Why Has the Border Effect in the Japanese Market Declined?: The Role of Business Networks in East Asia

This paper analyzes the causes of the decline in Japanfs border effect by estimating gravity equations for Japanfs international and interregional trade in four machinery industries (electrical, general, precision, and transportation machinery). In the estimation, we explicitly take account of firmsf networks. We find that ownership relations usually enhance trade between two regions (countries), and also find that we can explain 35% of the decline in Japanfs border effect from 1980 to 1995 in the electrical machinery industry by the increase of international networks.