Appended Note 3-6 Method for Calculating Gap between Domestic and Overseas Markets
- Japanese version
- English version
The gap between the domestic and overseas markets for food and clothing was calculated for 2000 based on the method used by Sazanami, Urata and Kawai (1996).
1. Method of analysis
(1) Identical items were selected and combined for which statistics could be obtained on imports and domestic products, and the difference in their prices was calculated. Using CIF prices for imports (price for goods, including transportation costs and insurance premiums, to the point of debarkation from the vessel or aircraft and they do not include tariffs) and producer's prices for domestic products (price when product is shipped by producer, excluding margins of domestic distributors) as the unit price, the difference in their prices was obtained via direct comparison, and this was defined as the gap between the domestic and overseas markets for the purpose of this analysis.
(2) Product items were selected using the Japan Exports and Imports, Japan Tariff Association and the Input-Output Table (2000), Ministry of Internal Affairs and Communications. As categories were further subdivided in the Japan Exports and Imports (groups) in comparison to the Input-Output Table, the former was used to standardize the ten categories (major groups) utilized in the Input-Output Table, and calculations and comparisons were made accordingly.
(3) Based on the difference in unit price between the domestic and overseas markets calculated by the aforementioned method, the approximate size of the gap between domestic and foreign prices for 2000 was calculated. On how to analyze the size of the gap between the domestic and overseas markets, see Appended Note 3-4.
2. Calculation method
(1) Unit price for domestic products is obtained by subtracting total volume from total amount for major groups.
(2) Unit price for imports is obtained by calculating the unit price of products classified under major groups. This is done by combining the products classified under groups with their identical domestic products classified under major groups and subsequently taking the weights with the import amount for each product classified under groups using the formula below.
Likewise, the same calculation method is used when it is necessary to reduce the number of categories that exist for domestic products.
(3) Using the unit prices derived from above, the difference in unit price is calculated for each product classified under major groups. By multiplying this amount with the total domestic production volume and import volume, the size of the gap between the domestic and overseas markets is calculated.
3. Points of concern
(1) The analysis employed here is the partial equilibrium analysis. In other words, it measures the burden placed on consumers as a result of the gap in the domestic and overseas markets at a particular point in time (2000). In reality, if demand for the aforementioned goods increases with the removal of tariff barriers and non-tariff barriers as well as free trade making import prices equal to world prices, there is a possibility that a shift in consumption behavior will occur with demand declining for goods unaffected by imports. Furthermore, as consumer's real income will rise if price of goods declines, spin-off effects arising from part of that added income being used for consumption are also possibilities. (An analysis that includes all of these points is called the general equilibrium analysis.)
(2) Although the difference in prices of imports and domestic products was measured based on the assumption that they are same in quality and are perfect substitutes, in reality, there are cases when differences in quality between the two cannot be ignored. If the intended purpose of imports and domestic products varies, there may be a difference of some degree in the prices of the two. While efforts were made in this analysis to compare similar products with one another as much as possible, the possibility of a difference between products translating into difference in quality between in prices cannot be completely ruled out. For major groups, if a product's import unit price turned out to be greater than the domestic product unit price, it is an indication that differences in quality between imports and domestic products had not been completely eliminated, and subsequently, such a product was not included in this analysis.
(3) As imports and domestic products were measured using production output or import output rather than their added value, there is a possibility that the intermediate input was counted twice. Take the example of tomatoes. While raw tomatoes are sold for consumption, another portion gets processed and sold as end products like ketchup. As a result, if the production output of tomatoes is used to measure the size of the gap between the domestic and overseas markets, tomatoes are double counted as the same calculation is done for the ketchup production output. Consequently, values measured in this analysis may have been overestimated due to such double counting.
(4) Furthermore, as comparisons cannot be made for items whose unit price cannot be calculated because of unspecified data in the statistics, such items were removed from this analysis.