Working Paper: NBER ID: w7572
Authors: Barbara J. Spencer; Larry D. Qiu
Abstract: This paper develops a model of informal procurement within Japanese keiretsu so as to consider effects on intermediate-good imports, such as auto parts. Parts-suppliers make relationship-specific investments that benefit the auto-maker and prices are determined by bargaining after investment has been sunk. Although this investment raises efficiency, it limits the range of imports to less important parts such as tail pipes and it is possible that no parts are imported, despite lower foreign production costs. Lack of information concerning investment rents combined with counterintuitive effects on imports and Japanese production costs could create unwarranted perceptions of a trade barrier.
Keywords: keiretsu; relationship-specific investment; trade barriers; auto parts
JEL Codes: F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| relationship-specific investments (D14) | rents for the automaker (L62) |
| rents for the automaker (L62) | reduction in the range of imported parts (F69) |
| relationship-specific investments (D14) | reduction in the range of imported parts (F69) |
| move from prohibitive tariff to free trade (F13) | raise Japanese marginal costs (D40) |
| raise Japanese marginal costs (D40) | reduce total demand for parts (L68) |
| reduce total demand for parts (L68) | exacerbate perception of trade barriers (F69) |