[PPT] - Offshoring Bias in Japans Manufacturing Sector Prepared for the PowerPoint Presentation

SLIDE 1

Offshoring Bias in Japan’s Manufacturing Sector

Prepared for the Final WIOD Conference: Causes and Consequences of Globalization, Groningen, The Netherlands, April 24-26, 2012

Kyoji FUKAO (Hitotsubashi University and RIETI) Sonoe ARAI (METI)

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SLIDE 2

MOTIVATION

Offshoring Bias Problem (Diewert and Nakamura 2011, Houseman et al. 2011)

If a manufacturing industry (or firm) procures a lot of parts and components from developing economies at exceptionally low prices taking advantage of, say, special supplier networks

r efficient foreign affiliates and we do not correctly take

account of these low prices, we will overestimate the productivity of this industry (or firm). Japan presents an ideal case to study this issue. METI regularly publishes I-O tables, in which domestically produced intermediate inputs and imported intermediate inputs are treated separately. And because of its proximity to East Asia, Japan’s imports of intermediate inputs from China and other developing economies in East Asia have increased rapidly in recent decades.

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SLIDE 3

OBJECTIVE OF THE PAPER

Using Japan’s I-O tables and price data for imported and domestic products, we estimate the offshoring bias by examining differences in

estimates of import use in the I-O tables based on

direct data and

estimates based on the assumption that an industry’s

imports of each input, relative to its total demand, are the same as the economy-wide imports relative to total demand (as is assumed in the I-O tables for the United States). We also detail what data METI collects and how it collects these data.

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SLIDE 4

STRUCTURE OF THE PAPER

2. Methodology to Evaluate Offshoring Bias
3. Data Used
4. Estimation of Offshoring Bias
5. Conclusion

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SLIDE 5

2. METHODOLOGY TO EVALUATE

OFFSHORING BIAS

In Japan, non-competitive import type input-output tables, in which domestically produced intermediate inputs and imported intermediate inputs are treated separately, are constructed every five years. Therefore, data on the nominal value of imported intermediate inputs from sector i to sector j, Xi,j

M(t), and data on the nominal value of domestically

produced intermediate inputs from sector i to sector j, Xi,j

D(t),

are separately available. In the United States, it is usually competitive import type input-output tables that are estimated, and therefore only data

n the total value of intermediate inputs from sector i to sector

j, Xi,j

M(t)+Xi,j D(t), are available.

We theoretically examine biases caused by this shortcoming of U.S.-type input-output tables based on the assumption of competitive imports.

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SLIDE 6

2. METHODOLOGY (CONTD.)

Assume that imported intermediate inputs from sector i to sector j and domestically produced intermediate inputs from sector i to sector j are different products and the cost share of each product represents its marginal contribution to production in sector j. In Japan, like in the United States, data on the absolute price levels of imported products and domestic products are not available. In both countries, only the price indices of imported products and domestic products are available. Let Pi

M(t)/ Pi M(0) denote the price change of imported product i

from year 0 to year t and Pi

D(t)/ Pi D(0) denote the price change

f domestically produced product i from year 0 to year t.

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SLIDE 7

The appropriate Laspeyres real input index of sector j for year t, xj

J(t), where the base year is 0, is defined by

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( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( )

∑ ∑

+               + =

i D j i M j i i D i D i D j i D j i D j i M i M i M j i M j i M j i J j

X X P t P X t X X P t P X t X X t x

, , , , , , , ,

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( )

∑ ∑

+         + =

i D j i M j i i D i D i D j i M i M i M j i

X X t P P t X t P P t X

, , , ,

2. METHODOLOGY (CONTD.)

SLIDE 8

The corresponding Paasche price index of intermediate inputs in sector j for year t, pj

J(t), is defined by

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2. METHODOLOGY (CONTD.)

( ) ( ) ( )

( )

( ) ( ) ( ) ( ) ( ) ( )

∑ ∑

        + + =

i D i D i D j i M i M i M j i i D j i M j i J j

t P P t X t P P t X t X t X t p

, , , ,

SLIDE 9

In countries where non-competitive import type input-

utput tables are not regularly available, the ordinary

approach is to assume that an industry’s imports of each input, relative to its total demand, are the same as the economy-wide imports relative to total demand (as is assumed in the I-O tables for the United States). In this shortcut approach, the Laspeyres real input index of sector j for year t is expressed by

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( ) ( ) ( ) ( ) ( )

( )

( ) ( )

( )

∑ ∑ ∑ ∑

+ + + + =

j k D k i M k i D j i M j i j k M k i M j i i

t F t F t X t X t F t X t m

, , , , , ,

where

2. METHODOLOGY (CONTD.)

( ) ( ) ( )

( )

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( )

∑ ∑

+         − + + =

i D j i M j i i D i D i i M i M i i D j i M j i U j

X X t P P t m t P P t m t X t X t x 1

, , , ,

SLIDE 10

The corresponding Paasche price index of intermediate inputs in sector j for year t, pj

U(t), is defined by

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2. METHODOLOGY (CONTD.)

