Foreign growth can induce changes in production structures across domestic regions through international trade. With a two‐country model with the explicit incorporation of two regions in the home country, we show that effects of foreign growth on exports and production to be possibly asymmetric among home regions. This foreign‐growth effect is especially prominent in Asia with China emerging as the largest trading country. We empirically test our theoretical hypothesis with the data set of Japanese regions. We find evidence that the growth of Asian countries leads to a change in the regional structure of exports and production in Japan. With respect to an adjacent Asian country, the growth of a foreign country exerts opposite effects on production among Japanese regions.
The World Economy – Wiley
Published: Jan 1, 2018
Keywords: ; ; ;
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