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Minimum wage is used as a support for low-wage workers, but it is expected to increase unemployment and cause deterioration of the welfare of the unemployed. While earlier studies identify negative side effects of minimum wage, that may not be the case in the Philippines, where many workers migrate and send home large remittances. This study uses a computable general equilibrium model to examine the impacts of an increase in the domestic minimum wage on unemployment, migration, and output, as well as on welfare and inequality, in the Philippines. Our simulation results show that a minimum wage increase would indeed reduce domestic labor demand and prompt many unemployed workers to migrate out, leaving relatively few unemployed at home. While an increased volume of remittances would improve household welfare, it would also have some unintended effects, such as currency appreciation; decreased domestic production in labor-intensive and export-oriented industries; greater income disparity; and tax base erosion., The authors gratefully acknowledge the financial support of JSPS KAKENHI (No. 19K01622). The usual disclaimers apply, https://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

We use a computable general equilibrium model of world trade to quantify the possible impact of economic sanctions imposed by the Western and other countries in response to Russia’s invasion of Ukraine. If senders chose 100% import tariffs and export taxes on trade with Russia, Russia’s GDP would decline by 3–7% due to a significant reduction in exports. By contrast, the GDP loss for those countries would be the largest for Europe but only about 0.2%, and 0.05% for Japan. The effect of China’s participation in the sanctions is more significant than that of India. There are concerns about food and energy crises due to economic sanctions against Russia, but food supplies would not be a serious problem for either senders or third parties. The impact on energy supplies would affect all senders to some extent, for example with a reduction of energy consumption by 3% in and a rise in electricity and town gas prices by 3–4% in Japan., The author gratefully acknowledges that this research was supported by a Grant-in-Aid for Scientific Research from the Japan Society for the Promotion of Science (No. 19K01622)., https://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

We investigate the impact of US steel and aluminum tariffs, and the resumption of auto tariffs under the revised North American Free Trade Agreement, on trade in North America and foreign direct investment (FDI) from Japan, from the perspective of the auto industry. The results of policy simulation analyses with a recursive dynamic computable general equilibrium model are as follows. Canada and Mexico would benefit from US steel and aluminum tariffs, being alternative trade partners with both the US and other countries. Due to the auto tariffs on intra-North America exports, Canada and Mexico would lose a large part of the windfall benefits from the US steel and aluminum tariffs. Japan’s FDI in Canada and Mexico would fall sharply. The more de-integrated North American economies become, the more Japan would regain its auto production, although at a painful cost in terms of welfare. That negative welfare impact would be neutralized by abolition of auto tariffs with the US., This study is partly supported by JSPS KAKENHI (Nos. 16H0360, 19K01622). Firm-level data in the Survey on Overseas Business Activities are provided by the Japanese Ministry of Economy,Trade and Industry., http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

In this paper, we develop a structural auction model and quantify the effects of policy measures aiming to enhance competition in the Japanese retail power market. We employ a theoretical model that incorporates asymmetries between the incumbent and entrants in terms of both the cost and information structures, where the costs of the former are assumed common knowledge, and empirically estimate the structural parameters characterizing their cost distributions using public power procurement data. We then conduct counterfactual simulations to quantify two competition-promoting policy measures: a bid reference program for entrants, and an increase in the number of potential bidders. We take a parametric approach to estimate the structural model successfully in contrast to a nonparametric approach that previous studies took. Our simulation results show that these procompetitive measures would barely increase participation by potential entrants but would elicit more aggressive incumbent bidding behavior. Further, a modest bid-preferential rate would improve welfare and reduce the probability of realizing inefficient allocations associated with a costly winning bidder., JEL Classification Codes: L94, H57, C54, http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

Manufacturing industries have attracted research attention regarding roles of firm heterogeneity and product differentiation in the “ new new trade theory.” Agricultural sectors also produce new goods by product differentiation through breeding, food processing, quality-upgrading, and branding. In reaction to the recent globalization, the Japanese government has sought strategies to promote its domestic agri-food sectors by means of product differentiation and export promotion. This computable general equilibrium study examines the relevance of these policies by simulating hypothetical trade liberalization in agriculture and/or food. We show that agricultural trade liberalization would not increase Japan’ s agricultural exports but would increase food exports; and that food trade liberalization would promote food exports. Both types of liberalization would increase domestic production in agri-food sectors through agri-food linkages and variety effects. This finding affords evidence of the relevance of product differentiation strategy through food processing and exportation, but not of agricultural export promotion strategy., This study is partly supported by JSPS KAKENHI grant (Nos. 16K03613, 16K07907, 16KT0036, 19K01622)., http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

