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Trade Patterns in Japan's Machinery Sector*1

December 2005
Hitoshi Sasaki*2
Yuko Koga*3

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  • *1 We thank Kyoji Fukao, Hideo Hayakawa, Masahiro Higo, and other officials of the Research and Statistics Department of the Bank of Japan for their helpful comments and suggestions. Of course, we are solely responsible for any remaining errors in this paper. The views presented in this paper are those of the authors, and not those of the Bank of Japan.
  • *2 Research and Statistics Department
  • *3 Research and Statistics Department


This paper analyzes trade patterns in Japan's machinery sector using disaggregated data of export and import commodities. It is found that the vertical intra-industry trade--the two-way trade of products differentiated by quality--with Asian countries expanded in the 1990s. According to the results of the empirical study, this trade pattern is closely related to differences in the capital/labor ratio between Japan and its trading partners, and to Japan's foreign direct investments. It suggests that the development of Japan's trade in the machinery sector in the 1990s is explained by traditional trade theory, i.e., that trade patterns depend on the difference in factor endowment between trading partners. Japan's foreign direct investment, too, has played an important role.

Key words:
Vertical intra-industry trade; Foreign direct investment; Asia

JEL Classification Number:
F14; F20