Transcript Reglobalization: liberalization and regional integration

7: 21st century globalization
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Discussion: winners and losers from the
Asian boom and bust
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 Evolution of trade shares with china – compare ‘close’ and
‘far’ (TAF talk)
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The setting: (re)globalization
 During 1990s, SE Asia reintegrates with global economy
through more than just commodity trade
 Capital and labor markets
 International agreements (regional: AFTA, APEC; global:
WTO)
 At same time, global integration by others – esp. China
 1978: China’s “open door” policy initiated
 1980s: mainly domestic reforms
 1990s: China joins global marketplace (1994 devaluation)

Global impacts on product and factor markets
 Development impacts of SE Asian and global integration?
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The setting: (re)globalization
 China effect: changes in global markets and factor supplies
 Increased demand for some goods and services; intensified
competition in mkts for others (which ones?)
 Successful development requires flexibility
 Moving up the value ladder requires increasingly
sophisticated technologies and inputs; dynamic firms
 Premium on capacity for innovation, & on inputs
complementary with more advanced technologies
 What are these? How do they assist growth?
 “prying open the Solow model”: 3 modifications
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Globalization and productivity growth
 Solow growth model emphasizes importance of productivity
growth – in a hypothetical closed economy
 Open-economy Solow: (i) intermediate inputs
 Original aggregate production function:
Y = A ƒ(K, L)
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 With intermediate inputs (N): assume
Y = A ƒ(K,L) N
•
•
==> More N  more output and more productive K & L
==> If intermediates are dominated by imports, then lowering costs
of importing N has positive effects on economic growth
Example: demand for N = ND = PN-1, so Y = A ƒ(K,L)/PN
•
Then –∂Y/∂PN has an effect proportional to ∂Y/∂A; lowering the
domestic cost of N raises TFP.
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Globalization and int’l capital transfer
 Open-economy Solow: (ii) imported capital
 Original capital growth equation:
Δk = s•ƒ(k) – (d + n)•k
 Savings in closed econ:
 In open econ:
S = I; s = I/Y.
S = I + FDI, s = (I + FDI)/Y
==> Imported capital (FDI/ investment goods) also adds to capital
stock
==> Lowering the cost of importing capital/investment goods is
equivalent to raising the domestic savings rate, which increases
economic growth
 Cheaper FDI and investment goods imports may also interact with
other factors (human capital, productivity) as discussed in
growth/trade class.
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S
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Tariff liberalization in SE Asia
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Above-average imports of capital goods
S
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Most innovation comes through int’l linkages
S
o
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Innovation in product mix
 Open-economy Solow (iii): climbing the product ladder
 In closed economy aggregate model, diminishing returns to capital
due to movement around a (single) production function
 This leads to convergence to steady state (zero per capita growth)
 In closed-econ 2 (or more) sector model, size of domestic market
also  dim returns (supply up -> price down -> lower cap returns)
 In open economy, size of market is not a constraint
 As capital per worker accumulates, can switch production to more
capital-intensive products, sold at (constant) world prices
==> Diminishing returns do not apply, or are delayed
==> High per capita growth rate can be sustained for longer, if other
conditions are favorable
 “What you export matters” – Dani Rodrik
 Like China, SE Asia’s most successful economies have diversified
manufacturing production into increasingly capital- and skillintensive production
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Summary: openness, productivity, growth
 In inward-oriented economies, capital is costly and factor
productivity is reduced by high cost of imported
intermediate goods and investment goods
 Globalization reduces investment costs and raises factor
productivity
 In inward-oriented economies, the size of the market
constrains output growth, induces diminishing returns
 Globalization increases the size of the potential market, and
product innovations (i.e., climbing the product quality and
sophistication ladder) can prevent diminishing returns
 Globalization and innovation are complementary
 What else is needed to realize gains?
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New Asian regionalism: China
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SE Asia in the new Asian economy
 Growth of China impacts world markets, especially after
1994
 South-South trade impacts: competition and
complementarity
 Competition - which products?
 Complementarity – which products?
 Competition - which countries?
 Complementarity – which countries?
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Enter the dragon
 China’s growth and globalization are changing the
composition and direction of SE Asian trade
 Competition with China in third-country markets is
intensifying
 Multifiber arrangement (which penalized Chinese garment
exports to rich countries) abolished (Jan. 2005)
 Yet SE Asian trade with China is growing faster than total
trade – how? What products?
 What is SE Asia’s comparative advantage with respect to
China?
