2017 SPECIAL EDITION 63 The Research Institute of Economy, Trade and Industry (RIETI) is a policy think tank established in 2001. Our mission is to conduct theoretical and empirical research, Special BBL Seminar by the President to maximize synergies with those engaged in policymaking, and to make policy proposals based on evidence derived from such research activities. For such activities, RIETI has developed an excellent reputation both in Japan and abroad. Website: http://www.rieti.go.jp/en/ Law and Facebook: https://www.facebook.com/en.RIETI Economics on Market Quality RIETI Policy Symposium Frontier of Inter-firm Network Analysis: Makoto Yano Power of network and geographical friction President and Chief Research Ofcer (CRO), RIETI Research Activities RIETI Research Framework for the Fourth Medium-Term Period Message from the Chairman 2017 Special Edition 63 he global economy remains sluggish in part due to an oversupply Contents of oil and other resources and their resulting low prices. In the meantime, declining birthrates and aging populations in major T countries are weakening their potential growth rates due to Message from the Chairman 1 structural reasons. It has become increasingly necessary to undertake monetary and fiscal policies and structural reform to reinvigorate economies. SPECIAL BBL SEMINAR Law and Economics on Market Quality 2 One example is the Japanese economy, which has been seesawing up BY THE PRESIDENT and down despite favorable conditions such as monetary easing and low oil prices. Employment and income figures continue to improve, whereas the SPECIAL REPORT RIETI-CEPR Brexit Symposium in Japan Brexit: On the future of the UK and the global economy 7 slack global economy and strong yen have constrained the growth of exports and production. In addition, both the declining population as well as its aging are holding EVENTS Symposium–RIETI Policy Symposium Frontier of Inter-firm Network Analysis: back Japan’s growth potential. Japan has experienced the lost two decades Power of network and geographical friction 8 whereby the nation’s growth potential has been stunted. Such experience may show that Japan could be the first country to enter a period of secular BBL Seminar stagnation that other developed countries will also have to endure eventually. The Changing Landscape of Trade Negotiations 14 In light of these circumstances, the reinvigoration of the Japanese economy will require not only short-term economic measures but also bold RESEARCH ACTIVITIES Research Digest structural reforms that extend as far as work style reform and the Fourth The Impact of a Permanent Income Shock on Consumption: Industrial Revolution. Evidence from Japan’s 2014 VAT increase 18 RIETI’s mission is to conduct theoretical and empirical research as a Atsushi policy think tank, maximize synergies with those engaged in policymaking, Shock Propagations in Granular Networks 21 and make evidence-based policy proposals. The institute also pursues a wide range of socio-economic research that includes economics and finance, social Nakajima Columns Social Challenges of Automated Driving: security, human capital, energy, environment, trade policy, and more. From the development of AI technology to the development of relevant rules 24 Internationally, RIETI has earned high praise and recognition for these efforts. RIETI’s Fourth Medium-term Plan has been in effect since April 2016. Evidence of “Evidence-based Policymaking” 27 Under the plan, we are pursuing further research initiatives with mid- to long-term perspectives in the following three economic and industrial Making Agglomeration “Metabolized” for Innovation 30 domains: Research Programs 1. Cultivating Japan’s strength in the world economy RIETI Research Framework for the Fourth Medium-Term Period 32 2. Making Japan into an innovative nation Program Introduction 3. Overcoming population decline I. Macroeconomy and Low Birthrate/Aging Population 34 Profile Our quarterly Japanese-language public relations magazine RIETI II. International Trade and Investment 34 Highlight reports on RIETI’s research findings and symposiums concerning 2011-Present Chairman, RIETI III. Regional Economies 34 domestic and overseas economic and social issues. With special issues and 2004-2011 Senior Managing Executive Officer & IV. Innovation 36 individual articles, we strive to deliver this valuable information in a timely Chief Economist, V. Industry Frontiers 36 manner. Mizuho Research Institute Ltd. We are pleased to present the English-language RIETI Highlight 2017 VI. Raising Industrial and Firm Productivity 36 2001-2011 Regular Commentator of Special Edition. This edition introduces selected activities during 2016 and “World Business Satellite” (TV Tokyo) VII. Human Capital 38 provides an overview of our organization and individual programs during the 2000 Chief Economist & General Manager, VIII. Law and Economy 38 Fourth Medium-term period. Also included are fellows’ columns from a range of Research Department, Head Office, IBJ IX. Policy History and Policy Assessment 38 perspectives and outcomes from partnerships with overseas research institutes. 