Welfare Aspects in the Realignment of Commercial Framework. between Japan and China

Transcription

1 Prepared for the 13 th INFORUM World Conference n Huangshan, Chna, July 3 9, 2005 Welfare Aspects n the Realgnment of Commercal Framework between Japan and Chna Toshak Hasegawa Chuo Unversty, Japan Introducton As Chnese economy has grown to have an great nfluence on the advance economes, not only the Unted States and EU, but Japan also has notced to make the realgnment of commercal framework between Japan and Chna. In our prevous paper 1, we made an analytcal framework to lnk two countres natonal models and a tentatve smulaton n a lmted data exchange, where we had a smulaton of Free Trade Arrangement to remove mport tarffs. Current project could buld the lnkng model to have the data exchange mutually wth the teraton at each tme perod 2. The analyss n ths paper s to evaluate the several polcy alternatves n a welfare aspect for Japanese economy. Welfare s measured wth the concept of Equvalent Valuaton whch s employed by CGE modelers n ther analyses. However, t s meanngful that the equvalent valuaton s observed effectually n a dynamc context of long-term economc fluctuaton. The paper focuses on a specfc ndustry n Japanese tradable sectors, Textle whch s a bggest mportng sector among Chnese products. Even f the textle ndustry lost the equvalent valuaton as a polcy alternatve, there mght be the net gan of equvalent valuaton n a whole economy. For observng the welfare mpacts of polcy alternatves, ths paper examnes the dfferent equvalent valuatons of three cases of tarff removal n Japan, mutual tarff removal and of the exchange rate apprecaton of Chnese Yuan for the textle ndustry. In order to respond to such requrement, JIDEA model has been well prepared n a framework of INFORUM system 3. 1 Toshak Hasegawa, Yasuhko Sasa, Takesh Imagawa, Mtsuhto Ono, Japan-Chna regonal economc ntegraton and Asan economc growth: Influence on Japanese economy, prepared for the 12th INFORUM World Conference, Ascea, Italy, Mtsuhto Ono, et al. Smulaton of Japan-Chna Regonal Economc Arrangement, and Ynchu Wang, The Impact of Free Trade between Chna and Japan on Chnese Economy. Both papers were prepared for the 15th Internatonal Input-Output Conference, Bejng, Chna, June 27-July 1, Also, refer to M. Ono, Y. Sasa, T. Imagawa, T. Hasegawa, K. Shrash, Smulaton of Japan-Chna Regonal Economc Arrangement, and Ynchu Wang, The Lnkage between MUDAN and JIDEA, presented n the 13 th INFORUM Internatonal Conference, July 3-9, 2005, Huangshan, Chna. 3 See INFORUM webpage; 1

2 Equvalent Valuaton n a dynamc context In order to measure the prce and the quantty changes of an ndustry s product as an ndex, Laspeyres quantty ndex 4, L Q, s useful. Orgnal Laspeyres quantty ndex, L Q, s defned as follows; p q 0 1 LQ = 0 0 p q (1), where (0) and (1) denote the base year and the compared year n the prce p and the quantty q n the -th ndustry, respectvely. At the base year (0), the nomnal demand s equal to the real demand n number. In order to compare the welfare change between the base year and the compared (gven) year (1), the equvalent valuaton, E.V., defned along the crteron of Laspeyres quantty ndex s the key concept n ths paper. E. V. p q (2). 0 1 = p q 0 0 If we adopted 1.0 for the prce ndex at the base year, equvalent valuaton becomes the matter to deal wth the quantty n terms of the base year. In a dynamc long-term analyss, f we want to dentfy the part of economc change tself caused by the specfc polcy, we have to remove the part of demand ncrease (or decrease) caused by the economc change over tme under the baselne condton. Therefore, the above formula of equvalent valuaton, E.V., should be rewrtten for the partcular sector as follows, L Q p q q = (3) , (, sm1, ) 0 0 p, q, In ths context, we should use the followng rewrtten formula of equvalent valuaton for the -th ndustry; 4 Total demand nomnal values of demand at the base year and the compared year n a changng economy n the prce, the quantty, and the ncome are expressed as follows.; p q 0 0 vs., where 0 ; the sum of the prce tmes the quantty for the -th goods at the base year (0), respectvely. And also, p 1 q 1 p q 0 p 1 q 1 s the sum of the prce tmes the quantty for the -th goods at the compared year (1), respectvely. 2