( ) ( ) ( )

( )

( ) ( )

( )

( ) ( ) ( ) ( ) ( ) ( ) ( )

∑ ∑

        − + + + =

i D i D i i M i M i i D j i M j i i D j i M j i U j

t P P t m t P P t m t X t X t X t X t p 1

, , , ,

SLIDE 11

The two Laspeyres real input indices show that when the price of imports relative to that of domestic output declines (Pi

M(t)/ Pi D(t)< Pi M(0)/ Pi D(0)) for most inputs i, we will

underestimate the increase in intermediate inputs in sectors where the industry’s imports relative to its total demand is higher than the economy-wide imports-domestic output ratio ((Xi,j

M(t)/( Xi,j M(t)+ Xi,j D(t))> mi(t)) for these inputs. As a result,

we will overestimate the TFP growth of such sectors. The offshoring bias will become large if imports of each input, relative to its total demand, are quite different across sectors and changes in the relative prices of imports and domestic products are large.

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2. METHODOLOGY (CONTD.)

SLIDE 12

An Important Caveat If imports i and domestic output i are the same good (or service) even when the absolute price level of imports and that

f domestic output are different, then our Laspeyres

intermediate input, xj

J(t) is not appropriate for measuring true

intermediate input growth. This issue was pointed out by Diewert and Nakamura (2011) and empirically analyzed by Houseman et al. (2011). The appropriate Laspeyres input index is defined by

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( ) ( ) ( )

( )

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( )

∑ ∑

+               + + + =

i D j i M j i i D i D j i M i M j i D i D j i M i M j i D j i M j i I j

X X P X P X t P t X t P t X X X t x

, , , , , , , ,

2. METHODOLOGY (CONTD.)

SLIDE 13

The corresponding Paasche price index of intermediate inputs in sector j for year t, pj

I(t), is defined by

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2. METHODOLOGY (CONTD.)

( ) ( ) ( )

( )

( ) ( )

( )

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

∑ ∑

                      + + + + + + =

i D i D j i M i M j i D j i M j i D i D j i M i M j i D j i M j i D j i M j i i D j i M j i I j

P X P X X X P X P X X X X X X X t p 1 1 1 1 1 1 1 1 1 1

, , , , , , , , , , , ,

SLIDE 14

2. METHODOLOGY (CONTD.)

In Japan, METI conducts the Survey on Foreign and Domestic Price Differentials for Industrial Intermediate Input every year. This survey provides information on differentials in customer delivery prices among Japan, China, the United States, Germany, South Korea, Taiwan, and Hong Kong for about 180 commodities and 40 services. In the future, we would like to evaluate the type of offshoring bias pointed out by Diewert and Nakamura (2012) using the results of this

survey. However, in this paper, we do not analyze this type of
ffshoring bias.

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SLIDE 15

3. DATA USED

As nominal non-competitive import type input-output tables for 1995, 2000 and 2005, we use the Input-Output Tables for Japan for each of these years, published by the Statistics Bureau of the Ministry of Internal Affairs and Communications (MIAC). For these years, tables of imports reporting the nominal value of imports used as inputs in sector j, Xi,j

M(t), and the

nominal value of imports used to satisfy final demand k, Fi,k

M(t), for each product i are available.

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SLIDE 16

3. DATA USED

In order to construct these tables on imports, METI conducts its survey on the use of major imports at the HS 9- digit level. About 200 trading companies and producer associations are interviewed, with the latter, such as the association of electronics-parts producers, the association of automobile-parts producers, etc., making up the majority. This means that METI mainly asks the Japanese producers of each commodity about the destination industries

f imports of these commodities, most of which are produced

by their rivals abroad (of course, some Japanese producers are now multinationals and import from their own affiliates abroad). Table 1 provides an outline of the questionnaire form.

