NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Keiretsu and Relationship-Specific Investment: A Barrier to Trade?

Barbara J. Spencer, Larry D. Qiu

NBER Working Paper No. 7572
Issued in February 2000
NBER Program(s):   ITI

This paper develops a model of informal procurement within Japanese keiretsu so as to consider effects on intermediate-good imports, such as auto parts. Parts-suppliers make relationship-specific investments that benefit the auto-maker and prices are determined by bargaining after investment has been sunk. Although this investment raises efficiency, it limits the range of imports to less important parts such as tail pipes and it is possible that no parts are imported, despite lower foreign production costs. Lack of information concerning investment rents combined with counterintuitive effects on imports and Japanese production costs could create unwarranted perceptions of a trade barrier.

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Document Object Identifier (DOI): 10.3386/w7572

Published: Spencer, Barbara J. and Larry D. Qiu. "Keiretsu And Relationship-Specific Investment: A Barrier To Trade?," International Economic Review, 2001, v42(4,Nov), 871-901.

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