Exchange Rate Regimes in East Asia [1 ed.] 9780203356401, 9780415322812

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Exchange Rate Regimes in East Asia

There is a deepening debate in East Asia about the prospects for common exchange rate arrangements, even including the formation of a common currency in the longer term. This raises a complex set of issues and this volume provides a detailed yet comprehensive examination of key themes in the debate. It looks, for example, at the nature and extent of economic linkages in East Asia, in terms of trade and foreign direct investment, finance, labour, and macroeconomic fluctuations. It examines how the exchange rate affects various aspects of economies. And it critically analyses several proposals for exchange rate regimes for the region, including floating exchange rates, currency basket systems and monetary union. This book will be of interest to people studying common currency areas, international finance, open economy macroeconomics and economic policy coordination, especially in East Asia.

Gordon de Brouwer is Professor of Economics in the Asia Pacific School of Economics and Government at the Australian National University. Masahiro Kawai is Professor of Economics in the Institute of Social Science, University of Tokyo.

RoutledgeCurzon Studies in the Growth Economies of Asia

1 The Changing Capital Markets of East Asia Edited by Ky Cao 2 Financial Reform in China Edited by On Kit Tarn 3 Women and Industrialization Edited by Susan Horton

in Asia

4 fapan 's Trade Policy Action or reaction? Yumiko Mikanagi 5 The Japanese Election System Three analytical perspectives Junichiro Wada 6 The Economics of the Latecomers Catching-up, technology transfer and institutions in Germany, Japan and South Korea Jang-Sup Shin 7 Industrialization in Malaysia Import substitution and infant industry performance Rokiah Alavi 8 Economic Development in Twentieth Century East Asia The international context Edited by Aiko Ikeo 9 The Politics of Economic Development in Indonesia Contending perspectives Edited by Ian Chalmers and Vedi Hadiz 10 Studies in the Economic History of the Pacific Rim Edited by Sally M. Miller, A. J. H. Latham and Dennis O. Flynn 11 Workers and the State in New Order Indonesia Vedi R. Hadiz 12 The Japanese Foreign Exchange Market Beate Reszat

13 Exchange Rate Policies in Emerging Asian Countries Edited by Stefan Collignon, Jean PisaniFerry and Yung Chul Park 14 Chinese Firms and Technology in the Reform Era Yizheng Shi 15 Japanese Views on Economic Development Diverse paths to the market Kenichi Ohno and Izumi Ohno 16 Technological Capabilities and Export Success in Asia Edited by Dieter Ernst, Tom Ganiatsos and Lynn Mytelka 17 Trade and Investment in China The European experience Edited by Roger Strange, Jim Slater and Limin Wang 18 Technology and Innovation in Japan Policy and management for the 21st century Edited by Martin Hemmert and Christian Oberländer 19 Trade Policy Issues in Asian Development Prema-chandra Athukorala 20 Economic Integration in the Asia Pacific Region Ippei Yamazawa 21 Japan's War Economy Edited by Erich Pauer 22 Industrial Technology Development in Malaysia Industry and firm studies Edited by K. S. Jomo, Greg Felker and Rajah Rasiah 23 Technology, Competitiveness and the State Malaysia's industrial technology policies Edited by K. S. Jomo and Greg Felker

40 The Economy of the Philippines Elites, inequalities and economic restructuring Peter Krinks

24 Corporatism and Korean Capitalism Edited by Dennis L. McNamara 25 Japanese Science Samuel Coleman

41 Chinas Third Economic Transformation The rise of the private economy Edited by Ross Gamaut and Ligang Song

26 Capital and Labour in Japan The functions of two factor markets Toshiaki Tachibanaki and Atsuhiro Taki 27 Asia Pacific Dynamism 1550–2000 Edited by AJ.H. Latham and Heita Kawakatsu 28 The Political Economy of Development and Environment in Korea Jae-Yong Chung and Richard J. Kirkby 29 Japanese Economics and Economists since 1945 Edited by Aiko Ikeo 30 China's Entry into the World Trade Organisation Edited by Peter Drysdale and Ligang Song 31 Hong Kong as an International Financial Centre Emergence and development 1945–1965 Catherine R. Schenk

43 Restructuring Korea Inc. Jang-Sup Shin & Ha-Joon Chang 44 Development and Structural Change in the Asia-Pacific Globalising miracles or end of a model? Edited by Martin Andersson and Christer Gunnarsson 45 State Collaboration and Development Strategies in China The case of the China-Singapore Suzhou industrial park (1992–2002) Alexius Pereira 46 Capital and Knowledge in Asia Changing power relations Edited by Heidi Dahles and Otto van den Muijzenberg

32 Impediments to Trade in Services Measurement and policy implications Edited by Christopher Findlay and Tony Warren

47 Southeast Asian Paper Tigers? From miracle to debacle and beyond Edited by Jomo K.S.

33 The Japanese Industrial Economy Late development and cultural causation Ian Inkster 34 China and the Long March to Global Trade The accession of China to the World Trade Organization Edited by Alan S. Alexandroff, Sylvia Ostry and Rafael Gomez 35 Capitalist Development and Economism in East Asia The rise of Hong Kong, Singapore, Taiwan, and South Korea Kui-Wai Li 36 Women and Work in Globalizing Asia Edited by Dong-Sook S. Gills and Nicola Piper 3 7 Financial Markets and Policies in East Asia Gordon de Brouwer 38 Developmentalism and Dependency Southeast Asia The case of the automotive industry Jason P. Abbott

42 The Vietnamese Economy Awakening the dormant dragon Edited by Binh Tran-Nam and Chi Do Pham

in

39 Law and Labour Market Regulation in East Asia Edited by Sean Cooney, Tim Lindsey, Richard Mitchell and Ying Zhu

48 Manufacturing Competitiveness in Asia How internationally competitive national firms and industries developed in East Asia Edited by Jomo K.S. 49 The Korean Economy at the Crossroads Edited by MoonJoong Tcha and ChungSok Suh 50 Ethnic Business Chinese capitalism in southeast Asia Edited by Jomo K.S. and Brian C. Folk 51 Exchange Rate Regimes in East Asia Edited by Gordon de Brouwer and Masahiro Kawai 52 Financial Governance in East Asia Policy dialogue, surveillance and cooperation Edited by Gordon de Brouwer and Yunjong Wang 53 Designing Financial Systems in East Asia and Japan Edited by Joseph P.H. Fan, Masaharu Hanazaki and Juro Teranishi 54 State Competence and Economic Growth in Japan Yoshiro Miwa

Exchange Rate Regimes in East Asia

Edited by Gordon de Brouwer and Masahiro Kawai

RoutledgeCurzon Taylor & Francis Group LONDON AND NEW YORK

First published 2004 by RoutledgeCurzon 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by RoudedgeCurzon 270 Madison Avenue, New York, NY 10016 Transferred to Digital Printing 2005 RoutledgeCurzon is an imprint ofthe Taylor Francis Group © 2004; selection and editiorial matter Gordon de Brouwer and Masahiro Kawai; individual chapters, the contributors Typeset in Garamond by Australia–Japan Research Centre, Canberra, Australia All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book is available from the Library of Congress

ISBN 0 415 32281 2

Contents

List of figures List of tables and box List of contributors Preface Abbreviations

ix xii xv xvii xix

1

Economic linkages and implications for exchange rate regimes in East Asia Gordon de Brouwer and Masahiro Kawai

2

Trade and foreign direct investment in East Asia Masahiro Kawai and Shujiro Urata

3

'Revealed commonality': linkages in consumption, investment and output in East Asia Gordon de Brouwer and Mardi Dungey

103

A multivariate approach to grouping financially integrated economies Shinji Takagi and Kenichi Hirose

131

International migration and trade liberalisation: some lessons from Asia Junichi Goto

153

Patterns, economic implications and policy issues in international labour migration Prema-chandra Athukorala

197

4

5

6

7

Exchange rate pass-through to export prices Robert Dekle and Cathy Karnchanasai

1

15

219

Viii

Contents

8

The effects of exchange rate volatility on trade Michael D. McKenzie

9

The cost of crises and learning to live with exchange rate volatility: evidence from survey measures of consumer business expectations Gordon de Brouwer

10

Measuring real effective exchange rates Menzie D. Chinn

11

Exchange rate regimes and monetary independence in East Asia Chang-Jin Kim and Jong-Wha Lee

237

253

268

302

12

'Fair value' and exchange rate misalignment Chris Becker, Jaideep Bedi and Bob Rankin

13

The narrow road to the single Asian currency: lessons from optimal currency areas and the euro Benoît Coeuré

335

The case for a tri-polar currency basket system for emerging East Asia Masahiro Kawai

360

14

15

Which exchange rate regime for Asia? WarwickJ. McKibbin and Hong-Giang Le

16

Options for currency arrangements and their policy implications Charles Adams and Romuald Semblat

