can we count on intra-regional trade as a source of growth?
TRANSCRIPT
Can We Count on Intra-regional Trade as
a Source of Growth?
Topics
East Asia in the world Economy and Linkages within the Region
Intensification of Intra-regional Trade in East Asia
Final Demand and Trade Linkages within East Asia
Potential and Trends of Intra-regional Trade
Policy Implications for Thailand
Export of Thailand and East Asian
East Asia in the world Economy and Linkages
within the Region
East Asia in the world Economy and Linkages within the Region
Four new aspects of Modern world trade
1. The rise of the intra-trade.2. Trade in similar goods between
similar countries.3. The ability of producers to slice up
the value chain.4. Breaking the production process
into many geo-graphically seperates steps.
Intra-regional Trade in East Asia
Intensification of
Intra-regional Trade
In East Asia
We spread the argument into 2 topics :
1.)Disaggregation by Countries
2.)Disaggregation by Products
Disaggregation
by Countries!
Disaggregation by Countries
The 5 major players in the East-Asia intra-region trade :
1.) China
2.) Hong Kong
3.) Taiwan
4.) Korea
5.) Singapore
These 5 countries account
for 78% of the intra-regional exports and 72% of imports.
These 5 countries account
for 78% of the intra-regional exports and 72% of imports.
Disaggregation by Countries
•2 Group of trading area by geography
1.) North East Asia : China, Korea, Hong Kong,
and Taiwan
2.) South East Asia : Thailand, Malaysia, Indonesia,
Singapore, and Philipines
Disaggregation by Countries
Disaggregation by Countries
$240 billion
$87 billion
$240 billion
$87 billion
Disaggregation by Countries
Disaggregation by Countries
Disaggregation by Countries
Why Chinese trade lines keep rising?
1) It’s new market with population of more than 1200 millions.
2) Low-cost of labor which can help lower costs of the total production.
The US market share of East The US market share of East Asian countries are declining, Asian countries are declining, except China that its share except China that its share grows rapidly.grows rapidly.
Disaggregation by Countries
Disaggregation by
Products!
After 1989, there was a “changing of
production structure” from less
sophistcated products to more
sophisticated products.
Disaggregation by Products
Disaggregation by Products
Account for 45%
Increase 14-17% per year
Disaggregation by Products
“Moving Up the Product Ladders”
The export production will be shifted
from more advanced countries to less
advanced countries.
Disaggregation by Products
Disaggregation by Products
ASEAN-4s is moving up product ladder
by producing more sophisticated products such
as machinery products ,and reducing the
productions of less sophisticated. Especially
year 1998(after the crisis).
Disaggregation by Products
Thailand was constantly moving up the
product ladders over time, especially
after the financial crisis and sharp
depreciation of the Baht.
Disaggregation by Products
“The rise of international division of labor and intra-industry trade”
Disaggregation by Products
The growing “internationalization” of production system, which increasingly involve vertical trading chains spanning a number of countries, each specializing in a particular stage of production, is an important feature behind the changing nature and the increasing scale of the
trade…
Disaggregation by Products
Disaggregation by Products
Final Demand and Trade Linkages within
East Asia
Disaggregate by country suggests that intra region trade may be driven by Demand from outside East Asia.
Disaggregate by type of product suggests that intensified intra-regional trade may change supply side (especially manufacture product).
Interpretation
The estimation equation is in this form
itvolex _
ititttiit PxgEAgGvolex 11 __3_
= export volume growth of country i at time t
1_3 tgG = lagged G3 economic growth using manufacturing
production index as a proxytgEA_ = weighted average of domestic demand
growth of
East Asian countries1itPx = lagged export price of country i at time t
Demand structure for Exports
Total exports depend on final demand in both region
Demand structure for Exports
Demand structure for Exports
Demand structure for Exports
Trade Cycle Synchronization and Intra-regional Trade as a Buffer to Demand Shocks from G3
Trade Cycle Synchronization and Intra-regional Trade as a Buffer to Demand Shocks from G3
Trade Cycle Synchronization and Intra-regional Trade as a Buffer to Demand Shocks from G3
Trade Cycle Synchronization and Intra-regional Trade as a Buffer to Demand Shocks from G3
Potential and Trends of Intra-regional Trade
We use this model to predict the potential and trends of intra-regional trade.
jiijij GDPdGDPhdistExport
Gravity Equations
Gravity Equations
We can see that, trade or export is depending on distance and GDP in both two countries.
