Is Economic Growth Endogenous? U.S. Supply Chain Theory
Is Economic Growth Endogenous? U.S. Supply Chain Theory
Is Economic Growth Endogenous?
U.S. Supply Chain Theory
1. Is Economic Growth
• or both?
Combining all the Growth Theories that we
have covered, we can say that the East Asian
Miracles, including Japan, the HPAEs, and
China, tell us that a Rapid Economic Growth
may be both Endogenous and Exogenous at
the same time.
It can be compared to
• Chick and Mother Chicken break egg shell
together for hatching
• Chick: Asian Countries (Japan in the 1950-60s;
Korea and Taiwan in the 1960-70s; HPAEs in
the 1970-80s; China in the 1990s)
• Chicken: U.S.
2. The Ultimate Exogenous Factor
• U.S.’s Influence/Control of the International
• This has been the ‘American Century’ ( by
• Economic growth of a country needs some
economic cooperation with the U.S.
Exogenous Factor of Economic Growth:
Partnership with U.S.
Has different stages of
• Trade Partnership
• Investment Partnership
in the Structured Supply Chain of the U.S.
The long-term sustained economic growth of
the U.S. economy means that
i)the U.S. has been a source of fundamental
technological innovations; and
ii) The U.S. has growing ‘Buying Power’ or
strong consumption demand from the world.
1)A Rapid Economic Growth has been shifting from
one country or area to another over time
(Japan 1960-1975; HPAEs 1975-1997; China 1997Present)
• Growth rates are strongly correlated with
Exports, and Trade Surplus, particularly, with the
In addition, the U.S. has unlimited means to
buy goods from other countries:
- U.S. is a source of infinite international wealth
due to its currency being the Key Currency
which it can print out without limits
- East Asian countries have become the trade partner
produce and supply Outputs to U.S. over time
in exchange for the key currency
- Assigned roles in the partnership for each specific
economy changed over time: Korea of the 1970s took
over Japan’s roles in the 1950-60s, and gave it to China of
International Division of Labor
• U.S. exports services of R & D, Finance,
Education, Fashion, Culture, and Military
• East Asia becomes ‘Factory of the World’
• The Factory needs ‘inputs’ from elsewhere
What is the U.S. Economic ‘Design’ in the East
- The U.S. Supply Chain in the East Asia
The U.S. needs a source of Massive Supply of
Manufacture Goods at the Lowest Possible
The best partner for this need is the East Asia:
Not a single country, but a few countries bound
A complete circle of the U.S. Supply Chain in the East
Asia and the Division of Labor
• Linking the U.S. as the source of Purchasing
Power, Liquidity, and Fundamental Technology
• Japan as the supplier of practical/industrial
• Korea and Taiwan as the supplier of processed
• China as the producer of Final outputs and
exporter of them.
• China as the supplier of Capital to the U.S.
• U.S. as the manager of Capital and Investment.
(2) International Finance
Goods flow from the partner countries to U.S., and
capital (U.S. dollars) flows the other way around.
- It would be best for the U.S. if the capital flows back to the
- East Asia has high savings ratio, but relatively low
- A large portion of savings flow out of East Asia into
U.S. securities market.
(2) Endogenous Factors:
Why were HPAEs and China chosen?
• Product /International Trade Side
- “Best Quality” at “Lowest Cost”
- Disciplined workers; High Quality Workers
- successfully integrating Human Capital and
- social stability(orderly society)
• Macro /International Finance Side
- High Savings
- Low Domestic Investment
- Relatively large Investment in U.S.
Why is the East Asia chosen as the
partner for the U.S. Supply Chain?