17

320

385

417

Sequencing monetary and trade integration Kwanho Shin and Yunjong Wang

433

Index

455

Figures

2.1 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.1

4.2 4.3

5.1 5.2 5.3 5.4 5.5 7.1 7.2 8.1 8.2 8.3

FDI inflows to China and ASEAN-10 Private consumption Gross fixed capital formation Aggregate output Contribution of the common factor Income-purged innovations to private consumption, 1978–2001 Income-purged innovations to private consumption, 1993–2001 Common factors in private consumption Grouping financially integrated economies: dendrogram from cluster analysis (complete linkage – furthest neighbour – method) Grouping financially integrated economies: dendrogram from cluster analysis (average linkage method) Grouping financially integrated economies: dendrogram from cluster analysis (single linkage – nearest neighbour – method) Illegal foreign workers in Japan (number of workers apprehended), 1983–2000 Migrant workers of Japanese origin, 1988–2000 Economic effects of migration Effects of cheaper foreign labour Migrant workers and host country's welfare Short run pass-through of US prices to Thailand and South Korea Short run pass-through of Japanese prices to Thailand and South Korea Daily Thai baht–US dollar exchange value, 1991–2000 Thai one-month rolling standard deviation of daily exchange rate returns, 1991–2000 Singapore rolling one-month standard deviation of daily exchange rate returns, 1991–2000

82 104 105 106 117 124 125 126

144 145

146 160 162 168 174 176 233 234 241 242 243

x

Figures

8.4 8.5 8.6 8.7 8.8 8.9 9.1 9.2 9.3 9.4 9.5 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25

Conditional variance of a GARCH process fitted to daily Singapore exchange rate returns, 1991–2001 Percentage of false nearest neighbours in Singapore–US exchange rate, 1986–2001 Total trade for selected East Asian economies Growth rates in trade for selected East Asian economies Aggregate trade across East Asian economies, 1980–99 Growth rates in aggregate trade across East Asian economies, 1981–99 Spot and derivatives turnover in the onshore Australian dollar market Business sentiment and exchange rate volatility Recursive estimates: effect of exchange rate volatility on business sentiment Consumer sentiment and exchange rate volatility Recursive estimates: effect of exchange rate volatility on consumer sentiment Australian dollar–US dollar real exchange rate Chinese renminbi–US dollar real exchange rate Hong Kong dollar–US dollar real exchange rate Indonesian rupiah–US dollar real exchange rate Korean won–US dollar real exchange rate Malaysian ringgit–US dollar real exchange rate Philippine peso–US dollar real exchange rate Singapore dollar–US dollar real exchange rate New Taiwan dollar–US dollar real exchange rate Thai baht–US dollar real exchange rate Federal Reserve Bank and IMF measures of US real exchange rate US dollar CPI and unit labour cost deflated exchange rate indices Japanese yen CPI, PPI and ULC deflated indices Australian dollar real trade-weighted index Chinese renminbi real trade-weighted index Hong Kong dollar real trade-weighted index Indonesian rupiah real trade-weighted index Korean won real trade-weighted index Malaysian ringgit real trade-weighted index Philippine peso real trade-weighted index Singapore dollar real trade-weighted index New Taiwan dollar real trade-weighted index Thai baht real trade-weighted index Measures of China's real effective exchange rate Measures of Thailand's real effective exchange rate

244 247 249 249 250 250 254 257 259 261 263 274 274 274 275 275 275 276 276 276 277 280 280 280 282 282 282 283 283 283 284 284 284 285 293 293

Figures xi 11.1 11.2 12.1 12.2 12.3 13.1 13.2 13.3 13.4 13.5 13.6

Exchange rates and interest rates in Asian countries Exchange rate volatility and the response of local interest rates to US interest rates Asia Pacific exchange rates (Balassa–Samuelson productivity model) Asia Pacific exchange rates (Goldman–Sachs fundamentals model) Exchange rate misalignment and variability Emerging market exchange rate regimes, 1991 and 1999 Changes in the border effect in Europe 'Convergence fatigue': divergence of eurozone inflation rates Openness ratio, East Asia and Europe GDP per capita (purchase price parity basis), Asia and Europe Heterogeneity of year-on-year growth rates, Asia and Europe

310 316 327 328 331 337 343 348 350 350 351

Tables and box

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10

Exports for selected regions and countries, 1980–99 Imports for selected regions and countries, 1980–99 Total trade (exports and imports) for selected regions and countries, 1980–99 Foreign direct investment for selected regions and countries, 1980–99 Intra-regional interdependence of trade and FDI Trade intensity index for selected groups and economies, 1980–99 Changing export structures of East Asian economies Intra-regional trade interdependence for selected commodities, 1980 and 1999 Intra-industry trade indexes for East Asian economies, 1990–99 Cross-border mergers and acquisitions in East Asia, 1988–99 Origin of FDI flows to Thailand by sector, 1995–99 Origin of FDI flows to Thailand by region/country, 1995–99 Procurements and sales of foreign affiliates of Japanese multinational corporations, 1992 and 1997 Intra-firm transactions in procurements and sales of foreign affiliates of Japanese multinational corporations, 1992 and 1997 Cointegration of output across countries Cointegration of consumption across countries Cointegration of investment across countries Granger causality on consumption growth rates, 1978–2001 Granger causality on investment growth rates, 1978–2001 Granger causality on GDP growth rates, 1978–2001 Granger causality on GDP growth rates, 1993–2001 Simple factor model variance decomposition Comparative results for the common factor contribution Correlation of income-purged innovations to consumption, 1978–2001

18 22 26 30 35 37 46 60 66 80 84 86 88

92 108 109 110 111 112 112 113 116 120 122

Tables and box xiii 3.11 A3.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17 5.18 5.19 6.1 6.2 6.3 6.4 6.5 7.1 7.2 8.1 8.2

Correlation of income-purged innovations to consumption, 1993–2001 Database codes Exchange rate volatility Bilateral deviations from purchasing power parity Bilateral deviations from uncovered interest parity Bilateral trade intensity Interest rate correlation Weights of competing measures of financial integration in principal components Univariate measures of bilateral financial integration Foreign population in selected countries, 1990 Registered foreigners in Japan, by origin, 1970–2000 Indonesian workers abroad by destination, 1995–97 Philippines land-based workers by destination, 1990–96 Thai workers deployed overseas, by destination, 1993–96 Remittances as a proportion of GDP and merchandise exports, 1980–93 Deployment of Filipino migrants by skill category (new hires), 1992–97 Migrant workers in selected East Asian countries Foreign workers in Japan, 2000 Illegal foreign workers in Japan by country of origin, 2000 Illegal foreign workers in Japan by activity, 2000 Migrant workers before and after the Asian financial crisis Filipino overseas workers by region, 1997–98 Overseas Filipino workers' remittances Social cost of migrant workers Simulation results: impact of migration Simulation results: impact of trade liberalisation Simulation results: impact of Japanese FDI Simulation results from immigration and trade liberalisation Migrant workers in selected Asian countries GDP growth in selected East Asian countries Country of origin of migrant workers in East Asian host countries, 1997–98 Distribution of foreign workers by sector, Japan, Singapore, Taiwan, South Korea and Malaysia Taiwan foreign workers in manufacturing, February 2000 Pass-through of US prices into Asian prices Pass-through of Japan prices into Asian prices Summary of measures used to generate exchange rate volatility Summary statistics for daily exchange rate returns

123 128 138 138 139 139 139 142 142 154 155 155 156 157 157 158 158 159 160 161 166 166 167 180 190 191 192 194 200 201 203 204 205 228 230 239 240

xiv

Tables and box

8.3 8.4 8.5 9.1 9.2 9.3 A9.1 10.1 10.2 10.3 A10.1 A10.2 11.1 11.2 11.3 11.4 12.1 12.2 13.1 14.1 14.2

14.3 15.1 15.2 15.3 15.4 15.5 15.6 15.7 17.1 17.2 17.3

Summary statistics for one-month rolling standard deviations of daily exchange rate returns Exchange rate GARCH model estimates and conditional variance summary statistics False nearest neighbour estimates for daily exchange rate returns, 1986–2001 Over-the-counter total foreign exchange derivatives: average daily turnover, April 2001 Modelling survey measures of business sentiment Modelling survey measures of consumer sentiment Descriptions and sources of data Horvath–Watson test results for US dollar, yen and tradeweighted exchange rates, January 1975 to December 1996 Augmented Dickey–Fuller root test results Augmented Dickey–Fuller tests Data sources and description Details of some trade-weighted indices Exchange rate regimes in East Asia: dejure regimes Exchange rate regimes in East Asia: defacto regimes Exchange rate arrangements and anchors of monetary policy, March 2001 The response of local interest rates to US interest rates Estimates of the real exchange rate and productivity differential relationship Measures of exchange rate overvaluation before the crisis Emerging economies' trade with developed economies Official exchange rate arrangements in the East Asian economies Regression results of exchange rate movements for major emerging East Asian economies: pre-crisis, mid-crisis and post-crisis periods Summary of exchange rate arrangements in East Asia, 2002 US dollar coefficient What the G-Cubed (Asia Pacific) model includes Policy assignment under each monetary regime Shocks impacting on each country Variance of variables for demand shocks Variance of variables for supply shocks Variance of variables for risk shocks Intra-regional trade in East Asia and Europe, 1980–2000 Intra-industry trade in East Asia and Europe, 1980–99 Foreign reserves of Asian and other countries, 1996–2001