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SLIDE 17

Outline of the Questionnaire Form

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Survey on Demand for Imported Commodities for the Year 2010 Form A HS Code (9 digit) (Japan's HS code 9 digit classification contains 2,784 commodities) HS Commodity Name Interviewed at Sectoral distribution of imported commodity (nominal value of imported commodity demanded by that sector/nominal value of total imports) Intermediate input by 32 sectors % Agriculture, forestry and fishery 4 Mining 3 …. …. Electrical machinery 25 …. …. Household services Business services 30 …. Final demand Household consumption 2 Government consumption 10 Private investment 4 Government investment 3 ….. Total 100 Note: Please enter the percentage share of each final consumer of each commodity.

SLIDE 18

Outline of the Questionnaire Form

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Form B 4 digit table Electrical machinery Electronics parts Household electric appliances Sub-total 25 Business services ….. Sub-total 30 6 digit table Electrical machinery ….. Electronics parts Semiconductors Condensers Sub-total 25 Business services ….. Sub-total 30 Please provide the final destination of the commodity by 4 digit and 6 digit industry classification for the two sectors that make up the highest shares in Form A.

SLIDE 19

3. DATA USED (CONTD.)

To extend our analysis to more recent years, we estimated non-competitive import type input-output tables for 2008. We obtain deflators for imports and domestic outputs separately for each sector i from the 1995-2000-2005 Linked Input-Output Tables published by the Statistics Bureau, MIAC, and the 2008 Extended Input-Output Tables. In these IO tables, the major original sources of deflators for commodities are the domestic corporate goods price index (DCGPI) and the import price index (IPI) taken from the Corporate Goods Price Index published by the Bank of Japan. Using these various sources, we prepared nominal and real non-competitive import type input-output tables for 1995, 2000, 2005 and 2008. The endogenous sector table for each year has 514 rows and 401 columns.

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4. ESTIMATION OF OFFSHORING BIAS

The offshoring bias caused by the assumption that an industry’s imports of each input, relative to its total demand, are the same as the economy-wide imports relative to total demand, will become large if changes in the relative prices of imports and domestic products are large and if imports of each input, relative to its total demand, are quite different across sectors.

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SLIDE 21

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0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1995 2000 2005 2008 (Average price of imported inputs)/(average price of domestically produced inputs) (1995=1) Japan's real effective exchange rate (Yen/Foreign currency) (BIS Data)

The ratio of the average price of imported inputs over the average price of domestically produced inputs declined by 40 percent in the period 1995-2008. This decline was not caused by yen appreciation. Rather, a likely reason for the decline in relative import prices is the increase in Japan’s imports of low-priced products from Asian countries.

SLIDE 22

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Regional Composition of Japan’s Imports of Machinery: 2000, 2005 and 2008

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2005 2008 Rest of the World United States Other Asia China and Hong Kong

SLIDE 23

The ratio of the price of imports over the price of domestic products declined by more than 25 percent from 1995 to 2008 in the case of 135 out

f 514 products.

