This study extends the work by Tang (2006) to empirically re-investigate the sustainability of Japan's trade accounts by using disaggregated data - her trading regions and countries. The previous study (Tang, 2006) finds Japan's trade balances are unsustainable via aggregate data. Applying the unit root tests with unknown level shifts, this study finds that Japan's bilateral accounts in three of eleven regions and thirteen of twenty eight countries are sustainable.
An Empirical Investigation On the Sustainability of the Japan's Bilateral Imbalance
I. INTRODUCTIONThis study is concerned with the sustainability of Japan's bilateral balances. It adds an additional room of the work by Tang (2006) which has found that Japan's external accounts position (surplus or deficit) are unsustainable via unit root tests with unknown break date (Lanne, et al., 2002, Saikkonen and Lütkepohl, 2002) on aggregate trade balance series. However, using bilateral trade data, this study further provides an empirical investigation whether the Japan's balances are sustainable by the mean that any innovations to the series are temporary and have only short run consequences. The current study is different from Tang's (2006) research, at least, two dimensions. Firstly, this study employs highly disaggregated trade data (exports and imports) namely bilateral trade data by regions and countries. Secondly, the results of panel unit root tests by this study provide supplementary evident on the question whether Japan's external accounts position sustainable. The major advantage of this study in a comparison with Tang (2006) is that this study minimizes the possibility of the so-called aggregation bias when highly aggregated data are used such as total exports and total imports by Tang (2006), by using Japan's bilateral trade data 11 regions and 28 countries. On the other hand, this study provides the results of various panel unit root tests which can be used as additional evident whether Japan's external accounts position sustainable. By and large, there is a need to have this similar to Tang's (2006) study because the literature survey shows no such a study available which examines sustainability of Japan's bilateral trade balances whether by regions or countries data. Furthermore, this study considers the limitation of Tang's (2006) study which finds Japan's trade accounts position is unsustainable using aggregate data. By employing bilate...