• Neo-Confucian work ethics provides discipline for
assembly line workers for massive production
required for the U.S. Market
• Social capital based on Neo-Confucianism provides
domestic political/economic stability of the supply
• The Neo-Confucianism provides a common Cultural
Binding for the East Asian countries and Practicality
as well: Because of these, international political
conflicts do not interfere with trade and economic
3. Issues of the U.S. Supply Chain in
the East Asia
• U.S. Supply Chain Parallel to the Flying Geese
Model claimed by Japan
Pyramid Structure of East Asian Miracle
“Flying Goose Model (雁行)” suggests
U.S. Supply Chain with
Korea and other HPAEs +
In a Pyramid Structure.
• The phase "flying geese pattern of development" was
coined originally by Kaname Akamatsu in 1930s
• Saburo Okita (1914-1993), well-known Japanese
economist and a foreign minister in the 1980s, presented
the idea formally at the 4th Asia Pacific Economic
Cooperation Council Conference, Seoul in 1985.
• It says that Japan is the leader of Asian countries
in terms of economic growth.
The flying geese (FG) model intends to explain
the catching-up process of industrialization by
latecomer economies. It has some special
• Intra-industry aspect: product development within a
particular developing country, with a single industry
growing over three time-series curves, i.e., import (M),
production (P), and export (E).
• Inter-industry aspect: sequential appearance and
development of industries in a particular developing
country, with industries being diversified and upgraded
from consumer goods to capital goods and/or from simple
to more sophisticated products.
• International aspect: subsequent relocation process of
industries from advanced to developing countries during
the latter's catching-up process.
Problems of the Flying Geese
• The Flying Geese model needs the regional
leader(Japan) , and the followers(other EA
-> Japan as the Middleman Economy between
U.S. and the EA.
• The followers get less; The bottom countries
get the least.
• This is a chain of Exploitation.
A chunk of China’s Trade Surplus get transferred
to Korea, Taiwan, and Japan.
Supply Chain = Export Chain
• Japan provides Technologies, Core Materials for
Korea and other HPEAs.
• Korea and HPEAs provides processed
Materials for China
• China produces Final Outputs and exports to U.S.
-> In the end, China’s Trade Surplus is
substaintially absorbed as
China’s Trade Deficits with Korea and Japan.
• The bottom country looks for another new
comer to the flying geese.
• There is a relentless pursuit for lower labor
costs and more profits.
-> China looks to Yunnan, Xingjiang, Vietnam,
• Is the Neo-Confucian Work Ethic transferrable
to other countries?
• Would China reorganize the economy/industry
in the Japanese and Korean or Neo-Confucian
way so that it becomes the leader in the East
4. Next Level of Economic Partnership
• Next level of Economic Partnership
is to extend the U.S. Supply Chain to
a partner country through the Free Trade
World Trade Policy of U.S.
• A “qualified” Free Trade
- U.S. blocks WTO’s Global or General Free Trade
- U.S. wants Bilateral Free Trade and forms Block of
Free Trade with specific country or block of countries
- U.S. competes with other potential Blocks
FTA with U.S. = U.S. Supply Chain
• U.S. FTA is comprehensive by including
Investment (by U.S. in the partner country)
• FTA facilitates Intra-industry Trade of the U.S.
Multinational Firms (GM U.S. and G.M. China,
just as was the case of GM U.S. and G.M.
• U.S. Free Trade Agreement will
capture the Flying Geese within
• U.S. FTA in East Asian cover
• It competes with the China Block of FTA
* Korea as the King Maker in the East Asia
• Asian countries want Viable Block of Economy independent
• China, and Japan compete for hegemony
• U.S. wants to keep its hegemony
• Korea is the King-maker by its size and location, and is trying
to cash on its “Balancing Role in the North East Asia” (东北亚
• For now, U.S. Free Trade Agreement offer is made to Korea,
blocking potential Trade Block led by China.
- China calls U.S.-Korea FTA “Pang Da Kuan” for Korea
Would the East Asia as a whole build
a Self-reliant and Sustainable economy?
-> Can East Asia continue to fast grow without
• Economic growth is both endogenous and
• Economic growth is of International
• Partnership with the U.S. determines Growth
• The partnership is a Structured Supply Chain
of the U.S.