Presentation ID 16704

Bangladesh is one of the top remittance recipient countries in the world and it is the second largest source of the country’s foreign exchange earnings. However, in recent years, remittance inflows into Bangladesh have declined steadily because of real income reductions of migrants. This trend in income has increased the number of returning migrants, making domestic employment less secure. To address this issue, we develop a recursive dynamic CGE model for Bangladesh that describes the allocation of employment between domestic and foreign labor markets in response to a foreign wage premium, competition between local firms and multinational enterprises in the ready-made garments (RMG) sector, and distributional impacts of factor mobility on different household groups. Our simulation results show that returning migrants reduce household welfare by lowering wages and increasing unemployment, particularly for unskilled workers in the domestic labor market. Using counteractive policy options, we examine the impacts of FDI promotion in the RMG sector and of a human-capital development program. Based on our results, we conclude that the former policy minimizes the negative impacts of foreign labor market shocks, while a combination of both policies is more equitable., JEL Classification Codes: C68, F21, F22, O15, It is gratefully acknowledged that this study was supported by the JSPS KAKENHI Grants (18J11669 and 16K03613)., http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

Given that tariffs continue to serve as a primary source of government revenue in many developing countries, we analyze the optimal indirect tax problem, consisting of commodity taxes and tariffs, under a revenue constraint. This study derives the revenue-constrained optimal commodity taxes and tariffs in both a small and a large country and then examines their structure and properties. We show that the optimal commodity tax structure follows the Ramsey rule regardless of whether a country is small or large, which implies that the same optimal commodity tax rules are applied across a range of situations. We also show that the optimal tariffs are not zero, but negative, even in the small country case, which implies stronger support for the World Bank’s recommendation of tariff reductions for a country facing a revenue constraint. In addition, this study analyzes the optimal commodity taxation when tariffs cannot be fully adjusted. Numerical examples demonstrate some of our major findings and the welfare gain of the optimal taxation for a few developing countries., JEL Classification Codes: F11, F13, H21, This study was partly financially supported by Grants-in-Aid for Scientific Research from the Japan Society for the Promotion of Science to Ogawa (26380385) and to Hosoe (16K03613)., http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

We investigate the impact of Brexit (the UK’s planned withdrawal from the European Union) using computable general equilibrium models featuring conventional constant returns-to-scale (CRS) and increasing returns-to-scale (IRS) technology and firm heterogeneity, à la Melitz. We show that the imposition of the tariff and nontariff barriers associated with Brexit triggers the significant contraction of bilateral trade between the UK and the remaining 27 members of the European Union (EU27), exacerbated by firm exit from export markets. Given the imposition of these trade barriers, budget savings, migrants returning to the EU27 from the UK, and intra-EU27 integration and free trade agreements with the US and Japan, the IRS model predicts a total export loss of 5.1–5.8% of UK GDP and a total welfare loss of 1.1–1.5%. This is 60% greater than the CRS model predictions. However, the impact on output would vary between industries, whereby the UK chemical and automobile industries would contract, but its food, business services, and information and communication technology industries would expand. In contrast, the EU27 would gain substantially from other integration programs, but lose very little from the stronger UK–EU27 border barriers. This suggests that the EU27 should have little interest in negotiations aimed at avoiding a “hard Brexit” (the surrendering by the UK of full access to the single market) and that it would be more productive for it to focus on integration programs with trade partners other than the UK., JEL Classification Codes: F13, F17, C63, J61, This work was supported by JSPS KAKENHI Grant (No. 16K03613)., http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/

The impact of Brexit is investigated using two computable general equilibrium (CGE) models, featuring conventional constant-returns-to-scale (CRS) technology and increasing-returns-to-scale (IRS) technology with firm heterogeneity, à la Melitz. The imposition of trade barriers would trigger a significant contraction of the bilateral trade between the United Kingdom (UK) and the rest of the European Union (EU). While a CRS CGE model predicts that the trade barriers would benefit or only marginally harm the UK’s welfare, the IRS model predicts a larger loss through firm exit and loss of varieties, comparable to the expected saving of the UK’s contribution to the EU budget. Among the UK industries, the textiles and apparel, steel and metal, and automotive and transportation equipment sectors would suffer most severely from their sharp fall in exports., JEL Classification Codes: F13, F17, C63, This work was supported by JSPS KAKENHI Grant (No. 16K03613)., http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/, http://id.nii.ac.jp/1295/00001509/

We investigate a long-run impact of a compound disaster in northern Taiwan by describing a recovery process from the disaster with a dynamic computable general equilibrium model. After simulating losses of capital and labor in combination with a nuclear power shutdown, we conduct policy experiments that are aimed at recovery of Taiwan’s major industries by subsidizing their output or capital use. We found that the semiconductor industry could recover but need a huge amount of subsidies while the electronic equipment sector could almost recover even without subsidies. Capital-use subsidies would cost less than output subsidies. When we use two-year longer duration for a recovery program of semiconductors, we could save the subsidy costs by 7–10%., JEL Classification Codes: Q54, C68, Q43, http://www.grips.ac.jp/list/jp/facultyinfo/hosoe_nobuhiro/