Research Institute of Economy, Trade and Industry (RIETI)
BBL Seminar
Handout
June 23, 2011
"Opening Japan - Comparisons with other G20 countries and
lessons learned from international experience"
Dirk Pilat & Andrea Beltramello
http://www.rieti.go.jp/jp/index.html
Opening Japan
Comparisons with other G20
countries and lessons learned from
international experience
Dirk Pilat & Andrea Beltramello
dirk.pilat@oecd.org and andrea.beltramello@oecd.org
Directorate for Science, Technology and Industry
OECD
Outline
• The role of openness for economic growth
• International comparison of openness –
Japan vs. other G20 countries
• Policies supporting openness
Outline
• The role of openness for economic growth
• International comparison of openness –
Japan vs. other G20 countries
• Policies supporting openness
Openness and economic growth
• Openness is a key determinant and driver
of economic growth
• Many dimensions of openness:
– Trade
– FDI
– Circulation of people
– R&D, technology and knowledge
• Importance of outward flows
Impacts of openness (I)
• Economies benefit on the whole from increased
openness:
– Specialisation and economies of scale
– Product and labour market competition
– Intra-industry reallocations and reduction of
inefficiencies
– Access to knowledge and ideas, supporting innovation
and technology diffusion
• Overall: openness contributes to achieving and
sustaining high rates of output and productivity
growth
Impacts of openness (II)
• But: adjustment costs and potentially
some negative impacts, e.g. at the local
level
• Therefore, importance of complementary
policies, e.g. labour market and social
policies
Outline
• The role of openness for economic growth
• International comparison of openness –
Japan vs. other G20 countries
• Policies supporting openness
International trade
Clear trend towards increased openness in most countries
including Japan
Sum of exports and imports, goods and services
As a percentage of GDP, at current prices.
%
120
2000
2007
OECD Countries
Non-OECD Countries
100
80
60
40
20
0
Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.
International investment
Long term trend by Japanese companies to develop activities
abroad, but Japan lags markedly in inward foreign investment
Foreign direct investment assets and liabilities as a percentage of GDP
Average 2005-2008
%
Assets
Liabilities
7
6
5
4
3
2
1
0
Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.
International trade and investment, industry level (I)
Large outbound activities in some sectors…
Transport equipment (ISIC 34+35)
% 90
Exports as a % of production
80
70
Imports as a % of production
60
50
Share of foreign affiliates in
domestic turnover
40
Turnover of affiliates abroad as
a % of domestic turnover
30
20
FDI inflows 2004-06 as a % of
production
10
0
-10
Japan
Germany
Korea
UK
USA
FDI outflows 2004-06 as a %
of production
Source: OECD calculations based on OECD AFA, STAN and International Direct Investment databases.
International trade and investment, industry level (II)
… while other sectors are significantly less internationalised.
Food, beverages and tobacco
% 90
Exports as a % of production
80
70
Imports as a % of production
60
50
Share of foreign affiliates in
domestic turnover
40
Turnover of affiliates abroad
as a % of domestic turnover
30
20
FDI inflows 2004-06 as a %
of production
10
0
-10
Japan
Germany
Korea
UK
USA
FDI outflows 2004-06 as a %
of production
Source: OECD calculations based on OECD AFA, STAN and International Direct Investment databases.
Global value chains (I)
Intra-industry trade increases with development of GVCs;
larger countries tend to have lower values, particularly Japan
Index of intra-industry trade in manufactures
Average 1997-2008
100
90
80
70
60
50
40
30
20
10
0
OECD Countries
Non-OECD Countries
1. 2000 - 2008 for South Africa.
Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.
Global value chains (II)
Like other larger countries, Japan shows a low degree of
offshoring both in services and manufacturing
Offshoring of manufacturing and services, by country, 2005
Imported intermediates as share of total intermediates
Manufacturing
Services
25%
20%
15%
10%
5%
0%
Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.
Global value chains (III)
Japan is heavily integrated with other countries in East Asia
Import content of exports with partner countries, 2005
From Europe
From NAFTA
From East Asia
From Other Asia
40%
30%
20%
10%
0%
Source: OECD (2010), OECD Input-Output and Bilateral Trade Database, January 2010.
