Japanese Trade with the World Through International Trade Macro Models

Henry Lin

Essentially I compared the Japanese international trade with the world in terms of the basic goods, fuels and manufactured goods. For certain models, I further divided manufactured goods between skilled and unskilled labor manufactured goods, with motor vehicles and clothes being the two examples. My aim was to see if I could make any projections or at least affirmations about the actual Japanese trade patterns and trade-related wages vs. the various models’ predictions.

The first model I compared Japan’s trade with is the Ricardian model. This is the most basic model that pretty much compares two countries’ comparative advantages. Based on their respective comparative advantage they’ll export or import one of two goods. In Japan’s case, Japan imports fuels due to a lack of resource endowments, and it exports manufactured goods due to its ample capital and skillful, productive labor. Thus the Ricardian Model proved obviously accurate.

The next model is the specifics-factors model, which takes into account factors such as capital and land. Fuels obviously require land, and manufactured goods require capital. With trade, most employees in Japan will focus on manufactured goods, and the rising prices of their exports should raise worker wages. However, even though Japan’s trade patterns based on their abundance of land or capital is accurate, the actual effect on wages is nonexistent.

The Heckscher-Ohlin model that I accounted for discussed what Japan would import or export with the rest of the world depending on the ratio of Japan’s capital to labor relative to the rest of the world’s. Here I used the two goods clothing and motor vehicles, with vehicles requiring the higher capital to labor ratio. Once again, trade patterns indicated that Japan imports virtually all of its clothing and exports dozens times more vehicles. The effect on wage would be a rise on capital owners gains, such as factor owners and whatnot, and a fall of employee wages. However, the wages also did not go down either.

In short, I concluded that the basic international trade macro models were useful in projecting the obvious trade patterns of what Japan would import and export, but given Japan’s relatively lower reliance on trade vs. countries like Saudi Arabia or Columbia, as well as the complexity of the economy.

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