In response to Prof. Campbell's post of 12 August:

I have no idea as to studies conducted in precise terms regarding the subsidizing of exports by domestic profits or vice-versa. But I may mention a tentative study of mine, though I never got around to publishing it, in the context of the behaviour of the Japanese firms in the face of yen appreciation.
The study, "Exchange Rate Fluctuations and Pricing Behaviour of the Japanese Firms," is available as a discussion paper of the Japan Center for Economic Research (No. 9, January 1990) [If someone is interested, I could send a copy).

In this study, I found some industries like chemicals and iron&steel indulging in less-than-full pass through of exchange rate changes in foreign markets while acting as if competition did not exist in the domestic market (i. e., while they lowered their prices on the international market, they did not do so in the domestic market indicating their stron position in the domestic market). On the other hand, indistries like foodstuffs, textiles and petroleum and coal products showed quite the converse. These industries reduced prices in the domestic market but not in the foreign market (which could be the result of highly specialized products being exported in small quantities thereby giving them some amount of market power). In most of the other industries, the behaviour of the firms was found to be quite normal and the demand-supply relationship seem to hold in terms of response to exchange rate changes.

This study does not directly offer any evidence on the questions raised by Prof Campbell but I will suspect that any rigorous study to look into such a question would basically come to a similar type of conclusion. A lot of it will depend on the types of market for the products in question keeping in mind that markets are segregated and the nature of demand elasticities in different markets would, in principle, determine the pricing of products in those markets. If the prices differ in the dometic (higher) and foreign (lower) markets, it may not ipso facto be an evidence of the proposition that dometic profits are kept high to
*subsidize* exports or vice-versa.

comments welcome.

thanks

anil khosla

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Anil Khosla
Centre for Japanese and Korean Studies
Leiden University
Arsenaalstraat 1 Tel: +31 (0)71 27 22 13
P.O. Box 9515 2300RA Leiden Fax: +31 (0)71 27 22 15
The NetherLands e-Mail: Khosla[atx]rullet.leidenuniv.nl
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