From RoW
Internationalisation of knowledge (I)
International scientific collaboration in Japan is low
Scientific articles per capita, by type of collaboration, 2008
International co-authorship
Domestic co-authorship
Single author
2.5
2
1.5
1
0.5
0
Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris.
Internationalisation of knowledge (II)
Contribution of foreign affiliates to business R&D in Japan is low
The share of foreign-controlled affiliates in total business sector R&D
expenditure, 2007 , in %
%
40
30
20
10
0
Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.
Internationalisation of knowledge (III)
Limited importance of foreign firms controlling domestic inventions in
Japan, and of inventions made abroad controlled by Japanese firms
Cross-border ownership of inventions, 2005-07
%
Argentina 88%
Foreign ownership of domestic inventions (1)
Domestic ownership of inventions made abroad (2)
40
35
30
25
20
15
10
5
0
1. Share of PCT patent applications owned by foreign residents in total patents invented domestically. Coverage: countries/economies with more than 200 PCT filings over the period.
2. Share of PCT patent applications invented abroad in total patents owned by country residents. Coverage: countries/economies with more than 200 PCT filings over the period.
3. All patents that involve international co-operation.
4. Patents of OECD residents that involve international co-operation.
5. The EU is treated as one country; intra-EU co-operation is excluded.
Source: OECD (2010), OECD Economic Globalisation Indicators 2010, OECD, Paris.
Internationalisation of labour (I)
Inbound and outbound flows of persons to and from Japan are
significantly lower than for other countries
Total Migration Rates¹, circa 2000
Number of immigrants and emigrants as a share of total domestic population
%
30
Total Emigration Rate % (1)
OECD Countries
25
Total Immigration Rate % (1)
Non-OECD Countries²
20
15
10
5
0
Source: OECD Database on Immigrants in OECD Countries - DIOC. DIOC-E 2000 release 2.0.
Internationalisation of labour (II)
A small share of the Japanese labour force is foreign
Stocks of foreign labour force, in %
%
10
2008
2000
8
6
4
2
0
Source: OECD (2010), International Migration Outlook: SOPEMI 2010, OECD, Paris.
Internationalisation of highly skilled human capital
Japan participates only to a limited extent in global brain
circulation compared to other OECD G20 countries
Migration Rates of Tertiary Educated, population 15+, circa 2000
Number of tertiary educated emigrants and immigrants as a share of total tertiary educated population
%
Emigration Rate of Tertiary Educated % (1)
Immigration Rate of Tertiary Educated % (1)
35
30
OECD Countries
Non-OECD Countries²
25
20
15
10
5
0
Source: OECD Database on Immigrants in OECD Countries - DIOC. DIOC-E 2000 release 2.0.
Cultural diversity
Limited acceptance of people from different racial, ethnic and
cultural groups in Japan.
Gallup Diversity Index, 2008
Percentage of respondents answering positive to each of the three questions
concerning acceptance of different racial, ethnic, and cultural groups.
100
90
80
70
60
50
40
30
20
10
0
1. Year for this country, 2009.
Source: Gallup World Poll, 2008.
Key indicators on the openness of Japan…
Trade & Capital
Highly Skilled
% Int'l Doctoral Students
% Int'l Tertiary Students
Trade Openness
Import Penetration
100
90
Export Market Shares
80
Migration Rt. Tertiary Ed.
Labour
70
FDI Assets & Liabilities
60
Nationality Diversity Index
50
Outward & Inward M&As
40
30
Stock of Foreign Labour
Share of FCA's Turnover
20
10
Total Migration Rates
Int'l Co. Innovation
Imported/Domestic Int.
Domestic Ownership
Knowledge
VA as % of Production
0
Intra-industry Trade Index
Foreign Ownership
Int'l Co-Authorship
Total Offshoring
Import Cont. of Exports
Tech Flows as GDP%
Funds from Abroad % BERD
FCAs in R&D Expenditure
GVCs
…compared to the openness of Korea…
Trade & Capital
Highly Skilled
% Int'l Doctoral Students
% Int'l Tertiary Students
Trade Openness
Import Penetration
100
Export Market Shares
90
80
Migration Rt. Tertiary Ed.