Box 15.1 Key features of the G-Cubed (Asia Pacific) model

242 244 247 255 258 262 265 287 289 291 295 296 304 305 308 315 326 329 351 364

368 371 391 394 396 396 399 403 407 441 445 448

393

Contributors

Charles Adams, Regional Office for Asia and the Pacific, International Monetary Fund Prema-chandra Athukorala, Division of Economics and Australia-South Asia Research Centre, Research School of Pacific and Asian Studies, Australian National University Chris Becker, Reserve Bank of Australia Jaideep Bedi, Reserve Bank of Australia Gordon de Brouwer, Australia–Japan Research Centre, Asia Pacific School of Economics and Government, Australian National University Menzie D. Chinn, University of Wisconsin, and National Bureau of Economic Research Benoit Coeure, Agency France Tresor and Ecole Polytechnique Robert Dekle, Department of Economics, University of Southern California Mardi Dungey, Division of Economics, Research School of Pacific and Asian Studies, Australian National University Junichi Goto, Research Institute for Economics and Business Administration, Kobe University Kenichi Hirose, Faculty of Economics, Hitotsubashi University Cathy Karnchanasai, Department of Economics, University of Southern California

xvi

Contributors

Masahiro Kawai, Professor of Economics, Institute of Social Science, University of Tokyo Chang-Jin Kim, Korea University Hong-Giang Le, Asia Pacific School of Economics and Government, Australian National University Jong-Wha Lee, Economics Department and International Center for Korean Studies, Korea University, and Division of Economics, Research School of Pacific and Asian Studies, Australian National University Michael D. McKenzie, RMIT University Warwick J. McKibbin, Division of Economics, Research School of Pacific and Asian Studies, Australian National University, and Brookings Institution Bob Rankin, Reserve Bank of Australia Romuald Semblat, Regional Office for Asia and the Pacific, International Monetary Fund Kwanho Shin, Department of Economics, Korea University Shinji Takagi, Independent Evaluation Office, International Monetary Fund Shujiro Urata, Professor of Economics, School of Social Sciences, Waseda University Yunjong Wang, Senior Research Fellow, Korea Institute for International Economic Policy

Preface

The papers from this volume are the product of a three-year cooperative policy research program, on Future Financial Arrangements to Support Development in East Asia. The aim of the program of research is to bring senior policymakers, academics and business people from East Asia together in an informal setting to think creatively about ways to improve financial arrangements in the region. The research has focused on policy dialogue and surveillance, deepening financial cooperation in East Asia, and analysis of the scope for possible common currency arrangements in the region. The papers in this volume, which focus on exchange rate regimes, are inputs into that process. The research program is currently chaired by Peter Drysdale and Gordon de Brouwer (Australia–Japan Research Centre, Asia Pacific School of Economics and Government, Australian National University), Masahiro Kawai (previously of the Ministry of Finance, Japan, and now at the University of Tokyo) and Eiji Ogawa (Hitotsubashi University). Professor Takatoshi Ito (University of Tokyo) was actively involved at the start of the program. The papers in this volume were presented at a series of policy research workshops organised jointly by the Australia National University and other institutions in East Asia. These include joint policy research workshops with the Australian Treasury in Canberra in November 2001, the China Center for Economic Research (CCER) at Peking University in Beijing in March 2002, the Korea Institute for International Economic Policy (KIEP) in Seoul in November 2002, the Malaysian Institute for Economic Research (MIER) in March 2003 and the Fiscal Policy Research Institute (FPRI) in Bangkok in November 2003. The success of this work, evident in the quality of the papers published in this volume, has been due to the strong support of many institutions and individuals. First and foremost, we would like to thank the primary funding agencies, the Ministry of Finance (Japan), AusAID and Axiss Australia, for providing sustainable funding and valuable intellectual input and support. We would also like to thank the Australian Treasury, CCER, KIEP, MIER and FPRI for their strong support

xviii

Preface

and excellent assistance in co-hosting the research policy workshops with the ANU. Many people have provided support, input and encouragement in putting these papers together. For fear of missing out on someone, we would like to thank these people collectively and in general. But two people stand out for their extraordinary contribution in making this volume possible. We are especially grateful to Mr Haruhiku Kuroda and Professor Peter Drysdale for their deep foresight and leadership in developing the Project. We would also like to thank the people who helped put the papers together in an accessible volume. In particular, we thank Sue Mathews, Marilyn Popp and Minni Reis for their hard work and great effort. We are also grateful to Routledge for excellent editorial guidance and support. All shortcomings remain ours alone. Gordon de Brouwer and Masahiro Kawai Canberra and Tokyo January 2004

Abbreviations

3D ACB ACU ADF AFTA AIA AMF APEC ARCH ARIMA ASEAN ASEAN+3 ASEM BIS BSA CAP CCP CES CGE OP CM CPI DW EC ECB ECU EMCF EMEAP EM EMS EMU ERM ERPD

'dangerous, dirty and demanding' Asian Central Bank Asian currency unit augmented Dickey–Fuller ASEAN Free Trade Area ASEAN Investment Area Asian Monetary Fund Asia Pacific Economic Cooperation auto-regressive conditional heteroskedasticity auto-regressive integrated moving average Association of Southeast Asian Nations ASEAN plus China, Japan and South Korea Asia–Europe Meeting Bank for International Settlements bilateral swap arrangement Common Agricultural Policy common commercial policy constant elasticity of substitution computed general equilibrium covered interest parity Chiang Mai Initiative consumer price index Durbin–Watson European Community European Central Bank European currency unit European Monetary Cooperative Fund Executive Meeting of East Asia-Pacific Central Banks European Monetary Institute European Monetary System economic and monetary union Exchange Rate Mechanism ASEAN+3 Economic Review and Policy Dialogue

xx

Abbreviations

ESCB EU FDI FNN FRB FTA FTCO G-3 G-7 GARCH GATS GATT GDP GMM GNP HOS ICRRA ILO IMF ISIC KFSB LDC M&As MPL MSL MVPL NAFTA NIE NTB OCA OECD PCE PMEQ PPI PPP PTM R&D REER RIP RNB SD SDR SE SOCB

European System of Central Banks European Union foreign direct investment false nearest neighbour Federal Reserve Board free trade agreement (or area) Foreign Training Co-operation Corp Group of Three Group of Seven generalised auto-regressive conditional heteroskedasticity General Agreement on Trade in Services General Agreement on Tariffs and Trade gross domestic product generalised method of moments gross national product Heckscher–Ohlin–Samuelson Immigration Control and Refugee Recognition Act International Labour Organization International Monetary Fund International Standard Industrial Classification Korea Federation of Small Business less developed country mergers and acquisitions marginal product of labour mean stationarity level marginal value product of labour North American Free Trade Agreement newly industrialising (or industrialised) economy non-tariff barrier optimal currency area Organisation for Economic Co-operation and Development personal consumption expenditure machinery and equipment price index producer price index purchasing power parity pricing-to-market research and development real effective exchange rate real interest parity renminbi standard deviation Special Drawing Rights standard error state-owned commercial bank

Abbreviations SOE TFP UIP UK ULC UN US VAR WITS WPI WTO XPI

state-owned enterprise total factor productivity uncovered interest parity United Kingdom unit labour cost United Nations United States vector autoregression World Integrated Trade System (software) wholesale price index World Trade Organization exchange rate index

xxi

1

Economic linkages and implications for exchange rate regimes in East Asia

Gordon de Brouwer and Masahiro Kawai

There is a substantial debate in East Asia on which exchange rate regime best suits the individual and collective needs of economies in the region. A number of countries have changed their exchange rate regime as a result of the 1997–98 financial crisis, generally by shifting to more flexible arrangements. But there is still tension in many economies about how to balance a strong desire for nominal exchange rate stability with the need for flexibility in the real exchange rate to respond to changes in economic circumstances. At the same time, a focus on cooperative solutions to policy has emerged in the region. Concerned about the debilitating effects of financial instability and large fluctuations in asset prices, countries have started to think more seriously about the scope for deeper economic cooperation and integration. This has also been driven by a desire to create a stronger economic community, and encouraged by Europe's experience with monetary union and the introduction of the euro. In response to this regionalist sentiment, East Asia has started to give more serious thought to cooperative exchange rate arrangements and the possibility of a common currency, at least within parts of the region. This volume aims to contribute to thinking on these issues in East Asia. It reflects a variety of views from within the region and beyond about the scope and nature of exchange rate arrangements at the national and regional level. There is currently not a consensus on how countries in the region, or the region as a whole, should determine their exchange rate arrangements. But the debate is evolving and there is certainly a growing desire to consider cooperative solutions. By giving voice to the different elements in the debate and by critically exploring various aspects of economic thinking on exchange rate regime issues, we hope to inform policy discussion and decision-making on these issues. The book is split into three parts. The first part examines the nature of economic linkages within East Asia, ranging from growing trade and investment links to macroeconomic connections, financial integration and labour movement. The analysis of these links parallels the heart of the optimal currency regime literature: economies with similar economic structures, which

2 Gordon de Brouwer and Masahiro Kawai face similar shocks and which have easier internal factor movement are better candidates for monetary integration. The second part of the book critically assesses a range of empirical issues associated with the analysis and measurement of exchange rates. These include the nature of pass-through to prices (such as export prices), the effect of exchange rate volatility on trade, the extent to which households and firms learn to live with exchange rate volatility, the identification of the empirical relationship between misalignment and exchange rate volatility, and the measurement of real effective exchange rates. These papers are analytical rather than focused directly on policy, though they have substantial policy implications. The third part of the book shifts the focus to policy analysis of exchange rate regimes. These topics include assessing the degree of monetary independence under alternative exchange rate regimes and the sequencing of monetary and trade integration, as well as a range of assessments about the past and current practices of exchange rate policies, and the scope for cooperative exchange rate arrangements in East Asia, such as a basket peg or currency union. These papers cover a lot of ground. They also show a wide spread in assessments about the economies of, and preferred policies in, East Asia. The region's heterogeneity makes it a very interesting field for study, critical analysis and policy. PART 1: OPEN ECONOMY LINKAGES The next five chapters of this book explore various elements of economic linkages among economies in East Asia. Masahiro Kawai and Shujiro Urata start this analysis in Chapter 2, Trade and foreign direct investment in East Asia', by examining the trade and foreign direct investment (FDI) links in East Asia and how they have evolved over time. Kawai and Urata argue that since the mid-1980s the East Asian economies have experienced a rapid expansion of both FDI and trade. In examining several measures of intra-regional trade bias, their analysis documents a rapid increase in intra-regional concentration of trade and FDI. This rapid expansion of trade and FDI in the 1980s and 1990s is largely due to unilateral liberalisation of trade and FDI regimes, the resulting market-driven international activities by firms, and the region's rapid economic growth, rather than discriminatory measures against other regions. Kawai and Urata report the emergence of a so-called 'FDI–trade nexus', in the sense that FDI and trade mutually promote each other. They argue that an underlying determinant of the FDI–trade nexus is the formation of regional production chains and networks by multinational corporations, particularly Japanese firms. These networks have promoted the specialisation of production in East Asia by fragmenting the production process into different sub-processes

