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Japanese manufacturing facing post-Fukushima power crisis: a dynamic computable general equilibrium analysis with foreign direct investment

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Abstract:

The Great East Japan Earthquake and the subsequent tsunami that hit and severely damaged the Fukushima Daiichi Nuclear Power Station resulted indirectly in the shutdown of most of the nuclear power plants in Japan. To compensate for the lost nuclear power supply, more fossil fuels were used. People became concerned that this could be disadvantageous for domestic manufacturing industries and accelerated their offshoring to Asia, especially China, through foreign direct investment (FDI). We used a world trade computable general equilibrium (CGE) model with endogenous FDI from Japan to China to quantify the impact of the power crisis on the Japanese manufacturing sectors. We found that the power crisis as well as FDI would adversely affect several sectors that use power intensively, but would benefit the transportation equipment (TEQ), electric equipment (EEQ) and machinery sectors, despite the common expectation that these sectors would undergo a so-called ‘hollowing-out.’

Keywords: D58; F21; Q43; computable general equilibrium analysis; foreign direct investment; hollowing out of manufacturing; power crisis

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2014.892198

Affiliations: National Graduate Institute for Policy Studies, Minato, Tokyo, 106-8677, Japan

Publication date: June 13, 2014

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