FDI Assets & Liabilities
70
Labour
60
Nationality Diversity Index
Outward & Inward M&As
50
40
30
Stock of Foreign Labour
Share of FCA's Turnover
20
10
VA as % of Production
0
Total Migration Rates
Int'l Co. Innovation
Imported/Domestic Int.
Domestic Ownership
Knowledge
Intra-industry Trade Index
Foreign Ownership
Total Offshoring
Int'l Co-Authorship
Import Cont. of Exports
Tech Flows as GDP%
Funds from Abroad % BERD
FCA's in R&D Expenditure
GVCs
…the openness of China…
Trade & Capital
Highly Skilled
% Int'l Doctoral Students
% Int'l Tertiary Students
Trade Openness
Import Penetration
100
90
Export Market Shares
80
Migration Rt. Tertiary Ed.
Labour
70
FDI Assets & Liabilities
60
Nationality Diversity Index
50
Outward & Inward M&As
40
30
Stock of Foreign Labour
Share of FCA's Turnover
20
10
Int'l Co. Innovation
Imported/Domestic Int.
Domestic Ownership
Knowledge
VA as % of Production
0
Total Migration Rates
Intra-industry Trade Index
Foreign Ownership
Int'l Co-Authorship
Total Offshoring
Import Cont. of Exports
Funds from Abroad % BERD
Tech Flows as GDP%
FCA's in R&D Expenditure
GVCs
…the openness of UK…
Trade & Capital
Highly Skilled
% Int'l Doctoral Students
% Int'l Tertiary Students
Trade Openness
Import Penetration
100
90
Export Market Shares
80
Migration Rt. Tertiary Ed.
Labour
70
FDI Assets & Liabilities
60
Nationality Diversity Index
50
Outward & Inward M&As
40
30
Stock of Foreign Labour
Share of FCA's Turnover
20
10
Total Migration Rates
Int'l Co. Innovation
Imported/Domestic Int.
Domestic Ownership
Knowledge
VA as % of Production
0
Intra-industry Trade Index
Foreign Ownership
Int'l Co-Authorship
Total Offshoring
Import Cont. of Exports
Tech Flows as GDP%
Funds from Abroad % BERD
FCAs in R&D Expenditure
GVCs
…the openness of Germany…
Trade & Capital
Highly Skilled
% Int'l Doctoral Students
% Int'l Tertiary Students
Trade Openness
Import Penetration
100
90
Export Market Shares
80
Migration Rt. Tertiary Ed.
Labour
70
FDI Assets & Liabilities
60
Nationality Diversity Index
50
Outward & Inward M&As
40
30
Stock of Foreign Labour
Share of FCA's Turnover
20
10
Total Migration Rates
Int'l Co. Innovation
Imported/Domestic Int.
Domestic Ownership
Knowledge
VA as % of Production
0
Intra-industry Trade Index
Foreign Ownership
Int'l Co-Authorship
Total Offshoring
Import Cont. of Exports
Tech Flows as GDP%
Funds from Abroad % BERD
FCAs in R&D Expenditure
GVCs
…and the openness of the US
Trade & Capital
Highly Skilled
% Int'l Doctoral Students
% Int'l Tertiary Students
Trade Openness
Import Penetration
100
90
Export Market Shares
80
Migration Rt. Tertiary Ed.
Labour
70
FDI Assets & Liabilities
60
Nationality Diversity Index
50
Outward & Inward M&As
40
30
Stock of Foreing Labour
Share of FCA's Turnover
20
10
Total Migration Rates
Imported/Domestic Int.
Int'l Co. Innovation
Domestic Ownership
Knowledge
VA as % of Production
0
Intra-industry Trade Index
Foreign Ownership
Int'l Co-Authorship
Total Offshoring
Import Cont. of Exports
Funds from Abroad % BERD
Tech Flows as GDP%
FCAs in R&D Expenditure
GVCs
Outline
• The role of openness for economic growth
• International comparison of openness –
Japan vs. other G20 countries
• Policies supporting openness
Promoting trade and investment liberalisation
Barriers to trade and investment are relatively low in Japan
compared to other G20 countries …
OECD Product Market Regulations: Barriers to Trade and Investment, 2008
3.5
3
2.5
2
1.5
1
0.5
0
1. 6 = most restrictive; 0 = least restrictive.