Economic linkages and implications for exchange rate regimes 3 located in different countries based on comparative advantage, factor proportions and technological capabilities. Indeed, some multinationals have intensively and extensively pursued a strategy of intra-regional division of labour by forming regional supply chains and production networks. This strategy has stimulated FDI-related trade, particularly intra-industry trade. One important implication of this analysis is that FDI has tended to be complementary to, rather than a substitute for, trade. Hence, large inflows of FDI to emerging East Asia stimulated the region's engagement in foreign trade. Since the simultaneous expansion of trade and FDI has clearly contributed to economic development and growth in the region, Kawai and Urata recommend that emerging East Asia should further strengthen the FDI– trade nexus. Kawai and Urata argue that this task is particularly important for ASEAN countries which have seen declining FDI inflows partly because of the impact of the 1997–98 crisis and partly because of the emergence of China as an attractive host for FDI. ASEAN countries should continue to lower and remove the barriers to trade and FDI and maintain market-friendly policy environments. In addition to pursuing liberalisation, they have to strengthen the structural foundations of their economies by shifting to a knowledge-based economy, building infrastructure – both hard infrastructure such as transportation and communication facilities and soft infrastructure such as legal, judicial and governance systems – and developing skilled human resources. In the next chapter, 'Revealed commonality: linkages in consumption, investment and output in East Asia', Gordon de Brouwer and Mardi Dungey shift the focus to links between the main macroeconomic time series. They apply a battery of time-series tests to assess linkages between output, private consumption and investment in a number of East Asian economies. They test for common trends in key macroeconomic aggregates using cointegration analysis, they use Granger-causality tests to identify short-run commonality in economic cycles in the region, and they conduct latent factor analysis on output, consumption and investment growth to identify common and idiosyncratic factors in these series. They also examine the correlation of income-purged consumption growth to identify changes in financial integration. The overriding result of their empirical analysis is that there is little evidence of systematic regional linkages in macroeconomic time series in either the short or long run within East Asia. The main linkages that arise seem to be global in nature – dominated by the United States. The main exception to the lack of regional linkages is that the cycle in capital accumulation in the short run in a number of emerging East Asian economies is linked to investment in Japan. This may be the result of Japan's key role as a major source of FDI in the late 1980s and 1990s. Curiously, while the trade and FDI links between Japan and Korea are strong and growing, their principal macroeconomic series are not positively linked with each other.

4 Gordon de Brouwer and Masahiro Kawai De Brouwer and Dungey also report evidence of increasing, and in some cases high, financial integration and openness in East Asia. They report that common factors in consumption are much larger when the United States is included in the sample. This suggests that households in East Asia are not able to smooth consumption regionally but can do so globally. They argue that this highlights the importance of the global orientation in regional economies. In Chapter 4, 'A multivariate approach to grouping financially integrated economies', Shinji Takagi and Kenichi Hirose explore the nature of financial linkages and integration in East Asia. They seek to identify which groups of countries in the region are financially integrated. They do this in three steps. First, they set out five criteria by which to assess the degree of financial integration of an economy. These measures include exchange rate volatility, deviations from purchasing power parity, deviations from uncovered interest rate parity, trade intensity, and the correlation of domestic interest rates with those of other countries. They collect data on these measures for a wide range of regional economies. Second, they estimate the principal component of these measures for each economy in order to reduce the criteria to one dimension. Finally, they use cluster analysis to identify which sets of economies are progressively more financially integrated with each other. They present dendrograms which graphically represent the 'closeness' between features of different economies. Their analysis yields some interesting results. The results suggest that there are two broad groups of financially integrated economies in the region: Australia, New Zealand, Singapore and Taiwan on the one hand, and Malaysia, the Philippines and Thailand on the other. The first of these groups can be divided into two sub-groups, Australia and New Zealand in one, and Singapore and Taiwan in the other. South Korea, Japan and Hong Kong are outliers, although South Korea has more in common with Malaysia, the Philippines and Thailand than the others. These results are controversial in the sense that they provide a robust assessment of financial integration only if the underlying measures are a good way to think about financial integration. Some discussants thought that the measures identified real integration rather than financial integration. The next two chapters take up the issue of labour movement in East Asia. In Chapter 5, International migration and trade liberalisation: some lessons from Asia', Junichi Goto provides some detailed analysis of labour market issues in the region. Goto's paper has three parts. He first reviews some of the data about labour movement in East Asia. He argues that intra-regional labour movement has become more important over time. While the foreign population in East Asia accounts for only just over 1 per cent of the total population, intra-regional migration increased six-fold from the early 1980s to the late 1990s. Much of this was the flow of unskilled labour from less developed to more developed economies. There is also

Economic linkages and implications for exchange rate regimes 5 substantial illegal movement of labour. Overall, intra-regional labour movement remains relatively low compared to North America or Europe. Countries in the region retain substantial legal and institutional barriers to people movement, especially in unskilled labour. Goto reports that the financial crisis had a moderate negative effect on intra-regional labour movement. Second, Goto sets out some analytical models to explore the welfare costs of labour movement to the receiving country. In his model, the welfare effect of labour movement in the labour-importing country can be broken up into four parts: the positive effect of cheap foreign labour in terms of reducing unit labour costs, raising capital income; the indirect negative effect of a rise in the price of importables due to these goods now being produced domestically by higher-paid foreign labour rather than lower-paid labour in the foreign country; the negative income effect of a fall in the price of nontradables; and the positive consumption effect of the fall in the price of nontradables (although the sum of the last two of these effects is negative). In this model, the net welfare effects of immigration are initially negative but become positive as immigration reaches a higher level. Goto conducts some numerical simulations to estimate the costs and gains from labour movement to Japan. He finds that the net benefits of foreign labour for Japan do not emerge until migration reaches 5 per cent of the work force. He argues that this amount of labour movement would be socially unacceptable in Japan. The model and its interpretation were challenged in discussion. The model is a creature of its assumptions, and different models yield different results. The relatively high cut-off point for migration into Japan to improve the wellbeing of Japanese did not seem consistent with the widespread use of immigrant labour in difficult and unattractive jobs in construction and other sectors. Goto also sets out a model to explore the welfare costs of labour movement to the sending country. He notes that there are positive effects on homecountry income through remittances, the use of unemployed and underemployed labour, and the transfer of knowledge and skills. The negative effect is the loss of committed skilled labour, the so-called 'brain drain'. In his model, he shows that reducing trade barriers in the labour-importing country also provides benefits to the labour-exporting country. In his empirical simulation, he argues that reducing trade barriers in Japan would be substantially more beneficial to emerging East Asia than increasing labour migration. Labour movement remains a key but difficult issue for the regional policy agenda. In Chapter 6, 'Patterns, economic implications and policy issues in international labour migration', Prema-chandra Athukorala explores the various dimensions and complexity of the debate on labour movement in East Asia. He first presents an overview of the trends and characteristics of labour flows in the region: while labour movement across borders has increased substantially, it is still predominantly unskilled, clandestine and in some

6 Gordon de Brouwer and Masahiro Kawai countries, like Japan, South Korea and Malaysia, explicitly based on sociocultural links (like, in the case of Japan, ethnic Japanese from South America and, in the case of South Korea, ethnic Koreans from China). In Japan, immigrant labour is concentrated in the services sector, in Malaysia and Thailand it is in agriculture, and in South Korea it is in manufacturing. Athukorala notes the differences between countries in terms of the timing of entry, the penetration of migrant labour, and the dependence on migrant labour. He explains this in terms of each country's economic development and growth phase. The implication from this analysis is that labour movement will become a more pressing economic policy issue over time, as countries' demographic and economic profiles change. He also examines the evolution of policy and public attitudes towards the intake of labour and explores the way national policies are formed and whether there is scope for regional cooperation on labour migration policy. Few countries in the region have explicit policies towards foreign workers, with Singapore the most cogent. Other countries operate policy on an ad hoc basis, sometimes in conflict with business demands for greater openness in labour movement. Athukorala argues that countries would be well advised to seek regional and global governance frameworks to manage migration, given the continuing economic change that the region is experiencing and the deep political considerations embedded in labour movement. PART 2: MEASUREMENT AND ANALYSIS OF EXCHANGE RATES Accurate measurement of exchange rates and an understanding of their impact on the economy are necessary in order to make informed judgments about which exchange rate regime is desirable given a particular country's circumstances. The second part of this volume examines a range of issues about exchange rates and their effect on the economy. In Chapter 7, 'Exchange rate pass-through to export prices', Robert Dekle and Cathy Karnchanasai explore one feature of the impact of exchange rate movements on the prices of exports. Exchange rate fluctuations can cause large shifts in relative costs among firms located in different countries, and affect the prices of goods and services sold in domestic and foreign markets. This responsiveness of domestic prices to fluctuations in exchange rates is one of the main reasons why countries try to control fluctuations in their currencies. Dekle and Karnchanasai examine the theoretical and empirical aspects of exchange rate pass-through to export prices. They set out a model to show that pass-through into export prices tends to be lower in industries where the fraction of imported inputs is high and where competition with similar foreign products is high. They predict that the degree of export price pass-through is higher in industries where the exporter produces a unique product than in other industries. Likewise, pass-through into export markets that are highly

