and authorized by the
Ministry of Education. The purpose is to collect and to make intensive control of all
kinds ofmaterials on business administration and to make them available to scholars,

universities, governments, and business world with the aid of modern documentation
techniques.

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RESEARCH INSTITUTE FORECONOMICS & BUSINESS ADMINISTRATIONKOBE UNIVERSITYit]

Director: Masahiro FuJiTA
Secretary: Hideo HAsHiMoTo

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INTERNATIONAL ECONOMIC STUDIESInternational Economics Prof. Hikoji KATANo
Assoc. Prof. Kazuhiro IGAVVAlInternational Monetary Economics Prof. Masahiro FuJiTAi

Maritime Economics Prof. Seiji SAsAKi

International Labor Relations Prof. Hiromasa YAMAMoTo
Prof. Kojiro NiiNo (associate
member, Faculty of Ecofiomics)
Assoc. Prof. Kazuo SHIMoMURAi

INTERNATIONAL ENVIRONMENTAL STUDIES

Resource Development Prof. Tetsuji SHiMoJoInternational Organizations Prof. Masahiro FuJiTA

iInternational lndustrial Adjustment Prof. Hiroshi SADAMrcHi
Prof. Akira NEGism (associatelimember, Faculty of Law)i

COMPARATIVE ECONOMIC STUDIES

Pacific Basinl Prof. Seiji SAsAKi(Oceanian Economy) Assoc. Prof. Kenichi lsHiGAKi

Pacific Basin ll Prof. Yoshiaki NismMuKAi

i(North and South American Economies) Assoc. Prof. Shoji NisHuiMA

INTERNATIONAL BUSINESS STUDIESi

Comparative Busjness Prof. Tadakatsu lNovE

i

Multiptational Enterprise Prof. Tadakatsu lNouE

i

Assoc. Prof. Hideki YosHiHARA

International Business Finance Prof. Isao NAKANo

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Prof. Akio MoRi (Assoeiate member,
Faculty of Business Administration)
Assoc. Prof. Hidetoshi YAMAlllii

MANAGEMENT INFORMA'IION SYSTEMSBusiness and Accounting lnformation Prof. Isao NAKANo

Inforination Processing System Prof. Nobuko NossEl[

Assoc. Prof. Komayuki ITowlInternational Comparative Statistics Prof. Nobuko NossE
OMoe: The Kanefnatsu Memorial Hall

KOBE U]NIVERSITYROKKO, KOBE, JAPAN

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