2. Data may no longer fully reflect the current situation, in particular in fast reforming countries.
3. Data refer to beginning of 2008.
Source: OECD Product Market Regulations Database, 2008.
Promoting trade and investment liberalisation
… but Japan has relatively few bilateral investment
agreements …
G20 Members' International Investment Agreements, as of 15 October 2010
Bilateral Investment Treaties (BITs)
Other IIAs
200
180
160
140
120
100
80
60
40
20
0
Source: OECD and UNCTAD (2010), 4th Report on Trade and Investment Measures in the G20.
Promoting trade and investment liberalisation
… though relatively more regional trade agreements
Number of Regional Trade agreements in G20 countries
Number of RTAs in force
Number of RTAs with early announcement
35
30
25
20
15
10
5
0
Source: WTO Regional Trade Agreements Information System (RTA-IS).
The gains from regional economic integration: the EU
• Permanent rise of about 2% in GDP
• Boost in employment by almost 1 ½%
• Quadrupling of FDI within Europe, and
increase in FDI into Europe
• Trade boosted by 38% by EU membership
(with only 5% diverted from non-members),
plus positive “Single Market Effect” of 9%
• “Soft” gains in global trade system and
international economic governance
Policies for openness of R&D and innovation
• Japan recently introduced:
– R&D tax incentives
– Reform to foster regional activities and
revitalise urban areas
– Changes in IPR legislation and specific
IPR support towards SMEs
• But: international collaboration in
innovation and science is weaker than in
many other OECD countries
Internationalisation of R&D and innovation:
Sweden and Finland
• Integrated need to promote internationalisation of national
actors in innovation support programmes
• VINNOVA in Sweden:
– redress systemic failures in NIS
– promote collaboration among different innovation
actors
• SITRA and TEKES in Finland:
– create enabling conditions for domestic companies to
integrate in GVCs
– increase Finland’s investment attractiveness;
– promote international science and technology
collaboration
Labour market policies
Overall, a high level of employment protection legislation is expected to
have negative effects on the labour market.
Employment protection in selected G20 countries, 2008
Scale from 0 (least stringent) to 6 (most stringent)
3.5
3
2.5
2
1.5
1
0.5
0
Source: OECD Indicators on employment protection.
Increased openness through labour market reforms:
Germany
• Erosion of international competitiveness and
deterioration of public finances following
reunification
• “Agenda 2010” played a role in maintaining
an open economy, attracting investment and
sustaining exports:
– Labour market reforms
– Social security reforms
– Tax reforms
Policies for skilled labour migration and mobility
Japan’s immigration policies are relatively strict for employing foreign
labour
Immigration laws do not prevent your company from employing foreign labour
IMD WCY executive survey based on an index from 0 to 10
2010
2000
8
7
6
5
4
3
2
1
0
Source: IMD World Competitiveness Yearbook, 2010.
Policies for skilled labour migration and mobility
Executives do not consider Japan’s business environment conducive to
attracting foreign highly-skilled people
Business environment is attractive to foreign highly-skilled people
IMD WCY executive survey based on an index from 0 to 10
10
9
8
7
6
5
4
3
2
1
0
2010
2002
Source: IMD World Competitiveness Yearbook, 2010.
Policies to promote the migration of the highly-skilled:
Denmark and Norway
• Relatively recent migration countries, with foreignborn population rates below OECD average
• Introduced policies for attracting highly-skilled
migrant workers, with some evidence of success:
– Early employment schemes
– Job search visa (also for students)
– Reduction of top marginal tax rates
– Progress in international schools
– English language courses
Conclusions
• Japan has actively promoted the free movement
of goods and capital, and has promoted
multilateral negotiations.
• Japan lags considerably in inward foreign direct
investment, internationalisation of science and
innovation, and openness to labour, notably
highly-skilled workers.
• Further opening can strengthen future growth
performance, as shown in the experience of
other OECD countries.
Report on Opening Japan
• Presentation based on OECD report Opening Japan –
Comparison with other G20 countries and lessons
learned from international experience
• More detail and full details on indicators and their
construction are available in the report.
• Report will be released in the coming weeks by OECD
and will be accessible through the RIETI website.
Thank you!
dirk.pilat@oecd.org
andrea.beltramello@oecd.org