Japan Project Meeting
July 26 and 27, 2013
Raymond Fisman, Columbia University and NBER, and Yasushi Hamao and Yongxiang Wang, University of Southern California
Fisman, Hamao, and Wang study the impact of interstate tensions on international economic relations by analyzing market reaction to adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high Chinese exposure suffer relative declines during each event window; a symmetric effect is observed for Chinese companies with high Japanese exposure. The effect on Japanese companies is less pronounced for labor-intensive firms and more pronounced for those operating in industries dominated by Chinese state-owned enterprises; the impact on Chinese firms is primarily on consumer-focused companies. These results highlight the role of institutional context and its effect on the impact of interstate frictions on economic outcomes.
Mathias Hoffmann, University of Zurich, and Toshihiro Okubo, Keio University
Regional differences in banking integration determined how Japan's Great Recession after 1990 spread across the country. Hoffmann and Okubo explain these differences using the example of the emergence of silk reeling as the main export industry after Japan's opening to trade in the 19th century. The silk-exporting prefectures developed a system of export finance centered on local, cooperative banks, which preserved their dominant local positions long after the decline of the silk industry. The authors' findings suggest that different pathways to financial development can lead to long-term differences in de facto financial integration, even if there are no formal barriers to capital mobility between regions.
Tsutomu Watanabe, University of Tokyo; Satoshi Imai, Statistics Bureau of Japan; and Chihiro Shimizu, Reitaku University
The consumer price inflation rate in Japan has been below zero since the mid-1990s. However, despite the presence of a substantial output gap, the rate of deflation has been much smaller than that observed in the United States during the Great Depression. Hence, doubts have been raised regarding the accuracy of Japan's official inflation estimates. In this paper, Imai, Shimizu, and Watanabe investigate the extent to which estimates of the inflation rate depend on the methodology used: specifically, on the method of outlet, product, and price sampling employed. The authors use daily scanner data on prices and quantities for all products sold at about 200 supermarkets over the last 10 years. They regard this dataset as the "universe". Virtual price collectors are sent out to conduct sampling following more than 60 different sampling rules. The authors find that the officially released outcome can be reproduced when employing a sampling rule similar to the one adopted by the Statistics Bureau. However, they obtain numbers that are quite different from the official ones when they employ other rules. The largest rate of deflation the authors find using a particular rule is about one percent per year, which is twice as large as the official number, suggesting the presence of substantial upward bias in the official inflation rate. Nonetheless, the results show that the rate of deflation over the last decade is still small relative to that in the United States during the Great Depression, indicating that Japan's deflation is relatively moderate.
John Tang, Australian National University
Railroads in Meiji Japan are credited with facilitating factor mobility as well as access to human and financial capital, but the impact on firms is unclear. Using a newly developed firm-level dataset and a difference-in-differences model that exploits the temporal and spatial variation of railroad expansion, Tang assesses the relationship between railways and firm activity across Japan. His results indicate that railroad expansion corresponded with increased firm activity, particularly in manufacturing, although this effect is weaker in less populous regions. The findings are consistent with industrial agglomeration in areas with larger markets and earlier development among both new and existing establishments.
Ayako Kondo, Yokohama National University, and Hitoshi Shigeoka, Simon Fraser University
Facing a rapidly aging population and the resulting pressure on its social security system, the government of Japan revised the Elderly Employment Stabilization Law (EESL) to ensure that older people can prolong employment. Starting in 2006, employers were legally obliged to introduce a system to continue employment up to the pension eligibility age, which had begun to rise five years earlier. Kondo and Shigeoka examine the effect of this legal enforcement on elderly men's labor supply and employment status by comparing the affected cohorts and those who are a few years older. The authors find that the EESL revision increased the employment rate of men in the affected cohorts in their early sixties. Also, this increase in elderly workers who stay with the same employer does not decrease the number of elderly workers who switch employers, suggesting that the revised EESL does not hinder elderly workers' mobility.
Jiro Yoshida, Pennsylvania State University, and Ayako Sugiura, Tokyo Association of Real Estate Appraisers
This paper analyzes the transaction prices of green buildings when green factors are multidimensional. Yoshida and Sugiura develop a present value model that demonstrates that green buildings can have lower market values than similar non-green buildings, depending on the green factors. In particular, if a green building has a higher life-cycle cost and a longer economic life, the initial green premium can be negative, but becomes positive as the building ages. The authors confirm this prediction empirically using data on green condominiums in Tokyo, which are designed to have a longer economic life. They also find that some green factors are associated with price discounts. Although the long-life design is associated with a price premium, energy saving, water recycling, the use of eco-friendly materials, and renewable energy are associated with discounts.
Takao Kato, Colgate University; Daiji Kawaguchi, Hitotsubashi University; and Hideo Owan, University of Tokyo
Kato, Kawaguchi, and Owan provide new evidence on the nature and causes of the gender pay gap using confidential personnel records from a large Japanese chemical manufacturing firm. Controlling only for human capital variables, they find the gender pay gap is substantial: 16% for unmarried workers and 31% for married workers. However, when also controlling for job levels (promotion) and hours worked, much of the unaccounted gender pay gap is eliminated. The authors' analysis of hours and promotion uncovers the presence of a significant career penalty associated with maternity. Yet, they also find that this maternity penalty will be reduced if the worker returns promptly from her parental leave and maintains regular work hours. Furthermore, working long hours is found to be much more strongly associated with women's promotion prospects than those for men. The authors' findings point to the importance of women's ability to signal their commitment to work (or the level of family support they receive) - through working long hours and taking shorter parental leave - if they wish to advance their careers.
Mary Amiti, Federal Reserve Bank of New York, and David Weinstein
Amiti and Weinstein show that supply-side financial shocks have a large impact on firms' investment. They develop a new methodology to separate firm-borrowing shocks from bank supply shocks using a vast sample of matched bank-firm lending data. The authors decompose loan movements in Japan for the period 19902010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks. As a result, bank supply shocks - that is, movements in the supply of bank loans net of borrower characteristics and general credit conditions - can have large impacts on aggregate loan supply and investment. The authors show that these bank supply shocks explain 40 percent of aggregate loan and investment fluctuations.