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Sector Import price/ domestic price of 2008 (1995=1) Sector Import price/ domestic price of 2008 (1995=1) Sector Import price/ domestic price of 2008 (1995=1) Other petroleum refinery products 0.174 Rice straw 0.533 Other photographic and optical instruments 0.673 Natural gas 0.215 Printing, plate making and book binding 0.539 Condiments and seasonings 0.673 Video recording and playback equipment 0.230 Rolling stock 0.547 Integrated circuits 0.674 Miscellaneous cereals 0.239 Polyethylene (low density) 0.551 Engines 0.675 Coal mining 0.245 Bread 0.552 Other livestock 0.686 Forged steel 0.279 Other non-metallic ores 0.554 Processed meat products 0.686 Iron ores 0.291 Tea and roasted coffee 0.555 Other hot rolled steel (ordinary steel) 0.687 Other coal products 0.316 Soft drinks 0.556 Other electrical devices and parts 0.689 Electric audio equipment 0.324 Heavy oil B and C 0.557 Cooking oil 0.693 Crude steel (electric furnaces) 0.331 Steel pipes and tubes (ordinary steel) 0.558 Methane derivatives 0.694 Gasoline 0.351 Synthetic rubber 0.560 Other aliphatic intermediates 0.697 Personal computers 0.356 Internal combustion engines for motor vehicles and parts 0.560 Other office machines 0.699 Ethylene glycol 0.361 Cast materials (iron) 0.565 Rice 0.699 Crops for inedible agricultural products, n.e.c. 0.367 Gas and oil appliances and heating and cooking apparatus 0.567 Dextrose, syrup and isomerized sugar 0.699 Preserved agricultural foodstuffs (other than bottled 0.367 Hen eggs 0.572 Polyethylene (high density) 0.700 Industrial plastic products 0.367 Other liquors 0.577 Crops for feed and forage 0.702 Optical fiber cables 0.376 Gravel and quarrying 0.581 Other non-ferrous metal products 0.703 Vending machines 0.379 Cast iron pipes and tubes 0.598 Electrical equipment for internal combustion 0.705 Steel ships 0.385 Noodles 0.600 Cement 0.706 Photographic sensitive materials 0.385 Other resins 0.600 Hot rolled steel (special steel) 0.710 Coke 0.400 Total of intermediate sectors 0.604 High function resins 0.712 Magnetic tapes and discs 0.407 Tobacco 0.609 Synthetic phenol 0.712 Acetic acid 0.429 Metal containers, fabricated plate and sheet metal 0.609 Miscellaneous leather products 0.712 Glass processing materials 0.433 Electron tubes 0.617 Steel bar (ordinary steel) 0.715 Agricultural chemicals 0.434 Other fruits 0.620 Timber 0.715 Other cyclic intermediates 0.452 Steep plate (ordinary steel) 0.624 Bottled or canned meat products 0.717 Dairy products 0.459 Other pulses 0.625 Bicycles 0.719 Oil seeds 0.465 Pure toluene 0.628 Semiconductor devices 0.720 Non-ferrous metal castings and forgings 0.466 Pig iron 0.632 Nuclear fuels 0.722 Printing ink 0.468 Ships (except steel ships) 0.635 Batteries 0.726 Electronic computing equipment (except personal 0.468 Other glass products, n.e.c. 0.635 Starch 0.726 Chemical fertilizer 0.481 Clay refractories 0.637 Woolen fabrics, hemp fabrics and other fabrics 0.728 Plywood 0.484 Medicaments 0.638 Sawmill, wood working, veneer and plywood 0.728 Radio and television sets 0.485 Other meat (bone meat) 0.644 Citrus fruits 0.730 Pure benzene 0.487 By-products of slaughtering and meat processing 0.644 Other foods 0.732 Fowls and broilers 0.493 Catalyzer 0.648 Bottled or canned seafood 0.737 Other materials for ceramics 0.502 Other inorganic pigments 0.648 Surface active agents 0.742 Household air-conditioners 0.508 Pulp equipment and paper machinery 0.651 Rolled and drawn aluminum 0.743 Non-ferrous metal scrap 0.513 Metal products for construction 0.651 Watches and clocks 0.743 Carpets and floor mats 0.515 Milled rice 0.658 Other grain milling 0.745 Toys and games 0.518 Titanium oxide 0.660 LPG (liquefied petroleum gas) 0.745 Wheat flour 0.525 Synthetic alcohol 0.664 Other machinery for service industry 0.746 Limestone 0.527 Household electric appliances (except air-conditioners) 0.668 Passenger motor cars 0.746 Other industrial inorganic chemicals 0.529 Soda ash 0.672 Oil and fat industrial chemicals 0.747 Beer 0.530 Apples 0.673 Acrylonitrile 0.748

SLIDE 24

Share of Imported Inputs in Total Inputs: Integrated Circuits, 1995-2005

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0.2 0.4 0.6 0.8 1

Gas and oil appliances and heating and cooking… Conveyors Refrigerators and air conditioning apparatus Other general industrial machinery and… Machinery and equipment for construction and… Chemical machinery Industrial robots Metal machine tools Metal processing machinery Machinery for agricultural use Textile machinery Food processing machinery and equipment Semiconductor making equipment Other special machinery for industrial use Other general machines and parts Copy machine Other office machines Machinery for service industry Rotating electrical equipment Relay switches and switchboards Electrical equipment for internal combustion… Other electrical devices and parts Applied electronic equipment Electric measuring instruments Electric lighting fixtures and apparatus Household air-conditioners Household electric appliances (except air-… Video recording and playback equipment Electric audio equipment Radio and television sets Wired communication equipment Cellular phones Radio communication equipment (except… Other communication equipment Personal computers Electronic computing equipment (except… Electronic computing equipment (accessory… Semiconductor devices Integrated circuits Liquid crystal element Other electronic components Internal combustion engines for motor vehicles… Motor vehicle parts and accessories Aircrafts Other transport equipment Camera Other photographic and optical instruments Watches and clocks Professional and scientific instruments Analytical instruments, testing machine,… Medical instruments Toys and games Sporting and athletic goods Musical instruments Ordnance Research and development (intra-enterprise) Repair of machine Tofal domestic demand

