Distance and Home-market Distance and Home-market Effect: Japanese Local Port Trade Effect: Japanese Local Port Trade

with the Asia Region with the Asia Region

Yushi Yoshida

Faculty of Economics

Kyushu Sangyo University

Objectives of the Paper

We aim to investigate empirically an international trade structure of local ports. Why? (We do have a dataset!!!)

local port trade vs. national trade distance

distance from local ports vs. distance from Tokyo Industrial trade structure across region

not all industries are concentrated in Tokyo

Background economic geography

agglomeration and dispersion of industry FDI

FDI vs. exports (proximity-concentration)export-platform FDI

gravity modeldistance measure

distance between the capitalscomparative advantage vs. increasing returns

home-market effect

Economic Geography agglomeration and dispersion of industry

increasing returns and transportation cost Krugman (1991) and Puga and Venables (1996)

agglomeration (externalities among manufacturing firms)

forward linkage and backward linkagedispersion (real wage differentials)

maybe some other factors, too

Foreign direct investment FDI vs. exports

proximity-concentration hypothesis Brainard (1997)

substitution or complementary vertical FDI and horizontal FDI

export-platform FDI North-North and North-South

Motta and Norman (1996) and Yoshida and Ito (2006)

Why not to invest in domestic regions? less costly because

no additional headquarters more coordination and adjustments between domestic plants and maybe still reduce transportation cost

Gravity Model distance measure

distance between the capitals If “distance” matters then we should be more careful measuri

ng “distance”. distance measured from Japanese local ports should be more sensitive among the Asia

comparative advantage vs. increasing returns home-market effect by Krugman (1980)

single location of production (scale of economy) production in a larger economy (reduction of trade cost)

many empirical papers Davis and Weinstein (1999, 2003) and Feenstra et al. (2001)

Export-platform dispersion effect

Core region:

agglomeration effect for domestic market

periphery regions

Importing country

Export-platform dispersion effect

Data (Japanese local port exports) Custom port export data

by the Ministry of Finance, Japan by HS9-digit products, by destination country sample: 1990 – 2004 (annual) dispersed files (over 500 files for each port) and huge

size (over 7,000 HS9 products times over 100 countries)

constructing our dataset Major 6 ports out of

209 offices (9 major headquarters, 67 branches) 9 Asian countries as importers HS4-digit aggregation (We had to make a original

program!!)

Selected Japanese local portsSelected Japanese local ports

Tokyo

Yokohama

Nagoya

Osaka

Kobe

Fukuoka

China

Hong Kong

Taiwan

Korea

Singapore

Malaysia

Thailand

Philippines

Indonesia

Figure 1: Ratio of Tokyo Exports to J apanese National Exports

0.0000.0200.0400.0600.0800.1000.1200.1400.1600.1800.200 Total

CHNHKGTWNKORSNGMALTHLPHLIDN

Export share index for Tokyo

Not much different from average tendency to export to the world (Total)

Export share index for FukuokaFigure 6: Ratio of Fukuoka Exports to J apanese National Exports

0.0000.0200.0400.0600.0800.1000.1200.1400.1600.180

TotalCHNHKGTWNKORSNGMALTHLPHLIDN

higher tendency to export more to Korea and Taiwan!!!

Data (Income variables)

(Billion Yen)Tokyo Kanagawa Aichi Osaka Hyogo Fukuoka

1990 22,846 28,045 36,620 24,553 15,424 7,7112004 11,199 18,566 36,814 15,961 12,945 7,332

(Billion Yen)China Hong Kong Taiwan Korea Singapore Malaysia Thailand Philippines Indonesia

1990 55,455 10,922 23,629 36,578 5,343 6,374 12,357 6,416 16,5682004 209,515 17,943 36,510 73,624 11,631 12,817 17,494 9,381 27,513

Table 1: Values of manufactured goods shipments for J apanese prefectures

Source: "Value of manufactured goods shipments" from various issues of Census of Manufactures.