3 E V. p, ( q, SM q, ) p, q, = (4). Summed up the above -th ndustry for =1,2,,n, we reach the followng total equvalent valuaton for the specfc polcy denoted by SM compared wth the changed baselne denoted by n the whole economy p, ( q, SM q, ) 0 0 T. E. V. = p q (5).,, In a dynamc long-term analyss, the demand curve mght be depcted as an envelope of the short-term demand curves. The composte ntersecton of each supply and demand curve over tme s possble to move toward any drecton from the pont of the ntal equlbrum under the varous economc condtons. In the analyss of nternatonal trade, the mport demand curve s nduced by subtractng the domestc supply from the domestc demand horzontally at each prce. Such excess demand curve, that s, the mport demand curve, n the dynamc context, s shown n Fgure1. 3

4 In Fgure 1, the mport quantty, mp, s depcted n the horzontal axs, whle the vertcal axs shows the mport prce, pm. The ntal value of mport demand shown by the product pm(t)*mp((t) at the pont e0, where the mport tarff was mposed on ths ndustry. (t) denotes tarff nclusve, whle (0) denotes tarff removed poston. We can expect that the mport tarff removal leads to the prce drop down to pm(0) and the mport demand ncrease, mp(0),.e., the compared value of mport demand, pm(0)*mp(0). The equvalent valuaton n ths Fgure 1 s equal to the product pm(t)*{mp(0)-mp(t)} n terms of the prce of base year. If the prce was taken as the ndex based on the based year (t), the evaluaton equvalent s just equal to pm(t)*{mp(t)-mp(0)}. We can regard the prce ndex as a basc unt of currency, such lke 1 Japanese Yen n terms of the base year. Gven pm(t)=1.0, the evaluaton equvalent s just equal to {mp(t)-mp(0)}. In a dynamc context, where we analyzed Regonal Trade Arrangements n terms of the lnkng model of Japanese model, JIDEA verson 5.1s, and Chnese model, MUDAN verson 3.0, the prce and the quantty of mport demand change over tme wthout the polcy change. In both models, we ntroduced the same notatons to gve and take the trade data. In Fgure 2, JAmpCNr mples Japanese mport from Japan n 1995 constant prce. And, JApmCNr mples Japanese mport prce from Chna. Ths s llustrated as a case of Baselne, from the pont e0 to the pont e1. Polcy 4

5 change such lke a tarff removal for the Chnese products n Japan shfts the lne e0 to the lne e0sm. Because we use the prce ndex n the vertcal axs, JApmCNr(t) s equal to 1.0. Equvalent valuaton n the case of ths polcy change s shown as the area of followng equaton (6) accordng to the defnton of the above equaton (5). E.V.=JApmCN(t)*{JAmpCNr(0)SM-JAmpCNr(0)}-JApmCNr(t)*JAmpCNr(t) ={JAmpCNr(0)SM-JAmpCNr(0)}}-JAmpCNr(t) (6) where JApmCNr(t)= JApmCNr(t)SM=1. Equvalent valuaton measured n equaton (6) mples not only the amount of quantty change of mport, but also the money term of mport change, also, measured n a base year. Japanese mport of Chnese Textle Textle and Clothng ndustres among Japanese JIDEA model wth 100 ndustry sectors and 63 tradable sectors mght be ntegrated as one Textle ndustry for the concern n ths paper. The reason why we focus on the textle mport from Chna to Japan s that t corresponds to 31% of Japanese mport from Chna n 2003, one of the largest mportng sector. The followng Fgure 3 and Table 1 compled by MOF-JETRO trade data s slghtly dfferent from our JIDEA trade data taken from INFORUM-BTM data, shows us the mportance of Textle trade between Japan and Chna. Fgure 3 Japanese textle trade wth Chna Japanese textle trade wth Chna US$ bllons total export export of textle yarns & fabrcs total mport mport of textle yarns & fabrcs Source: Fgure was depcted by the author wth use of trade statstcs from the mnstry of fnance compled by 5