SE Asia-China trade growth (%)
Country
Indonesia
Malaysia
Thailand
Period
China trade
share %
Total trade
growth %
Growth of
trade w
China %
85-95
4.3
143
153
95-01
6.2
32
44
85-95
2.4
381
118
95-01
5.6
29
133
85-95
2.9
598
-15
95-01
6.5
34
124
ChinaХstrade share (percent) and rank
Country
1990 1995
Malaysia Exports
2.10
2.56
Rank
10
9
Imports
1.92
2.20
7
7
Indones ia Exports
3.25
3.83
5
5
Imports
2.97
3.68
7
8
Philippines Exports
0.75
1.20
10
10
Imports
1.40
2.34
9
8
Tha iland Exports
1.16
2.87
10
6
Imports
3.31
2.84
6
7
Vietnam Exports
0.31
6.44
6
3
Imports
0.16
3.94
8
6
Source: ADB
among trading part ners
2000
2001
2002
3.09
4.33
5.63
9
6
5
3.94
5.19
7.74
5
4
4
4.46
3.91
5.08
5
5
5
6.03
5.95
7.76
5
5
4
1.74
2.47
3.85
10
10
8
2.28
2.95
3.54
9
7
7
4.07
4.40
5.16
6
5
5
5.45
5.98
7.61
4
3
3
10.61
9.44
6.45
2
2
4
8.96
9.91
11.82
4
4
2
2003
10.78
3
6.82
4
7.43
4
11.72
2
12.00
3
6.99
4
7.09
4
8.00
3
6.40
4
14.06
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back
A measure of comparative advantage
 Revealed comparative advantage as captured by
trade intensity:
RCAij = (Xij/XTj) / (XiWXTW)
Where Xij = exports of good i from country j;
XTj = total exports from country j;
XiW = world exports of good i;
XTW = total world exports
 RCAij > 1 ==> comparative advantage
< 1 ==> comparative disadvantage
Trade data: commodity groups
Group
A.Primary products
1. Agricultural products:
- Food
- Raw materials
2. Mining products
B. Manufactures
C. Other products
SITC section
SITC division
0,1,2,3,4
0,1,4
3
22
21,23,24,25,26,29
27,28,69
5,6,7,8
Not including 68
and group 891
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Group 891
SITC Revision 3 WTO International Trade Statistics 2004
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22
23
24
25
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100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
World China World China World China World China World China
Indonesia
Malaysia
1. Agriculture
3. Heavy industry
5. Labor-intensive mfg
Philippines
Thailand
Vietnam
2. Raw & semi-processed nat. res.
4. Capital-intensive mfg
6. Other
Figure 9: Sectoral composition of SE Asian exports to the world and to China
Competition and complementarity
 Competition
 Investment?
 Labor-intensive manufactures – ‘bottom rung’ industries
 Complementarity
 Natural resources – could export booms  resource curse?
 Skill-intensive manufactures
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Investment trends
FDI net annual inflows, China and SE Asia
60,000
China
40,000
SE Asia*
30,000
20,000
10,000
Source: WDI. * Excludes Singapore.
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
0
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Millions of 2000 US dollars
50,000
‘Bottom-rung’ industries
Employment in te xtiles, garments and footwear and share of manufactures
exports
Employment
Share of
Manufac tured Exports (%)
Country
Year (% Mfg LF)
Indones ia
2001
31.3
31.1
Malaysia
2000
8.3
4.6
Philippines
1999
18.2
8.8
Tha iland
2000
21.0
13.6
Viet Nam
2000
41.4
60.8
Cambodia
2000
80.1
80.0
Source UNIDO. Product Categories: ISIC 171, 172, 1730, 1810, 1820, 191, 1920
UN Comtrade. Product Categories: SITC 65, 83, 84, 85
Resource exports: resource curse?
 SE Asia escaped resource curse first time around
 In fact, their ‘miracle’ growth occurred during a decade on
historically low world commodity prices
 Was based on hosting FDI directed at non-resource sectors
 Could they do it again?
 Some econs have climbed further up industrialization ladder than
others (structure of investment; human capital accumulation). Esp.
late starters.
 China’s growth (and India’s…) could kick away ladder
Consequences: natural resources
• China’s growth raises demand for NR products
– E.g. demand for forest products rose 175% 1997-2003
• Among exporters, contraction of labor-intensive
industries reduces growth of low-skill labor costs
• Natural resource sectors benefit from this
• Future profit rises will be highest in labor-intensive,
resource-intensive activities, including
– Industrial plantation crops
– Agricultural crops
– Inland and coastal fisheries
Environmental problems: access to natural
resources
 Open access & unresolved externalities
characterize many aspects of natural resource
extraction in Southeast Asia
 Some trends toward greater central control in early
1990s
 How will decentralization affect NR management?
Liquidating Indonesia’s forests
 New laws unclear on ownership, use rights,
responsibilities and rights of local gov’ts
 Fiscal incentives for local gov’ts to increase
extraction rates
 Result… “a free-for-all in which forest management
has become the responsibility of no-one”
  Demand for timber and land for ag. conversion
 Timber removal rates now at 3 times Jakarta’s “sustainability
criterion”
Conclusions
 ‘Globalization’ in China and SE Asia shifts comp. adv.
toward NR products, away from labor-intensive
manufactures
 Dynamics: investment flows may reinforce trend
 Divergence within region: complementarity in skill-
intensive manufactures v. complementarity in natural
resources
 Decentralization may cause resource depletion to accelerate
 Possibility of “new” natural resource curse in resource-
intensive economies
 Caveat: ‘China effect’ reduces net gains from globalization
Next: growth of skill-intensive manufacturing
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