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Output Quality, Skill Intensity, and Factor Contents of Trade: An Empirical Analysis Based on Micro-Data of the Census of Manufactures

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Title: Vertical Intra-Industry Trade, Unit Values of Commodities, and Factor Contents: An Empirical Analysis Based on Micro-Data of the Census of Manufactures – PowerPoint PPT presentation

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Title: Output Quality, Skill Intensity, and Factor Contents of Trade: An Empirical Analysis Based on Micro-Data of the Census of Manufactures


1
Output Quality, Skill Intensity, and Factor
Contents of Trade An Empirical Analysis Based on
Micro-Data of the Census of Manufactures
  • WIOD Conference on Industry-Level Analyses of
  • Globalization and its Consequences
  • Technische Universitaet Wien, Vienna
  • May 26-28, 2010
  •   
  • Kyoji Fukao (Hitotsubashi University and RIETI)
  •  Keiko Ito (Senshu University)

2
1. Introduction
  • Recent studies on intra-industry trade (IIT) have
    brought to light rapid increases in vertical IIT
    (VIIT) (for example, see Fukao, Ishido and Ito
    (2003) and Schott (2004)).
  • Many theoretical models assume that developed
    economies export physical and human
    capital-intensive products of high quality and
    import unskilled labor-intensive products of low
    quality from developing economies.
  • Through this mechanism, an increase in vertical
    IIT may have a large impact on factor demand and
    factor prices.

3
1. Introduction (Contd.)
  • Empirical studies use information on the unit
    value of commodities as a proxy for product
    quality.
  • Most of empirical studies based on the unit value
    data take the positive relationships between
    commodity prices and factor intensities as given.
  • Yet, to the best of our knowledge, few studies
    have empirically examined the relationship
    between unit values of commodities and their
    factor contents at the factory level.
  • (Notes Some recent studies try to take
    quality difference among firms (plants) into
    account. ltQuality Heterogenous-Firms modelgt
    Baldwin Harrigan 2007 Kugler Verhoogen 2008
    Hallak Sivadasan 2009, etc.)

4
1. Introduction (Contd.)
  • The Purposes of this study is
  • - To develop a theoretical framework to
    estimate the relationship between the unit values
    of gross output and factor intensities
  • - To test whether factories that produce
    goods with a higher unit value tend to input more
    skilled labor and capital stock services, using
    micro data of the Census of Manufactures for
    Japan
  • -To calculate the factor contents of trade
    for Japan, based on the estimated relationship
    between the unit values and factor intensity.

5
2. Theoretical Analysis of Factor Contents in VIIT
  • We assume that factories, in order to produce
    commodities of a high quality, engage in
    production processes that are intensive in both
    skilled labor and capital.
  • Suppose that N commodities are produced in an
    industry. For each commodity, there is a
    continuum of different qualities.
  • Each commodity in our model corresponds to one
    product item in the most detailed commodity
    classification of production and trade statistics
    and that products that differ only in quality are
    not recorded as different products in the
    statistics.

6
2. Theoretical Analysis of Factor Contents in
VIIT (Contd.)
  • Each commodity, (n, q), is produced by a
    Leontief-type constant-returns-to-scale
    production function.

where LU, q, i, t, LS, q, i, t, Kq, i, t and Mq,
i, t denote unskilled (blue-collar) labor,
skilled (white-collar) labor, capital, and
intermediate input. Yq, i, t denotes the gross
output of factory i. a i, t denotes factory is
total factor productivity (TFP) level in
comparison with the industry average TFP level in
year t. We express elasticity values by ?Y(qi, t
de(qi, t))/(e(qi, t) dqi, t), ?S(qi, t df(qi,
t))/(f(qi, t) dqi, t), ?K(qi, t dg(qi,
t))/(g(qi, t) dqi, t), ?M(qi, t dh(qi,
t))/(h(qi, t) dqi, t), respectively.
7
2. Theoretical Analysis of Factor Contents in
VIIT (Contd.)
  • From our production function, we have the
    following factor demand relationships

We assume that the price elasticity of demand for
each factorys output in this industry is
constant and takes the same value for all
factories producing commodity n.
8
2. Theoretical Analysis of Factor Contents in
VIIT (Contd.)
  • From an unit production cost function and
    constant mark-up ratio, we have the following
    relationship between p and q.