Table 2: Gross domestic products for 9 Asian economies

Note: data are constructed from GDP in national currency and national currency per US dollars fromInternational Financial Statistics, IMF. We used Taiwan Statistical Databook (2006) for Taiwan GDP andTaiwanese exchange rates.

Data (distance variable)

Latitude 34.68 34.67 35.17 35.45 35.70 33.58Longitude 135.17 135.50 136.92 139.65 139.77 130.40

City Kobe Osaka Nagoya YokahamaTokyo Fukuoka(Hyogo) (Osaka) (Aichi) (Kanagawa) (Tokyo) (Fukuoka)

Lat. Longi. City39.90 116.41 Beijing (China) 1752 1781 1922 2096 2137 142722.28 114.15 HongKong (HongKong) 2464 2490 2582 2867 2845 202625.02 121.45 Taipei (Taiwan) 1700 1724 1804 2091 2062 128737.57 127.00 Soul (Korea) 800 828 969 1153 1188 5391.29 103.86 Singapore (Singapore) 4927 4949 5011 5295 5253 45283.17 101.70 KualaLumpur(Malaysia) 4960 4983 5056 5342 5306 454413.75 100.52 Bangkok (Thailand) 4178 4204 4301 4586 4565 373214.58 121.00 Manila (Philippines) 2646 2662 2699 2972 2920 2314- 6.17 106.80 J akarta (Indonesia) 5426 5444 5485 5759 5706 5068

Table 3: Distance between Asian cities and J apanese cities (kilometers)

Note: latitude and logitude data are drawn from Heavens- Above GmbH, (http:/ / www.heavens- above.com) and surfacedistance between two cities are calculated via J ava programm maintained by Dr. J ohn Byers(http:/ / www.wcrl.ars.usda.gov/ cec/ java/ lat- long.htm).

Soul-Tokyo is more than two folds of Soul-Fukuoka. Only 13% more in the case of Jakarta.

gravity regression (aggregate)

Panel data analysis in logarithmic form (income of ports and importing

country and distance) Dummy variables

All samples By importing country (Maybe the distance effects

are different between Soul and Jakarta.)

ijtjiijjtitijt LDISTLCGDPLPGDPLEXP

gravity regression (aggregate exports)Table4: Local port export regressions with aggregate export value

LPGDP LCGDP LDIST adj R2 NOB

Total 0.682*** 0.901*** - 1.388*** 0.78 810(0.118) (0.067) (0.199)

China - 0.769*** 0.953*** 0.214 0.90 90(0.292) (0.090) (0.477)

Hong Kong 0.494** 0.555*** - 0.550 0.85 90(0.209) (0.130) (0.366)

Taiwan 0.841*** 0.793*** - 1.429*** 0.76 90(0.215) (0.188) (0.476)

Korea 0.704** 0.669*** - 1.294** 0.68 90(0.268) (0.165) (0.570)

Singapore 1.760*** 0.553*** - 1.964*** 0.76 90(0.269) (0.142) (0.415)

Malaysia 1.430*** 0.799*** - 1.946*** 0.84 90(0.246) (0.150) (0.401)

Thailand - 0.111 1.101*** - 0.568 0.83 90(0.213) (0.230) (0.408)

Philippines 0.292 1.419*** - 1.454** 0.65 90(0.305) (0.243) (0.574)

Indonesia 0.899*** 0.893*** - 1.616*** 0.86 90(0.257) (0.157) (0.401)

Note: Figures in parenthesis are standard error and "***", "**", and "*" represents statistical significance at one, five and ten percent, respectively. The results for port and country dummies are suppressed.

Preliminary Result

With all samples, Income and distance coefficients are all statistically significant.

Strong evidence of distance effect driven by differences in local ports locations!!!not significant for China and Hong KongMaybe, the effects are different among

industries?

gravity regression (by industry)

Panel data analysisby HS-2 digit industry classification (95 industr

ies)

Home-market effect (Feenstra et al. (2001))

ijtkjiijjtitijkt LDISTLCGDPLPGDPLEXP

0),(

CovHME

Preliminary Result (by industry)

Distancerange from -6.4 to +6.9(out of 95 industries)

negative coefficients (78) statistically significant at 10% level (60)

Home-market effect37 industries (significant at 10% level)

Distance impact, Asia intensity, and home-market effect What determines the degree of distance

effect for each industry?ASIA9RATIO (expected sign: negative)

Stronger distance effect for an industry with trades concentrated in the Asia?

