A Dynamic Model of Export Adjustment with Deep-pocket Effect: Evidence from Japanese Keiretsu Firms

Eiichi Tomiura

Kobe Economic & Business Review, 2004, vol. 48, 55-71

Abstract: This paper constructs a dynamic optimization model, predicting that expected future export expansion costs, rather than current export reduction costs, retard a firm fs export adjustments during currency appreciation. As export expansion costs tend to increase with the firm fs dependence on export, the export dependence of firms will diverge as the exchange rate appreciates. On the other hand, the deep-pocket effect leads to the convergence of export dependence since firms heavily dependent on exports are likely to face binding financial constraint. By splitting 309 Japanese firms depending on their affiliation with Keiretsu groups, this paper finds evidence consistent with theoretical predictions.

Keywords: adjustment costs, export dependence; liquidity constraint; Keiretsu (search for similar items in EconPapers)
JEL-codes: F14 L11 L16 (search for similar items in EconPapers)
Date: 2004
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