Economic linkages and implications for exchange rate regimes 7 competitive, with many substitute producers, is likely to be lower than otherwise. Dekle and Karnchanasai examine monthly data on US and Japanese export prices to Thailand and South Korea from 1990 to 1999 to test the predictions of theory. Consistent with the theory, they find that pass-through to South Korea, the market with more competitive producers, is indeed lower than pass-through to Thailand. Moreover, theoretical predictions for industry-level effects are also consistent with the data; pass-through in highly competitive industries is in fact lower than in other industries. They also find evidence that pass-through behaviour by Japanese firms is smaller than that of US firms. The next two chapters focus on the vexed issue of exchange rate volatility. In Chapter 8, The effects of exchange rate volatility on trade', Michael McKenzie looks at some general issues about the effect of exchange rate volatility on trade. He first discusses the difference between variability and volatility of the exchange rate. He argues that if the exchange rate changes for economic reasons– such as changes in external debt, terms of trade, productivity or monetary policy– then such change should not of itself be a concern for policymakers. The variability in the asset price (the exchange rate) merely reflects variability in the underlying economic structure. Of more concern is volatility. Volatility in this context means the unexplainable part of exchange rate movements. McKenzie examines a number of estimates of exchange rate volatility for East Asia, including measures such as the standard deviation of daily changes, fitted general autoregressive conditional heteroskedasticity (GARCH) models, and a method borrowed from the physics literature, the false nearest neighbour (FNN) technique, which is a measure of 'noise' in data. He shows that volatility and noise increased substantially during the East Asian financial crisis but that it has since returned to its pre-crisis levels for most economies in the region. By this measure, volatility has not trended up in East Asia since the mid-1980s. McKenzie then looks at the overall relationship between East Asian trade and East Asian exchange rate volatility. The former has steadily increased while the latter has remained stable, apart from the 1997–98 crisis. His assessment is that exchange rate volatility has not substantially hurt trade in East Asia. In Chapter 9, 'The costs of crises and learning to live with exchange rate volatility: evidence from survey measures of consumer business expectations', Gordon de Brouwer takes a different approach to assessing the impact of exchange rate volatility on economic behaviour. He uses survey measures of consumer confidence and business expectations about economic conditions in the framework of a structural model to test whether exchange rate volatility affects the way people and firms feel about the future. The countries in the study include Australia, Japan, South Korea, Malaysia and Singapore, all with

8

Gordon de Brouwer and Masahiro Kawai

some substantial experience of variability in their exchange rates extending back as far as the mid-1970s. Volatility is defined as the standard deviation of daily exchange rate changes. De Brouwer estimates the equations recursively over time, progressively extending the sample period by one observation at a time, to see how the effect of volatility changes over time. De Brouwer reports two key findings. First, exchange rate volatility does not in general have a statistically significant negative effect on either business confidence or consumer sentiment. In a number of cases, an initial negative effect of volatility on expectations wears off over time. This is consistent with the view that households and firms may learn to live with movements in the exchange rate, which is consistent with the predictions of adaptive learning models. The policy implication is that, to the extent that countries have shifted to more flexible exchange rate regimes, policymakers should give households and firms time to learn to live with volatility. From this perspective, the region's fear of volatility' may be unjustified. Second, when the negative effect of volatility is statistically significant it is generally only when the sample period includes the East Asian financial crisis. The implication from this outcome is that it is crises that matter, rather than exchange rate volatility in the normal course of events; the primary focus of policymakers should be on crisis prevention. The exception to the result that Volatility only matters in a crisis' (and hence that it is crises that matter, not volatility) is consumer confidence in Malaysia. In that country, the negative effect of volatility is statistically significant well before the crisis. The next chapter addresses some issues in the measurement of the exchange rate. Economists draw a clear distinction between bilateral and 'effective' exchange rates, and nominal and 'real' exchange rates. The exchange rate quoted in news reports is typically a rate between two countries' currencies (the bilateral nominal rate). But economists also think in terms of the effective exchange rate, which is a weighted average index of the value of a currency relative to a set of countries (for example, trade partners). And they think in terms of the real exchange rate, which takes account of differences in prices between countries and hence is a measure of international competitiveness. In Chapter 10, 'Measuring real effective exchange rates', Menzie Chinn examines some of the pitfalls and difficulties in the measurement of real effective exchange rates in East Asia, and discusses how to choose which exchange rate measure to use. Chinn first sets out some definitions of the real effective exchange rate and nests them in an analytical framework. He shows how the choice of price series– consumer, wholesale or export price– matters to the estimation of real exchange rates. He shows how the choice of weights– import, export, trade or capital flow– and whether they are time varying affects the estimation of effective exchange rates. He argues that it is important to select that measure which is most relevant to the economic question being asked. One upshot of Chinn's analysis is that many measures of the real or the effective exchange

Economic linkages and implications for exchange rate regimes 9 rate are flawed in the sense that they may not represent in reality what, in theory, they are supposed to represent. PART 3: THE CHOICE OF EXCHANGE RATE REGIMES The choice of the exchange rate regime is one of the most important issues that policymakers face. It can be a crucial factor in determining how an economy responds to domestic and external shocks, how it engages with the rest of the world, and the credibility of its monetary and fiscal policy systems. This part of the volume addresses two particular issues. The first is the economic relevance and importance of the exchange rate regime. Two papers examine the effect of the exchange rate regime on, respectively, monetary policy independence and the susceptibility of the exchange rate to misalignment with 'economic fundamentals'. The second issue is regime choice: which exchange rate regime best suits the region's individual and collective economic needs. Five papers examine this issue, reflecting the diversity of considered opinion on this topic. The next two papers examine two aspects of the economic relevance of exchange rate regimes. In Chapter 11, 'Exchange rate regimes and monetary independence in East Asia', Chang Jin Kim and Jong-Wha Lee examine one aspect of the ongoing debate among economists about the effects of different exchange rate regimes, namely whether the shift to floating exchange rate regimes grants domestic policymakers more independence in the conduct of monetary policy. Countries can choose to rigidly fix or completely float their currency, with many stages of flexibility in between. One of the advantages of floating the exchange rate is supposed to be that it gives policymakers the freedom to set domestic monetary policy to suit domestic economic conditions. The fear of floating' literature, however, argues that even if countries are formally floating, they are not in fact free to move their exchange rates or set domestic interest rates free of the world or US interest rate. The empirical results for East Asia are mixed; Kim and Lee revisit the issue, looking at the evidence for a broad set of East Asian economies from 1987 to 2002 using a methodology that treats US interest rates as fully exogenous to those in East Asia. They find a clear distinction in East Asia between regime choice and the independence of domestic monetary policy from US monetary policy in the post-crisis period. On the one hand, interest rates in Hong Kong are closely tied to those in the United States, as would be expected under the Special Administrative Region's currency board arrangement. On the other hand, interest rates in South Korea, the Philippines and Thailand have become notably less sensitive to movements in US interest rates. Interestingly, Malaysia has retained monetary independence despite fixing to the US dollar; Kim and Lee put this down to capital controls. Kim and Lee conclude that the adoption of new currency arrangements has increased monetary independence in East Asian countries since the crises of 1997–98.

10 Gordon de Brouwer and Masahiro Kawai In the next chapter, '"Fair value" and exchange rate misalignment', Chris Becker, Jaideep Bedi and Bob Rankin explore another issue in the economic importance of exchange rates, the tendency of different regimes to give rise to misalignment with economic fundamentals. They note that East Asian currencies seem to float to a lesser degree than do industrial countries, as reflected in the heavy accumulation of foreign exchange reserves in the post-crisis period. They argue that this reflects not just a 'fear of volatility' but also a fear of overshooting', namely concern that exchange rates in flexiblerate regimes may overshoot on both the upside and downside, perhaps because of market dynamics such as herding. The judgment that exchange rates can overshoot implies that policymakers have some idea of fair or fundamental value of the currency. Becker, Bedi and Rankin argue that fair value is not an easy concept to operationalise. They examine four representations of fair value used by economists– purchasing power parity, differential productivity models (Balassa–Samuelson models), general equilibrium internal–external balance models, and asset demand models– drawing on a number of empirical measures of these representations. They define misalignment as one or two standard deviations from the fair value estimate. They make two points about misalignment. First, the measures of misalignment vary substantially between models, making it difficult to argue with much accuracy whether a currency is misaligned or not. None of the regional currencies was substantially misaligned before the East Asian crisis. Second, there tends to be a trade-off between exchange rate volatility and misalignment for the various measures of fair value, indicating that, in general, the more flexible (that is, volatile) currencies also tend to have less prolonged and serious misalignments in their economic fundamentals. The next five papers look at various ideas for alternative currency regimes for East Asia. In Chapter 13, 'The narrow road to the single Asian currency: lessons from optimal currency areas and the euro', Benoît Coueré draws on the experience of Europe in thinking about possible currency regimes for East Asia, particularly about currency union. Coueré first examines European thinking on exchange rate regimes and then looks at the theoretical and empirical literature on optimal currency areas (OCAs), with particular focus on whether the OCA criteria are endogenous. He notes the hollowing out of intermediate exchange rate regimes and the 'false promise' of floating exchange rate regimes in providing economies, especially emerging ones, with policy stability and autonomy. With respect to currency union, the literature suggests that highly heterogeneous economies and those with a lot of geographical distance between them are not good candidates for currency union. Couere argues that Asia is much more geographically and ethnically spread out than Europe. It also has greater diversity in terms of economic growth and development, as well as industrial structure. The scope for asymmetric shocks and diverging economic variables is therefore much greater. Asia is