By making a linear approximation of equation
(3.3) and subtracting average values across all
factories from both sides of the equation, we have
9
2. Theoretical Analysis of Factor Contents in
VIIT (Contd.)
10
2. Theoretical Analysis of Factor Contents in
VIIT (Contd.)
where
11
2. Theoretical Analysis of Factor Contents in
VIIT (Contd.)
Since we assume constant returns to scale and a
constant mark-up ratio, we have the following
identity among the coefficients of the above four
equations.
This constraint means that a one percent increase
in the unit price of output corresponds to a one
percent increase in the unit production cost. We
estimate the four equations under the constraint
(3.19) using SUR techniques.
12
3. Factor Contents in Japans VIIT
  • Using equations (3.15) and (3.18), we can express
    the ratio of the white-collar labor input to the
    output quantity for a factory which produces
    commodity (n, q) as follows

where cn, t denotes a commodity- and
year-specific constant term. Let fD, n, t(pt)
denote the distribution function of output
quantity by all the factories producing commodity
n in Japan over unit value p. Then, we can derive
the following equation from the above equation
13
3. Factor Contents in Japans VIIT (contd.)
  • In a similar way, we can derive

14
4. Data
  • Census of Manufactures for Japan
  • - Larger Establishment Sample all mfg.
    plants with 30 or more employees
  • - 6-digit commodity level information on
    shipment and quantity ? Unit values can be
    calculated for 800 commodities out of 2,000
    commodities
  • - Number of blue-collar and white-collar
    workers available for years 1981, 1984, 1987, and
    1990.
  • Trade Statistics for Japan
  • - Values and quantities of exports and
    imports at the HS 9-digit commodity level (7,000
    commodities for exports and 9,000 commodities for
    imports)

15
4. Data (contd.)
  • To estimate the relationship between the unit
    value of gross output and factor intensities, we
    select only single-product establishments, which
    we define as establishments where one commodity
    accounts for more than 60 of total shipments.
  • By using the unit value and factor intensity
    information taken form the CM and the TS, we
    calculate the factor contents of Japans trade,
    taking account of quality (price) difference
    between exported and imported goods.

16
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17
5. Empirical Results on the Relationship between
Output Unit Values and Factor Intensities
  • Estimate equations (3.15)-(3.18) by SUR
    estimations subject to the constraint expressed
    by equation (3.19)----using factory-level data
    from the Census

18
5. Empirical Results on the Relationship between
Output Unit Values and Factor Intensities Basic
Result
19
5. Empirical Results on the Relationship between
Output Unit Values and Factor Intensities TFP
controlled
20
5. Empirical Results on the Relationship between
Output Unit Values and Factor Intensities
Estimation without the Constraint
21
5. Empirical Results on the Relationship between
Output Unit Values and Factor Intensities based
on data of factories belonging to firms with no
additional factory and whose headquarters are
located in the same place
22
5. Robustness checks Relationship between Unit
Production Costs and Factor Intensities
23
5. Robustness checks Relationship between Output
Unit Values and Factor Intensities including
Multi-Product Establishments
24
6. Calculated Factor Contents in VIIT (contd.)
  • Using unit value information taken from the CM
    and the trade statistics as well as data on
    factor intensities, we estimate the factor
    contents of Japans VIIT.
  • For number of white-collar workers embodied in
    Japans exports for commodity n are calculated
    as

Unknown
Estimated
25
6. Calculated Factor Contents in VIIT (contd.)
  • Assuming that fE, n, t(pn, t) and fI, n, t(pt)
    follow a log normal distribution,
  • µE log of unit value of Japans exports
  • µD average of the factory-level unit values in
    logarithm
  • sE standard deviation of the distribution
    functions of exports
  • sD standard deviation of the distribution
    functions of all shipments by single-product
    factories

26
6. Calculated Factor Contents in VIIT (contd.)
  • Due to data constraints, we use average unit
    value differences (µE µD, µI µD) at the broad
    industry level.
  • Average difference between ln(unit value for
    exporting factories) and ln(unit value for
    non-exporting factories), calculated using the CM
    for 2001-2004.
  • Average difference between ln(export unit value)
    and ln(import unit value), calculated using the
    TS
  • We assume that sE sI sD

27
Table 7. Difference in average unit values
  • Estimate relative unit values for domestic
    shipments, exports, and imports

28
Tables 8 9. Estimated factor contents of net
exports
LS 7,000 persons (1.5) LU 5,000 persons (2) K
41 bil. yen (0.4)
LS 16,000 persons (10) LU -21,000 persons
(-18) K 310 bil. yen (2)
29
7. Conclusion
  • As for the relationship b/w the unit value of a
    product and its white-collar labor intensity, the
    significant and positive relationship we find is
    important empirical evidence which supports the
    assumption widely employed in theoretical models.
  • On the other hand, we find that the widely
    employed assumption that commodities with higher
    prices are more physical capital-intensive does
    not always hold.
  • The results of the factor contents of trade
    estimation suggests that the implication of
    international trade on the domestic factor
    markets should be very different if we take
    account of VIIT.

30
8. Extensions
  • Incorporate headquarter-level data in our
    analysis in order to take account of white-collar
    tasks provided by headquarters. ? Using
    information from Kigyo Katsudo Kihon Chosa
    (BSBSA)?
  • What is the definition of skill? ? We may use
    the wage information as a proxy of skill.
  • Distinguish between intra-firm trade and
    inter-firm trade? ? If we can match the trade
    statistics with the firm- or plant-level data, it
    would be possible. (c.f. France, U.S.)
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