Home-market statistics (proxy for product differentiation)

theoretical background: Home-market effect for product differentiated products

Data (Asia trade intensity)Table 6: The ratios of J apanese exports for 9 Asian economies to total exports

HS2ASIA9RATIO HS2ASIA9RATIO HS2ASIA9RATIO HS2ASIA9RATIO HS2ASIA9RATIO1 0.28 20 0.41 40 0.22 60 0.74 80 0.702 0.73 21 0.50 41 0.73 61 0.63 81 0.313 0.44 22 0.48 42 0.45 62 0.41 82 0.334 0.58 23 0.51 43 0.62 63 0.54 83 0.335 0.63 24 0.73 44 0.53 64 0.73 84 0.336 0.28 25 0.70 45 0.73 65 0.05 85 0.417 0.62 26 0.47 46 0.30 66 0.65 86 0.268 0.53 27 0.59 47 0.72 67 0.56 87 0.109 0.37 28 0.50 48 0.52 68 0.42 88 0.0210 0.16 29 0.42 49 0.32 69 0.39 89 0.1311 0.73 30 0.17 50 0.43 70 0.53 90 0.3112 0.37 31 0.49 51 0.75 71 0.53 91 0.5713 0.46 32 0.53 52 0.62 72 0.59 92 0.1614 0.63 34 0.65 53 0.66 73 0.35 93 0.0015 0.39 35 0.42 54 0.49 74 0.70 94 0.3216 0.52 36 0.11 55 0.56 75 0.54 95 0.2317 0.59 37 0.27 56 0.47 76 0.63 96 0.2918 0.65 38 0.48 57 0.43 78 0.70 97 0.1519 0.45 39 0.55 58 0.64 79 0.66

59 0.56

Smallest ratio: 0.05 for headgear (65) and 0.02 for aircraft (88): largest ratio: 0.75 for wool and other fabrics (51): important industries: 0.33 for general machinery (84), 0.41 for electrical machinery (85) and 0.10 for automobile (87)

dependent variable: estimated distance elasticity

(1) (2)

constant 0.085 0.579(0.595) (0.574)

ASIA9RATIO - 2.861** - 2.821**(1.184) (1.109)

HME - 0.054(0.044)

D_HME - 1.704***(0.451)

NOB 95 95adj R2 0.05 0.17

Note: D_HME takes value one if HME is larger than 2.326 which is one percentsignificant level for the number of observations used in gravity model regressions.Figures in parenthesis are standard error and "***", "**", and "*" represents

Table 7: Distance, Asia Intensity, and Product differentiation

Main results ASIA9RATIO (significant and negative)

consistent with our motive that locations of exporting ports should matter when partner country is proximate!!!

D_HME (significant and negative) For an industry with product differentiation, it is more

likely to shift production (for export) to local region more proximate to final markets.

compromise between reducing transportation cost and realizing scale of economy at firm level (not plant level) within the boundary of a country.

Conclusion

Differences in locations of exporting ports do matter if final markets are proximate to the exporter (for both aggregate and industry trade.)

Asia intensity and product differentiation strengthen distance effect in gravity model.

These results are consistent with our suggested framework of the export-platform dispersion effect for an industry.

An excerpt from newspaper article

“Toyota Automobiles Kyushu newly established an engine plant in Kanda, Fukuoka in April of 2006. This is the first Toyota engine plant in Japan ever built outside of Aichi prefecture. The president of TAK responded to interviewers that easiness in recruiting able employees due to slack labor market condition and potentiality for future export-platform are for the reason expanding production in Fukuoka.” Nikkei Newspaper, p14, April 19, 2006

Thank You !!!