6 JETRO. Table 1 Share of textle yarns and fabrcs n the total Japanese trade wth Chna export share of textle mport share of textle Source: Author processed the orgnal data of trade statstcs of the mnstry of fnance compled by JETRO. Japanese tarff data released by Mnstry of Fnance has the precse nformaton about the mport tarffs, but ts product classfcaton s qute dfferent from the one of Input-Output table n Japan, wth multple crterons of tarff mposng system. In the prevous paper, such complcated tarff data was ntegrated n a 100 sector framework of JIDEA model 5. As far as we confne the tarff protecton to compare wth tarff revenue, textle ndustry receves 76.5% of total tarff protecton n our analyss. After the expraton of quota scheme n the Mult Fber Arrangement, MFA, of WTO, Chnese export of yarns and clothng has severely flooded nto EU and the Unted States. In such a strongly protected ndustry, how largely would some polcy arrangement between Japan and Chna nfluence on the ndustry concerned? Also, how largely would some polcy arrangement between Japan and Chna nfluence on the whole economy? How severely nfluenced by the prce change of mport product from Chna? The prce change of mport product from Chna would occur n several channels. In ths paper, the frst channel s supposed to occur n Japan by the whole tarff removal for all mportng products from Chna, whch s named as smulaton 1. The second channel occurs n the case whch both countres take the tarff removal, but 10% cut of current tarff level n Chna, whch case s named as smulaton 3, sm3. We consdered the exchange rate apprecaton of Chnese Yuan as the thrd case, where s named as smulaton 4, sm4. In smulaton 4, we estmated how largely 10% apprecaton of Chnese exchange rate would nfluence on our textle ndustry. All polcy alternatves were assumed to be ntroduced n For Japanese mporters, they face to the prce of Chnese made products n the followng contents: JApmCN = (1+tm)*[{JPY*pj(t-1)/pj(t)} / pc(t-1)/pc(t) ] (7) where tm s the tarff rate on Chnese products n Japan. That s, the above expresson mples the real exchange rate ncluded tarff rate. Ths expresson may nfluence on the behavor of Japanese mport from Chna. Fgure 4 shows the nomnal and the real exchange rate of Chnese Yuan to Japanese Yen, where the latter was calculated wth use of both countres CPI. In the smulaton of sm4, we assumed the case of both sde prce changes n Japanese economy, 5 T. Hasegawa et al, (2004), bd. 6

7 JApmCN and JApexCN. Table 2 shows the mport prce ndexes of the baselne and three alternatve polces n the results of JIDEA smulaton. The equvalent valuaton requres the use of the mport prce n the base year, whch s shown at the frst lne n a bound block. In any cases, the mport prce n textle ndustry do not move so much as compared wth other bound sectors; total ndustry and manufacturng ndustry. It s controvertble to see that the sze of prce fall n Textle ndustry s much smaller than the sze of prce falls n the total economy and the manufacturng ndustry. Fgure 4 Fluctuaton of Chnese exchange rate Yuan to Japanese Yen JPY per CHYuan real exchange rate of Yuan/JPY Table 2 Import Prce Index, JApmCN (to be nserted here from the last page) 7

8 In the smulaton of lnkng model between JIDEA and MUDAN, we could get the welfare ndex n the specfc felds n Japanese economy. Three alternatves of commercal polces have dfferent sze n equvalent valuaton. Most small nfluence was occurred n the case of sm1. sm3 and sm4 are almost same nfluences n equvalent valuaton, whch are much attractve alternatves for the whole Japanese economy. Also, these alternatves have the dfference of wthn 0.1 mllon employment ncrease n total ndustry. Probably, the hgher effects of smulatons of sm3 and sm4 wll occur n Chnese economy than n Japanese economy, because t seems that Chna has the hgher level of mport tarff compared wth Japanese mport tarff. In Table 4, we gve the employment level for the baselne and each smulaton by the aggregated sector. The employment share of textle ndustry n total ndustry s only 1.98% n Such a small part of ndustry n Japanese economy has been subsdzed n a relatvely hgh tarff protecton. 8

9 Table 3. Import prce ndex, JApmCN Totalndustry sm sm sm Agrculture,F orestry & F shery sm sm sm TotalM anufacturng sm sm sm Textle sm sm sm Note:F rst lnes n each sector block denote the prce ndex of baselne n JIDEA. S econd lnes denote the prce ndex caused by Japanese m port tarff rem oval. T hrd lnes denote the com poste case of sm 1 plus 10% lum psum cut of C hnese m port tarffs. F ourth lnes denote the prce ndex of the case of 10% C hnese Yuan Apprecaton. 9