1999 President, Banque IBJ (France) S.A. Working in a variety of fields and following the aforementioned new 1975 Joined Industrial Bank of Japan (IBJ) medium-term perspectives, RIETI is taking its research on the issues facing SPECIAL COLUMN The Uncertain Consequences of Brexit 40 Japan to a deeper level. In addition, we are publishing our latest findings and NEWLY PUBLISHED The World Economy: Growth or Stagnation? 41 reports from symposiums and other events here in RIETI Highlight to reach a wider audience both in Japan and abroad. We hope you will find it to be useful and enlightening. What is RIETI Highlight Special Edition? RIETI’s English PR magazine RIETI Highlight Special Edition is edited and published annually for our international readers as an extra number of Atsushi Nakajima Japanese PR magazine RIETI Highlight. With the contents featuring RIETI’s recent activities, we hope this will be helpful not only in spreading our activities and research ndings but also in deepening international readers’ understanding on our mission as a leading Japanese policy think tank. Chairman, RIETI RIETI Highlight 2017 SPECIAL EDITION 1 Message from the Chairman 2017 Special Edition 63 he global economy remains sluggish in part due to an oversupply Contents of oil and other resources and their resulting low prices. In the meantime, declining birthrates and aging populations in major T countries are weakening their potential growth rates due to Message from the Chairman 1 structural reasons. It has become increasingly necessary to undertake monetary and fiscal policies and structural reform to reinvigorate economies. SPECIAL BBL SEMINAR Law and Economics on Market Quality 2 One example is the Japanese economy, which has been seesawing up BY THE PRESIDENT and down despite favorable conditions such as monetary easing and low oil prices. Employment and income figures continue to improve, whereas the SPECIAL REPORT RIETI-CEPR Brexit Symposium in Japan Brexit: On the future of the UK and the global economy 7 slack global economy and strong yen have constrained the growth of exports and production. In addition, both the declining population as well as its aging are holding EVENTS Symposium–RIETI Policy Symposium Frontier of Inter-firm Network Analysis: back Japan’s growth potential. Japan has experienced the lost two decades Power of network and geographical friction 8 whereby the nation’s growth potential has been stunted. Such experience may show that Japan could be the first country to enter a period of secular BBL Seminar stagnation that other developed countries will also have to endure eventually. The Changing Landscape of Trade Negotiations 14 In light of these circumstances, the reinvigoration of the Japanese economy will require not only short-term economic measures but also bold RESEARCH ACTIVITIES Research Digest structural reforms that extend as far as work style reform and the Fourth The Impact of a Permanent Income Shock on Consumption: Industrial Revolution. Evidence from Japan’s 2014 VAT increase 18 RIETI’s mission is to conduct theoretical and empirical research as a Atsushi policy think tank, maximize synergies with those engaged in policymaking, Shock Propagations in Granular Networks 21 and make evidence-based policy proposals. The institute also pursues a wide range of socio-economic research that includes economics and finance, social Nakajima Columns Social Challenges of Automated Driving: security, human capital, energy, environment, trade policy, and more. From the development of AI technology to the development of relevant rules 24 Internationally, RIETI has earned high praise and recognition for these efforts. RIETI’s Fourth Medium-term Plan has been in effect since April 2016. Evidence of “Evidence-based Policymaking” 27 Under the plan, we are pursuing further research initiatives with mid- to long-term perspectives in the following three economic and industrial Making Agglomeration “Metabolized” for Innovation 30 domains: Research Programs 1. Cultivating Japan’s strength in the world economy RIETI Research Framework for the Fourth Medium-Term Period 32 2. Making Japan into an innovative nation Program Introduction 3. Overcoming population decline I. Macroeconomy and Low Birthrate/Aging Population 34 Profile Our quarterly Japanese-language public relations magazine RIETI II. International Trade and Investment 34 Highlight reports