Income level of both countries as measured by GDP.
The distance between two countries, the closer will trade much more because of transportation costs, cultural barrier, and the other trade barriers.
Gravity Equations
Gravity Equations
Gravity Equations
Export is not depending on only distance and GDP but also another variable. The other variables are FDI, currency and tariffs.
titjtiijtij VARGDPdGDPhdistExport ,,,,
Gravity Equations
Potential for Trade
We use the coefficients from gravity equation and actual data on GDP and distance between two countries to get the predicted level of trade.
The difference between the predicted level of trade and the actual level of trade is potential trade.
Potential for Trade
Potential for Trade
We can predict the future trend by coefficients from gravity equation and possible growth different between G3 and East Asia region.
Future Trend
Future Trend
G3 countries
G3 countries are the highest countries which have high technological and high labor productivities in the world.
For increase their GDP, these countries must depend on their technological capability.
Future Trend
East Asia region
East Asia is still young region.They still have much to catch up to
G3 countries by transfers of production techniques and knowledge from the west.
Future Trend
Future Trend
Future Trend
Year 2022
Intra-regional trade will be more important for expanding East Asian economies.
In short run, Thailand gain export growth to China.
In the long run, Thailand can grow faster than G3 because they will have more prosperity which could be the power of growth.
Future Trend
The countries in region are still behind G3 countries in term of development with GDP per capita.
If we together as a region manage to repeat catching up experience by Japan and NIES, intra-regional export will serve as a new resource of growth for Thailand for the medium-term.
Future Trend
Policy Implications for Thailand
Bilateral Free Trade Agreements and Regional Integration
Example of Free Trade Agreements in East Asia ASEAN Free Trade initiative with China in
2001 Singapore VS
New Zealand (2000) Japan (2002) European Free Trade association (2002) Australia (2003) The US (2003) Canada, India, Korea, Mexico, and Taiwan
(currently under negotiations)
Bilateral Free Trade Agreements and Regional Integration
Bilateral Free Trade Agreements and Regional Integration
FTA can create “trade diversion” Trade Diversion: DWL occurred because
of what should be traded with country outside the block but due to the reduction in tariff via the FTA, it has been instead produced by members of the group at higher costs
Arguments against Trade Arrangements
Renato Guggierro, the former WTO Director General (2003) (Regional agreements) might become a
substitute for -rather than a complement to- multilateral liberalization at the WTO”
Leading to a fragmentation of the world trade system rather than freer global trade
Arguments against Trade Arrangements
Renato Guggierro, the former WTO Director General (2003) “competitive regionalism” (defensive,
or even hostile, regional blocs) In any case, regional and bilateral deals
are a poor second-best to global free trade.
Preferences granted to some are handicaps imposed on others. Countries that are excluded from such agreements suffer.
Arguments against Trade Arrangements
Policy directionPriorities for free trade
agreementsThe supply structure within the
regionThe demand structure of South
East Asia
Implications for Thailand
Priorities for Free Trade Agreements
Groups of East Asian, based on Kwan (2002) methodology (according to their export structure) Japan Newly Industrialized Asian Economies
(NIES) ASEAN-4 (Thailand, Malaysia,
Indonesia and the Philippines) China and India
Priorities for Free Trade Agreements
Japan
Newly Industrialized Asian Economies (NIES)
ASEAN-4
China and India
Presently, the Royal Thai government has made much progress on this front with the FTA between China and ASEAN signed FTA with India to be signed later this year as well as any more in the negotiation process.
Priorities for Free Trade Agreements
In the 1990s; how to use the region as a platform for
the world market.Now;
the internationalization of the production process and how countries in the region can come together as one part of the assembly line
The supply Structure within the Region
Demands within ASEAN are quite fragmented compared with China and India.
Creating a more integrated market
The Demand Structure of South East Asia
List of possible regional preferential trading arrangements to be considered (Lloyd and Crosby; 2002) Free trade area, custom unions, common
market, single market, economic union, monetary union, and fiscal union
Fragmented ASEAN is not an option SE Asia will be at the disadvantage with
respect to the neighbors with large markets.
The Demand Structure of South East Asia
Intra regional trade will become more and more important in the external trade of East Asia countries. This region will become one of the largest trading areas in the world with the largest consumers
Conclusion