1. Distance and Home-market Effect: Japanese Local Port Trade with the Asia Region Yushi Yoshida Faculty of Economics Kyushu Sangyo University

2. 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

3. Background economic geography  agglomeration and dispersion of industry FDI  FDI vs. exports (proximity-concentration)  export-platform FDI gravity model  distance measure distance between the capitals  comparative advantage vs. increasing returns home-market effect

4. 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 linkage  dispersion (real wage differentials) maybe some other factors, too

5. 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

6. Gravity Model distance measure  distance between the capitals If “distance” matters then we should be more careful measuring “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)

7. Export-platform dispersion effect Core region: agglomeration effect for domestic market periphery regions Importing country Export-platform dispersion effect

8. 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!!)

9. Selected Japanese local ports Tokyo Yokohama Nagoya Osaka Kobe Fukuoka China Hong Kong Taiwan Korea Singapore Malaysia Thailand Philippines Indonesia

10. Export share index for Tokyo Not much different from average tendency to export to the world (Total)

11. Export share index for Fukuoka higher tendency to export more to Korea and Taiwan!!!

12. Data (Income variables)

13. Data (distance variable) Soul-Tokyo is more than two folds of Soul-Fukuoka. Only 13% more in the case of Jakarta.

14. 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.)

15. gravity regression (aggregate exports)

16. 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 Kong  Maybe, the effects are different among industries?

17. gravity regression (by industry) Panel data analysis  by HS-2 digit industry classification (95 industries)  Home-market effect (Feenstra et al. (2001))

19. Preliminary Result (by industry) Distance  range from -6.4 to +6.9  (out of 95 industries) negative coefficients (78) statistically significant at 10% level (60) Home-market effect  37 industries (significant at 10% level)

20. 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

21. Data (Asia trade intensity) 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)

23. 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.

24. 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.

25. 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

26. Thank You !!!