Economic linkages and implications for exchange rate regimes 11 also less well anchored on one economy, as Europe is on Germany. Coueré's view is that Asia is not yet suitable for currency union. But the OCA criteria are also, to some extent at least, endogenous. Coueré argues that an important way for East Asia to increase its suitability for currency union is to focus on the development of financial markets. This would not only help develop markets to allow countries to borrow in their own currencies but also deepen local capital markets, allowing them to lower capital costs and stimulate investment. Other suggestions for cooperative exchange rate arrangements in East Asia are less extreme than currency union. In the next chapter, 'The case for a tri-polar currency basket system for emerging East Asia', Masahiro Kawai explores a specific proposal for an alternative to independent autonomous exchange rate regimes in the region. Kawai recommends a currency basket system for East Asia whereby countries target a basket of the dollar, yen and euro, the region's main partner currencies in trade and FDI. Kawai makes three main points in his paper. First, he argues that there is a difference between what countries say they do with respect to their exchange rate policy and what they actually do in practice. While a number of countries in the region say that they shifted to more flexible exchange rate arrangements after the crisis, they have not done so as much as they say. Using standard methodology, Kawai assesses empirically the extent to which this is the case. He finds that the US dollar indeed played a dominant role as a de jure or de facto anchor for emerging East Asia until the 1997–98 currency crisis. During the crisis, the dollar's dominance naturally declined in affected East Asia as a result of a general shift to more flexible exchange rate arrangements. In the post-crisis period the dollar has regained prominence in some countries (notably Malaysia), while its dominance has been reduced and exchange rate flexibility has risen in others (notably Indonesia). An interesting observation Kawai makes is that South Korea and Thailand appear to have shifted to a defacto currency basket arrangement with significant weights on the US dollar and the yen, similar to Singapore's managed floating arrangement. Kawai then considers what may be a desirable exchange rate arrangement for the region. Given the high volatility of yen–dollar exchange rates and partner diversity in trade and FDI relationships, he claims that emerging East Asian countries would be better off stabilising their currencies to a balanced currency basket in which the dollar, the yen and the euro play equally important roles. This amounts to a system that targets a basket of the dollar, yen and euro, as is done in Singapore, Korea and Thailand. At least initially, the weights assigned to the tri-polar currencies and the width of the band would be left to national policymakers to decide, although there would be coordination gains in sharing common weights in a basket system. For the successful functioning of such a basket arrangement, Kawai envisions a greater role for the yen and Japan more generally in regional finance, once that country has recovered from its current economic difficulties. This is predicated

12 Gordon de Brouwer and Masahiro Kawai on a growing role for Japan in regional trade and yen invoicing, ongoing domestic financial restructuring and reform, capital market deregulation, increasing cross-border economic activity, and Japan's rising foreign asset position. Kawai finally suggests that the proposed tri-polar currency basket system should be supported by closer regional coordination in surveillance and financing mechanisms. Such regional coordination should focus on policy dialogue and surveillance to build institutions capable of coping with the growing financial interdependence in the region, to ensure macroeconomic and financial stability (including intra-regional exchange rate stability), and to strengthen the regional financial system, including regional bond market developments. Kawai emphasises that there is a need to strengthen regional financing arrangements through revision of the Chiang Mai Initiative with a medium-term perspective. The next two papers in the volume take a more general look at exchange rate arrangements within the region. In Chapter 15, 'Which exchange rate regime for Asia?', Warwick McKibbin and Hong-Giang Le use the G-Cubed (Asia Pacific) model to assess four alternative currency regimes. The currency regimes are floating exchange rates with inflation targeting; a fixed peg to the dollar, yen and euro with equal and fixed weights (with Japan, in turn, fixed to the dollar and euro); a fixed peg by each Asian economy to the yen; and a single Asian currency with an inflation-targeting Asian central bank. They assess the performance of these regimes for three different types of economic shock: a supply shock, a demand shock, and a country risk shock. These shocks may be global (symmetric), regional (symmetric within Asia), or country-specific (asymmetric). The basic finding of the paper is that the optimal exchange rate regime differs across economies and depends on the structure of the economy as well as the nature of the shock. The choice of exchange rate regime is a complex issue. McKibbin and Le show that the ranking of exchange rate regimes for different shocks can reverse when that shock is global rather than idiosyncratic, and for different types of shocks. There is no one solution for all countries. They suspect that in the future, supply shocks will be increasingly likely. While it is difficult from such wide-ranging and diverse results to draw hard and fast conclusions, McKibbin and Le make two specific assessments. First, the yen bloc and Asian currency union are dominated by floating exchange rates and the basket peg over most combinations of shocks and for most countries. Second, there is little difference between floating and the basket peg in terms of minimising output variability, but floating dominates the basket peg in terms of minimising inflation variability. Under a mediumterm inflation targeting regime (which trades off the two variabilities), a floating regime may be preferred to a basket peg, but this is less so the greater is the weight on stabilising output.

Economic linkages and implications for exchange rate regimes 13 In Chapter 16, 'Options for currency arrangements and their policy implications', Charles Adams and Romuald Semblat focus on some general principles in the choice of exchange rate regimes. They review the evidence on economic integration in East Asia, as well as the convergence of economic cycles and levels of economic development. They agree that increased trade and investment integration will increase economic integration and reduce the costs of monetary integration. But these costs are high in Asia to start with, because the levels of economic development are so different and shocks are asymmetric between countries. Policies aimed at developing and integrating financial systems are likely to reduce asymmetries by improving capital mobility, improving risk diversification, and standardising transmission mechanisms. Adams and Semblat examine three options for regional currency arrangements– common monetary policies (like inflation targeting) with flexible exchange rates, a pegged exchange rate arrangement (like a basket peg or an Asian currency unit), and a common currency– with a view to assessing the conditions under which they are achievable and sustainable. All regimes impose challenges on policymakers. They note that the requirements for successful peg arrangements are more onerous under the current state of high world capital mobility. They argue that a common regional currency would be most likely to secure the benefits of regional integration. The deeper and broader any currency arrangement is, the greater are its likely benefits but the more demanding are the requirements for success. In the final paper in this volume, 'Sequencing monetary and trade integration', Kwanho Shin and Yunjong Wang examine steps in deeper economic integration in East Asia. The idea that there is an order in sequencing trade and financial liberalisation and openness has broad acceptance (and is generally in that order). But the idea that there is an order in the sequencing of trade and financial/monetary integration is less clear. The idea of regional integration has taken hold in East Asia, even to the extent that some say that the region should look for ways to reduce its trade interaction with countries outside the region and increase trade interaction between countries in the region. In Europe, trade integration preceded that in finance, with the focus in that region only shifting to financial and monetary integration after major problems arose in the international financial system. Shin and Wang argue that the outcome may be different in East Asia. They think that financial and monetary integration may be a way to create consensus and an internal regional dynamic for deeper economic integration. They see major impediments in using trade as a device for advancing regional integration because of agricultural protection in Japan and Korea. In the finance and monetary domain, on the other hand, there is more consensus about the need for the creation of strong and stable links to prevent the recurrence of financial crises. Shin and Wang review the evidence on the OCA literature,

14 Gordon de Brouwer and Masahiro Kawai including the possible endogeneity of these criteria. They present data on the rapid rise of intra-industry trade in East Asia and see it as a source of greater synchronicity in business cycles. They also expect more rapid financial and capital integration as a result of monetary integration. ENDPIECE The choice of exchange rate regime is a basic issue in the design of a country's policy framework. It is also a pivotal one. The papers in this volume are a collection of recent work in East Asia to sort through the merit of various ideas and proposals, and explore the possibility for deeper cooperative action and policymaking in the domain of currency arrangements. As such, they do not represent a consensus for the region's exchange rate arrangement; indeed, there is no consensus on these matters (yet) in the region. But one of the key steps forward in forming a common view is open and frank dialogue and intellectual debate about the issues– which includes understanding the transmission mechanism, identifying where the problems are, and assessing the various proposals to deal with them. Even if formal currency union is a long way from being realised in East Asia, the process of dialogue on related matters has begun. This is a welcome development.

