Endogenous transport price and international R&amp;D rivalry

Takauchi, Kazuhiro

doi:10.1016/j.econmod.2014.12.019

Cited by 7 publications

(18 citation statements)

References 35 publications

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“…A larger degree of uncertainty (further fluctuations in production costs) raises firms' expected profit and hence greater uncertainty raises the incentive to meet the ROO. This is (partly) consistent with the empirical evidence showing that greater production uncertainty can promote firm-level investment 21. This depends on the risk neutrality of firms.…”

supporting

confidence: 89%

“…3 Many studies consider the negative effects of ROO when purchasing inputs; if regional input prices are higher than the input prices abroad, compliance with the ROO increases production costs. See, for example, Krishna and Krueger (1995), Lopez-de-Silanes, Markusen, and Rutherford (1996), Krueger (1999), Rosellón (2000), Falvey and Reed (2002), Ju and Krishna (2005), and Takauchi (2010Takauchi ( , 2011Takauchi ( , 2014. 4 This type of production adjustment is called "partnering flexibility" (Tang and Rai 2014).…”

Section: Introductionmentioning

confidence: 99%

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Rules of origin and uncertain compliance cost

Mizuno

Takauchi

2017

Asia-Pacific Journal of Accounting & Economics

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This study considers the role of the cost uncertainty associated with meeting the rules of origin (ROO) in a free trade area/agreement (FTA). While the literature tends to overlook the cost uncertainties of ROO compliers, we show that the uncertain production costs resulting from meeting the ROO yield the coexistence of compliers and non-compliers in symmetric oligopoly firms. We also show that the regime in which compliers and non-compliers coexist is not the best one for an FTA importer, while it may be the best one for world welfare. We also discuss the case that uncertain production costs are firm-specific.

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confidence: 89%

Section: Introductionmentioning

confidence: 99%

Rules of origin and uncertain compliance cost

Mizuno

Takauchi

2017

Asia-Pacific Journal of Accounting & Economics

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“…The inverse demand functions have been widely used in the literature; see, e.g., [3,36]. According to literature [37], ROOs are usually classified into types, such as (i) the value content rule (which should meet a minimum value ratio of corresponding local areas or regions); or (ii) the change in tariff classification (CTC) rule (which means the change in the Harmonized System (HS) Code of the raw material/components to the HS code of the final goods).…”

Section: Modelmentioning

confidence: 99%

“…Rules of Origin (ROO), accompanied in many FTAs, specify origin requirements for the supplies of a product to be exported within member countries [2]. It has been reported that a majority of FTAs have imposed certain types of ROO restrictions [3].…”

Section: Introductionmentioning

confidence: 99%

Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation

2016

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Abstract:In this paper, we study the impact of the rule of origin (ROO) requirements accompanied by free trade agreements (FTAs), which specify the minimum portion of supplies that should satisfy the origin requirement, on a multinational firm's production decisions. We consider a multinational firm who exports its product to multiple countries and analyze its production decision in the presence of multiple free trading agreements (FTAs). The ROO requirements in FTAs not only refer to the origin of supplies but are also involved with an environmental regulation of a country of the supplies. As such, meeting multiple ROO requirements can be costly since it may be involved with an adjustment of production facility and suppliers according to different environmental standards. We investigate a multinational firm's choice of the ROO level in its production decision under multiple FTAs. It is well known that, in the presence of overlapping FTAs, the firm may strategically choose not to comply with the minimum ROO requirements in the FTAs. Instead, the firm may choose to comply with an ROO level that is higher than required, or pay the tariff instead without enjoying tariff exemption by the FTA in the new country. Such unintended outcomes in the FTAs are called the Spaghetti Bowl Effect. We characterize and quantify two types of such Spaghetti Bowl Effects with the optimal production decisions of a multinational firm under multiple ROO requirements and derive policy implications.

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“…Section 3 shows the conditions prior to formation of the FTA as a benchmark. Section 4 1 In addition to the studies mentioned in the main text, the literature of ROO also includes Falvey and Reed (2002), Ju and Krishna (2005), Lopez- de-Silanes et al (1996), and Takauchi (2011). However, these studies do not address the issue that we analyse in this paper.…”

Section: Introductionmentioning

confidence: 99%

Rules of origin and technology spillovers from foreign direct investment under international duopoly

Jinji

Mizoguchi

2016

Japan and the World Economy

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Using a simple three-country model of international duopoly, this study analyses the optimal choice of rules of origin (ROO) in a free trade area/agreement (FTA) when firms from outside the FTA must undertake foreign direct investment (FDI) in FTA countries and conduct part of their production process within the FTA to comply with the ROO. FDI causes spillovers of the superior production technology from a non-FTA firm to its competitor within the FTA, depending on how much of the production process is shifted to the FTA area. In this situation, we show that as the degree of multilateral trade liberalisation before formation of the FTA is higher, the optimal ROO tends to be less stringent.

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Endogenous transport price and international R&D rivalry

Cited by 7 publications

References 35 publications

Rules of origin and uncertain compliance cost

Rules of origin and uncertain compliance cost

Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation

Rules of origin and technology spillovers from foreign direct investment under international duopoly

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