2005 1995

SLIDE 25

Share of Imported Inputs in Total Inputs: Semiconductor Devices, 1995-2005

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0.2 0.4 0.6 0.8 1

Gas and oil appliances and heating and cooking… Other metal products Engines Conveyors Refrigerators and air conditioning apparatus Pumps and compressors Machinists' precision tools Other general industrial machinery and… Machinery and equipment for construction and… Chemical machinery Industrial robots Metal machine tools Machinery for agricultural use Textile machinery Food processing machinery and equipment Semiconductor making equipment Other special machinery for industrial use Other general machines and parts Copy machine Other office machines Machinery for service industry Rotating electrical equipment Transformers and reactors Relay switches and switchboards Electrical equipment for internal combustion… Other electrical devices and parts Applied electronic equipment Electric measuring instruments Electric lighting fixtures and apparatus Household air-conditioners Household electric appliances (except air-… Video recording and playback equipment Electric audio equipment Radio and television sets Wired communication equipment Cellular phones Radio communication equipment (except… Other communication equipment Personal computers Electronic computing equipment (except… Electronic computing equipment (accessory… Integrated circuits Liquid crystal element Other electronic components Internal combustion engines for motor vehicles… Motor vehicle parts and accessories Rolling stock Aircrafts Other transport equipment Camera Other photographic and optical instruments Watches and clocks Professional and scientific instruments Analytical instruments, testing machine,… Medical instruments Toys and games Musical instruments Ordnance Repair of machine Total domestic demand

2005 1995

SLIDE 26

The share of imports in total demand differs considerably across sectors in the case of many products. For example, for integrated circuits and semiconductor devices, the import ratio tends to be high in electrical machinery sectors, but relatively low in other sectors such as automobiles and precision machinery. This means that we will underestimate the growth of these electronics parts inputs in electrical machinery sectors and overestimate it in

ther machinery sectors, if we assume that an industry’s

imports of each input, relative to its total demand, are the same as the economy-wide imports relative to total demand.

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SLIDE 27

Underestimation of Intermediate Input Growth: Top 40 Sectors, 1995- 2008

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Sector Underestimation

f intermediate

input growth, ln(xU/xJ) (1995- 2008) Intermediate input/gross

utput

(average value

f 1995 and

2008) Overestimation of TFP growth in gross output base (1995-2008) Cast iron pipes and tubes

0.239

0.537 12.84% Rolled and drawn copper and copper alloys

0.190

0.763 14.49% Lead and zinc (inc. regenerated lead)

0.160

0.694 11.09% Crude steel (electric furnaces)

0.136

0.780 10.59% Cast and forged materials (iron)

0.117

0.579 6.78% Animal oils and fats

0.112

0.715 8.04% Aluminum (inc. regenerated aluminum)

0.104

0.805 8.33% Ordnance

0.096

0.619 5.97% Methane derivatives

0.089

0.742 6.60% Rolled and drawn aluminum

0.084

0.785 6.58% Other iron or steel products

0.084

0.548 4.59% Aircrafts

0.061

0.538 3.31% Salt

0.058

0.546 3.16% "Tatami" (straw matting) and straw products

0.054

0.703 3.77% Non-ferrous metal castings and forgings

0.046

0.703 3.22% Bicycles

0.041

0.720 2.95% Electronic computing equipment (except personal computers)

0.041

0.716 2.91% Thermo-setting resins

0.039

0.733 2.87% Other non-ferrous metals

0.037

0.708 2.63% Organic fertilizers, n.e.c.

0.032

0.657 2.08% Processed meat products

0.030

0.710 2.16% Glass fiber and glass fiber products, n.e.c.

0.029

0.604 1.75% Turbines

0.028

0.643 1.79% Other resins

0.023

0.749 1.72% Crude steel (converters)

