Regional Dimension of Economic Cooperation Between Japan and Russia

The past decade has brought remarkable changes to the economic cooperation of North-West Japan (Hokkaido and Japan Sea coastal prefectures) and the Russian Far East, such as fast growth of intra-regional trade, great structural changes, a huge increase in the number of cooperating companies and thousands of Russians coming to Japanese ports, which until recently were closed to them. Similar trends were observed in Asian, European and American regions involved in trade with Russia. In Japan, the initial "Siberian euphoria" has gradually been replaced by a much more realistic approach. The reason is that liberalization of trade, globalization and regional development created a number of problems: the prevalence of geopolitical over economic considerations in energy projects, the growth of the shadow sector in certain arrears of mutual trade, the very uneven distribution of benefits and losses from cross-border cooperation and the deep differences of public opinion in Japan and Russia. This paper argues that in terms of public finance theory, these problems can be considered as examples of a failure of market mechanisms, shadow economy, negative externalities and asymmetric information, which can only be solved by effective public policy and state intervention. (C) 2005 by The Haworth Press, Inc. All rights reserved.