2

Trade and foreign direct investment in East Asia

Masahiro Kawai and Shujiro Urata

INTRODUCTION One notable and common characteristic of East Asian economies in recent years has been the increase in their international economic linkages through foreign trade and foreign direct investment (FDI).1 During the pre-crisis 'miracle' period, the share of foreign trade in gross domestic product (GDP) was significantly higher for emerging economies in East Asia than for those in other parts of the world. In particular, between 1980 and 1997 their share of foreign trade in GDP rose at significantly greater rates. Since the mid-1980s, East Asian economies have seen new developments in international economic activities. Specifically, they have experienced a rapid expansion of FDI and FDI-induced trade as part of the international business of multinational corporations. Indeed, between 1980 and 1999, world FDI grew at an annual average rate of 16 per cent, significantly higher than the corresponding rate of 6 per cent for world trade. Since FDI has tended to be complementary to, rather than a substitute for, trade, large inflows of FDI to emerging East Asia further stimulated the region's engagement in foreign trade. This chapter examines the changing pattern and structure of foreign trade and FDI in East Asia over the last two decades, with a focus on the 1990s. The analysis documents the increase in intra-regional interdependence in trade and FDI, reflecting the rising FDI–trade nexus in East Asia. The simultaneous expansion of trade and FDI has clearly contributed to economic development and growth in the region. Noteworthy in East Asia is the formation of regional production chains and networks by multinational corporations, an underlying determinant of the FDI–trade nexus. These networks have promoted the specialisation of production in East Asia by way of fragmenting the production process into different sub-processes within the same industry – created efficient intra-industry trade. Although strong intra-regional economic interdependence spread the unfavourable impacts of the financial crisis throughout the region in 1997–98, the networks also helped the region's

16 Masahiro Kawai and Shujiro Urata quick recovery from the crisis. Indeed, further expansion of trade and FDI is the region's foundation for strengthening the resilience to shocks and promoting development and growth. OVERVIEW OF TRADE AND INVESTMENT IN EAST ASIA Expansion of foreign trade and foreign direct investment Foreign trade and FDI of the East Asian economies expanded rapidly from the mid-1980s (Tables 2.1 to 2.4) until the outbreak of the East Asian financial crisis. Expansion oftrade Between 1985 and 1997, East Asian exports expanded steadily to register an almost fivefold increase, before declining in 1998 as a result of the crisis. The rate of expansion was particularly high in 1986–88, when the annual rate of growth exceeded 20 per cent. The 1990s saw fluctuations in growth rates, with a peak at 22 per cent in 1995 followed by a decline, resulting in negative growth in 1998. The patterns of export growth for the 1985–99 period are similar for all developing economies in East Asia, with a few exceptions. Compared with the four newly industrialised economies (NIE-4)– Hong Kong, South Korea, Singapore and Taiwan– and the core Association of Southeast Asian Nations (ASEAN) economies– Indonesia, Malaysia, the Philippines and Thailand– China registered a significantly higher growth rate in the 1990s. As a result of rapid export expansion, East Asia increased its share of export in world total exports from 9 per cent in 1980–85 to 18 per cent in 1997, before declining slightly in 1998. As a group, the NIE-4 expanded their export share from 5 per cent in 1980–85 to 10 per cent in 1997. China became the largest exporter in emerging East Asia in 1999, accounting for 3 per cent of world total exports. Exports became increasingly important in emerging East Asia relative to its economic size. All economies in the region, except China and Indonesia, registered a ratio of exports to GDP exceeding 30 per cent, significantly higher than the average ratio of approximately 23 per cent for the developing economies in 1997 (World Bank 1999). Hong Kong and Singapore had extremely high ratios, which are attributable to their engagement in entrepôt trade. Although high, the ratios for South Korea and Taiwan declined from the mid-1980s to the mid-1990s because of the rapid increase in GDP. ASEAN4 countries– Indonesia, Malaysia, the Philippines and Thailand– exhibited an increase in the export-GDP ratio, reflecting faster growth of exports than GDP. Large countries tend to be less dependent on foreign trade than small countries, so it is notable that the export–GDP ratios for China and Indonesia exceeded 20 per cent.

Trade and foreign direct investment in East Asia 17 Expansion of EDI FDI inflows to emerging East Asia grew at a remarkably high rate from the mid-1980s to 1998, significantly faster than exports (Table 2.4(b)). Indeed, FDI inflows increased more than 12 times in the 14 years from 1985 to 1999. Unlike exports, FDI inflows continued to grow throughout the period. As a result of this rapid expansion, the share of emerging East Asia in world total FDI inflows increased from 8 per cent in 1985 to 22 per cent in the mid1990s, before declining sharply to 9 per cent in 1999. China increased its share in the world total from 3 per cent in 1985 to 14 per cent in 1994, though the share declined to 4 per cent in 1999. Despite this decline, in 1999 China was the largest recipient of FDI among emerging market economies and the third largest recipient in the world, behind the United States and the United Kingdom. Two developments are important concerning recent FDI in emerging East Asia. One is its resilience even during the period of economic crisis. Compared with other forms of international capital flows such as bank lending, which declined precipitously before and after the crisis, FDI inflows remained relatively stable in emerging East Asia, even in those economies that were seriously affected by the crisis. Another important development is the increase in mergers and acquisitions (M&As) as a mode of entry, particularly after the economic crisis (United Nations 1999). Green-fields operations used to be a preferred mode of entry for multinationals in East Asia, mainly because of restrictions on equity participation. The economic crisis changed this environment. Emerging East Asia with a keen interest in attracting FDI relaxed the restrictions. In addition, the huge decline in the values of East Asian currencies and assets encouraged multinationals to undertake M&As. Although increasing steadily for most developing East Asian economies, the ratio of FDI inflows to GDP was significantly smaller than the ratio of exports to GDP and varied widely within the region. Singapore had the highest ratio, around 10 per cent, while South Korea and Taiwan had the lowest, around 0.5–1.0 per cent. China and Malaysia registered a rapid increase in the ratio, each reaching about 5 per cent in 1997. The role of FDI in East Asia's economic activities is especially important because the foreign affiliates of multinationals engage actively in production, employment, purchases and sales, including foreign trade, in the FDI recipient economies. Changing patterns of intra-regional trade and FDI Rising intra-regional interdependence Several studies have examined the changes in intra-regional interdependence in foreign trade in East Asia. Computing three sets of measures, Petri (1993) finds that intra-regional interdependence in foreign trade in East Asia increased

1980 1,832,508 1,246,665 220,781 751,159 130,435 585,843 64,854 149,141 76,262 19,720 17,439 19,377 19,726 52,162 21,909 12,960 5,787 6,501 0 5,004 18,139 2,577 13,558 65,677 189,392 103,220

(0 1980–89 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

1,914,798 1,224,647 233,739 693,129 151,500 682,732 77,197 163,409 86,492 21,816 21,271 20,970 22,436 52,937 23,810 11,773 5,721 7,027 141 4,465 21,476 2,504 12,254 105,764 213,170 110,938

1981 1,774,888 1,162,017 212,274 668,105 138,443 605,849 65,118 160,475 85,600 20,893 21,827 20,787 22,092 50,711 22,329 12,043 5,020 6,935 179 4,206 21,865 2,298 12,722 97,836 169,765 99,933

1982

1984 1,836,746 1,222,083 217,889 669,373 169,748 608,232 66,333 194,203 112,078 28,314 29,259 24,070 30,435 54,950 21,881 16,563 5,343 7,414 250 3,499 24,824 2,351 13,430 103,357 123,476 107,433

1983 1,729,561 1,146,445 200,527 651,844 146,971 576,306 64,008 168,275 93,338 21,949 24,459 21,832 25,098 50,550 21,146 14,128 4,932 6,368 205 3,771 22,096 2,291 12,997 97,541 134,762 98,722

Table 2.1 Exports for selected regions and countries, 1980-99 (a) Value (US$ million)

1,874,505 1,265,929 213,146 708,197 177,189 591,587 65,700 193,636 113,966 30,182 30,289 22,812 30,683 49,692 18,596 15,408 4,614 7,123 693 3,258 27,329 2,648 13,628 109,697 109,642 99,283

1985

1987

1988

1989

2,043,465 2,416,116 2,763,261 2,985,652 1,472,701 1,730,460 1,980,473 2,123,906 217,292 252,884 319,413 363,812 869,510 1,045,819 1,163,633 1,238,972 210,718 231,332 264,961 554,827 665,517 758,514 836,995 54,505 62,246 64,324 212,094 276,356 341,891 381,025 132,518 178,079 223,669 243,951 35,438 48,473 63,182 73,114 34,792 47,301 60,679 60,49 22,501 28,696 39,318 44,769 39,787 53,609 60,490 65,573 45,348 55,370 66,373 79,600 14,809 17,170 19,376 21,936 13,977 17,934 21,096 25,049 4,807 5,696 7,034 7,754 8,864 11,564 15,910 20,175 789 854 1,038 2,472 2,103 2,152 1,918 2,213 31,367 39,464 47,663 52,914 2,862 3,443 4,186 4,560 14,895 17,892 20,896 23,747 109,181 120,376 128,450 129,196 81,738 96,129 96,734 118,935 82,413 92,519 106,218 115,980

1986

18 Masahiro Kawai and Shujiro Urata

1990 3,381,690 2,443,279 393,106 1,488,365 287,678 936,131 82,275 427,869 269,222 82,144 67,812 52,753 66,513 91,612 25,675 29,420 8,194 23,072 2,525 2,727 62,760 4,275 27,363 119,201 151,466 127,956

(ii) 1990–99 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

Table 2.1 (a) contd.