0.023

0.772 1.74% Cement

0.021

0.697 1.48% Bottled or canned meat products

0.021

0.726 1.49% Wooden chips

0.019

0.733 1.43% Liquid crystal element

0.019

0.727 1.41% Corrugated card board boxes

0.019

0.605 1.13% Plywood

0.018

0.690 1.25% Other glass products

0.018

0.537 0.95% Video recording and playback equipment

0.018

0.722 1.27% Dextrose, syrup and isomerized sugar

0.017

0.820 1.35% Integrated circuits

0.015

0.650 0.96% High function resins

0.014

0.778 1.09% Camera

0.014

0.689 0.96% Musical instruments

0.013

0.609 0.81% Corrugated cardboard

0.013

0.816 1.03% Food processing machinery and equipment

0.012

0.587 0.72%

SLIDE 28

Overestimation of Intermediate Input Growth: Top 40 Sectors, 1995- 2008

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Sector Overestimation

f intermediate

input growth, ln(xU/xJ) (1995- 2008) Intermediate input/gross

utput (average

value of 1995 and 2008) Underestimation

f TFP growth in

gross output base (1995-2008) Paperboard 0.162 0.730

11.85%

Leather and fur skins 0.097 0.692

6.69%

Cast and forged steel 0.082 0.517

4.22%

Synthetic dyes 0.076 0.649

4.96%

Electric audio equipment 0.069 0.742

5.13%

Repair of aircrafts 0.055 0.656

3.62%

Coal products 0.053 0.825

4.39%

Bottled or canned vegetables and fruits 0.044 0.770

3.36%

Paper 0.037 0.610

2.25%

Chemical fertilizer 0.035 0.685

2.40%

Confectionery 0.034 0.580

1.99%

Radio and television sets 0.028 0.780

2.18%

Other electrical devices and parts 0.027 0.630

1.67%

Other metal products 0.027 0.463

1.23%

Nuclear fuels 0.022 0.541

1.17%

Steel pipes and tubes 0.020 0.759

1.56%

Synthetic fibers 0.019 0.633

1.21%

Bedding 0.019 0.668

1.26%

Jewelry and adornments 0.019 0.680

1.27%

Other photographic and optical instruments 0.019 0.592

1.10%

Retort foods 0.017 0.704

1.18%

Preserved agricultural foodstuffs (other than bottled or canned) 0.017 0.631

1.06%

Batteries 0.016 0.733

1.16%

Dairy farm products 0.016 0.779

1.23%

Dishes, sushi and lunch boxes 0.015 0.697

1.06%

Other non-ferrous metal products 0.015 0.715

1.08%

Bolts, nuts, rivets and springs 0.014 0.544

0.78%

Medicaments 0.014 0.608

0.83%

Oil and fat industrial chemicals 0.013 0.650

0.88%

Cellular phones 0.013 0.782

1.05%

Coated steel 0.013 0.769

1.02%

Metal processing machinery 0.013 0.528

0.70%

Soap, synthetic detergents and surface active agents 0.013 0.715

0.91%

Carpets and floor mats 0.012 0.754

0.93%

Clay refractories 0.012 0.603

0.69%

Petrochemical basic products 0.011 0.920

1.05%

Bread 0.010 0.561

0.58%

Cold-finished steel 0.010 0.769

0.76%

Noodles 0.009 0.630

0.59%

Metal containers, fabricated plate and sheet metal 0.009 0.580

0.54%

SLIDE 29

1. The offshoring bias will become large if imports of each input, relative to its total demand, are quite different across sectors and changes in the relative prices of imports and domestic products are large. 2. The import price-domestic price ratio of many commodities, including important parts and components, declined sharply during the period we focused on. 3. We examined how the share of imported inputs in total inputs differs across sectors, focusing on the case of integrated circuits and semiconductor devices. We found that in both cases, the import ratio tends to be high in electrical machinery sectors. And the ratio is relatively low in other sectors, such as automobile and precision machinery.

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5. CONCLUSION

SLIDE 30

4. We found that offshoring bias is quite large in some

sectors. For example, in cast iron pipes and tubes, rolled

and drawn copper and copper alloys, lead and zinc (inc. regenerated lead), crude steel (electric furnaces), cast and forged materials (iron), animal oils and fats, and aluminum (inc. regenerated aluminum), the negative

ffshoring bias of intermediate input growth for the

period 1995-2008 is greater than 10 percent and the positive offshoring bias of TFP growth is greater than 8 percent. 5. On the other hand, in paperboard, leather and fur skins, cast and forged steel, synthetic dyes, and electric audio equipment, the positive offshoring bias of intermediate input growth is more than 6 percent and the negative

ffshoring bias of TFP growth is more than 5 percent.

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5. CONCLUSION (CONTD.)

SLIDE 31

If imports i and domestic output i are same good (or service) even when the absolute price level of imports and that of domestic output are different, then our intermediate input index is not appropriate for measuring true intermediate input growth. In this case, we need absolute price level data for imported inputs and domestically produced inputs. We hope to tackle this issue in the future by matching data from the Survey on Foreign and Domestic Price Differentials for Industrial Intermediate Input (METI) with our IO data.

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