“International Trade and Domestic Production Network” by Dr. Daisuke Fujii
Dr. Daisuke Fujii
Graduate School of Economics
University of Tokyo
This paper considers a model of international trade with a domestic interfirm production network, which gives rise to the emergence of indirect exporters. These indirect exporters do not export but supplies goods and services to exporters, and hence, their value-added is exported indirectly. Using the data of Japanese interfirm transaction networks and international trade, the features of indirect exporters are investigated. More than half of firms are connected to foreign markets within two transaction links, and manufacturing and wholesale sectors account for the largest shares of both direct and indirect exporters. A strict ordering of many variables such as sales or employment exists in direct, 1st-degree indirect, 2nd-degree indirect, and non-exporters. A significant and positive propagation effect is confirmed. Shocks to exporters, whether positive or negative, propagate to their domestic suppliers and decay as they travel through supply chains. The 1st-degree indirect exporters receive 2~3% additional sales growth and 1~1.5% for 2nd-degree indirect exporters. If a firm supplies to an intense exporter, the magnitude is larger. This suggests the importance tracing indirect value-added exporters when considering the effect of trade liberalizations on firm size distributions or industry dynamics. The introduction of domestic production network makes the productivity distribution even more skewed. The Melitz-type effect is dampened due to the potential of indirect exporting.