3,492,358 2,497,097 421,755 1,486,477 314,892 993,508 81,422 489,200 306,335 98,579 72,372 59,191 76,192 106,555 29,178 34,405 8,840 28,811 2,189 3,132 71,966 4,345 28,544 119,285 133,604 141,452

1991

1993

1994

3,745,492 3,720,719 4,248,810 2,646,759 2,558,229 2,888,102 447,310 465,870 512,404 1,572,100 1,441,089 1,653,377 339,899 362,602 395,226 1,096,724 1,160,463 1,358,468 81,622 76,701 79,939 556,859 617,769 732,012 341,693 379,781 438,340 119,512 134,996 151,379 77,335 85,808 96,389 63,437 74,041 96,911 81,410 84,937 93,661 124,761 140,369 166,637 33,967 36,823 40,054 40,709 47,128 58,749 9,829 11,271 13,433 32,473 37,158 45,583 2,918 2,985 4,054 4,866 5,004 4,764 85,620 91,693 120,865 4,786 5,927 6,170 31,605 33,919 37,893 135,990 138,835 180,536 140,121 132,479 139,087 150,526 160,760 189,000

1992 5,070,827 3,425,924 583,451 2,018,290 443,047 1,642,558 90,089 889,611 529,143 173,556 125,588 118,187 111,813 204,417 45,428 73,724 17,371 57,201 5,450 5,243 148,955 7,096 46,008 230,451 158,630 227,770

1995 5,288,518 3,513,701 622,949 2,074,721 411,302 1,771,956 102,315 928,344 552,640 180,530 130,993 125,125 115,992 217,087 49,873 78,214 20,543 55,743 7,258 5,455 151,165 7,452 49,612 247,014 187,771 256,901

1996 5,509,592 3,618,197 687,581 2,093,980 421,067 1,888,846 105,384 991,078 570,930 187,870 136,354 125,326 121,380 230,229 53,439 78,909 25,227 57,560 9,185 5,909 182,916 7,002 50,794 263,489 194,057 284,044

1997 5,393,882 3,620,838 680,406 2,153,397 387,955 1,770,776 93,456 937,232 526,955 173,693 132,703 109,886 110,674 220,139 48,843 73,470 29,496 54,489 9,220 4,620 183,744 6,394 54,235 258,453 146,975 280,424

1998

5,663,310 3,750,884 690,689 2,208,491 419,207 1,910,192 105,405 1,010,704 553,671 173,793 143,647 114,730 121,501 255,046 57,193 84,550 35,474 61,797 10,474 5,559 194,931 7,056 57,306 255,579 175,154 306,043

1999

Trade and foreign direct investment in East Asia 19

1980 100.0 68.0 12.0 41.0 7.1 32.0 3.5 8.1 4.2 1.1 1.0 1.1 1.1 2.8 1.2 0.7 0.3 0.4 0.0 0.3 1.0 0.1 0.7 3.6 10.3 5.6

(i) 198Q–89 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

Table 2.1 contd. (b) Share of world total (per cent)

100.0 64.0 12.2 36.2 7.9 35.7 4.0 8.5 4.5 1.1 1.1 1.1 1.2 2.8 1.2 0.6 0.3 0.4 0.0 0.2 1.1 0.1 0.6 5.5 11.1 5.8

1981 100.0 65.5 12.0 37.6 7.8 34.1 3.7 9.0 4.8 1.2 1.2 1.2 1.2 2.9 1.3 0.7 0.3 0.4 0.0 0.2 1.2 0.1 0.7 5.5 9.6 5.6

1982 100.0 66.3 11.6 37.7 8.5 33.3 3.7 9.7 5.4 1.3 1.4 1.3 1.5 2.9 1.2 0.8 0.3 0.4 0.0 0.2 1.3 0.1 0.8 5.6 7.8 5.7

1983 100.0 66.5 11.9 36.4 9.2 33.1 3.6 10.6 6.1 1.5 1.6 1.3 1.7 3.0 1.2 0.9 0.3 0.4 0.0 0.2 1.4 0.1 0.7 5.6 6.7 5.8

1984

1986 100.0 72.1 10.6 42.6 10.3 27.2 2.7 10.4 6.5 1.7 1.7 1.1 1.9 2.2 0.7 0.7 0.2 0.4 0.0 0.1 1.5 0.1 0.7 5.3 4.0 4.0

1985 100.0 67.5 11.4 37.8 9.5 31.6 3.5 10.3 6.1 1.6 1.6 1.2 1.6 2.7 1.0 0.8 0.2 0.4 0.0 0.2 1.5 0.1 0.7 5.9 5.8 5.3 100.0 71.6 10.5 43.3 9.6 27.5 2.6 11.4 7.4 2.0 2.0 1.2 2.2 2.3 0.7 0.7 0.2 0.5 0.0 0.1 1.6 0.1 0.7 5.0 4.0 3.8

1987

100.0 71.7 11.6 42.1 9.6 27.4 2.3 12.4 8.1 2.3 2.2 1.4 2.2 2.4 0.7 0.8 0.3 0.6 0.0 0.1 1.7 0.2 0.8 4.6 3.5 3.8

1988

100.0 71.1 12.2 41. 9.2 28.0 2.3 12.8 8.2 2.4 2.0 1.5 2.2 2.7 0.7 0.8 0.3 0.7 0.1 0.1 1.8 0.2 0.8 4.3 4.0 3.9

1989

20 Masahiro Kawai and Shujiro Urata

100.0 72.3 11.6 44.0 8.5 27.7 2.4 12.7 8.0 2.4 2.0 1.6 2.0 2.7 0.8 0.9 0.2 0.7 0.1 0.1 1.9 0.1 0.8 3.5 4.5 3.8

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere 100.0 71.5 12.1 42.6 9.0 28.4 2.3 14.0 8.8 2.8 2.1 1.7 2.2 3.1 0.8 1.0 0.3 0.8 0.1 0.1 2.1 0.1 0.8 3.4 3.8 4.1

1991

Source: International Monetary Fund, IFS CD-Rom.

1990

(ii) 1990–09 Region/country

Table 2.1 (b) contd.

100.0 70.7 11.9 42.0 9.1 29.3 2.2 14.9 9.1 3.2 2.1 1.7 2.2 3.3 0.9 1.1 0.3 0.9 0.1 0.1 2.3 0.1 0.8 3.6 3.7 4.0

1992 100.0 68.8 12.5 38.7 9.7 31.2 2.1 16.6 10.2 3.6 2.3 2.0 2.3 3.8 1.0 1.3 0.3 1.0 0.1 0.1 2.5 0.2 0.9 3.7 3.6 4.3

1993 100.0 68.0 12.1 38.9 9.3 32.0 1.9 17.2 10.3 3.6 2.3 2.3 2.2 3.9 0.9 1.4 0.3 1.1 0.1 0.1 2.8 0.1 0.9 4.2 3.3 4.4

1994 100.0 67.6 11.5 39.8 8.7 32.4 1.8 17.5 10.4 3.4 2.5 2.3 2.2 4.0 0.9 1.5 0.3 1.1 0.1 0.1 2.9 0.1 0.9 4.5 3.1 4.5

1995 100.0 66.4 11.8 39.2 7.8 33.5 1.9 17.6 10.4 3.4 2.5 2.4 2.2 4.1 0.9 1.5 0.4 1.1 0.1 0.1 2.9 0.1 0.9 4.7 3.6 4.9

1996 100.0 65.7 12.5 38.0 7.6 34.3 1.9 18.0 10.4 3.4 2.5 2.3 2.2 4.2 1.0 1.4 0.5 1.0 0.2 0.1 3.3 0.1 0.9 4.8 3.5 5.2

1997 100.0 67.1 12.6 39.9 7.2 32.8 1.7 17.4 9.8 3.2 2.5 2.0 2.1 4.1 0.9 1.4 0.5 1.0 0.2 0.1 3.4 0.1 1.0 4.8 2.7 5.2

1998

100.0 66.2 12.2 39.0 7.4 33.7 1.9 17.8 9.8 3.1 2.5 2.0 2.1 4.5 1.0 1.5 0.6 1.1 0.2 0.1 3.4 0.1 1.0 4.5 3.1 5.4

1999

Trade and foreign direct investment in East Asia 21

1980 1,918,724 1,391,412 256,959 843,944 141,284 527,313 60,991 151,058 88,148 22,399 22,063 24,013 19,673 40,525 10,837 10,821 8,295 9,213 0 1,359 19,505 2,880 25,306 86,544 92,466 110,948

(i) 1980–89 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

2,001,190 1,319,292 273,351 749,057 ,142,868 672,526 87,697 170,304 99,633 24,768 26,154 27,571 21,140 45,410 13,269 11,581 8,477 9,954 566 1,562 21,631 3,631 25,535 132,487 135,796 120,708

1981 1,864,091 1,241,142 254,881 714,947 131,566 615,495 74,329 164,893 94,783 23,444 24,250 28,176 18,912 47,763 16,859 12,409 8,262 8,531 435 1,267 18,920 3,426 25,907 114,184 139,273 96,909

1982 1,808,526 1,220,996 269,880 684,930 126,520 579,691 64,617 172,633 98,693 24,005 26,196 28,158 20,334 49,216 16,351 13,241 7,863 10,283 408 1,070 21,313 3,412 23,987 111,663 131,417 75,374

1983

Table 2.2 Imports for selected regions and countries, 1980–99 (a) Value (US$ million)

1,921,174 1,330,180 341,170 693,197 136,142 582,782 60,285 185,075 109,852 28,558 30,628 28,667 21,999 46,089 13,880 14,057 6,262 10,415 525 950 25,953 3,181 26,239 114,620 119,276 77,286

1984

1986

1,975,924 2,147,393 1,382,239 1,554,426 361,620 387,075 724,609 853,387 130,516 127,660 575,778 575,106 55,620 55,270 193,031 203,133 107,119 116,766 29,701 35,360 31,058 31,733 26,237 25,513 20,123 24,160 39,999 39,113 10,275 10,724 12,301 10,828 5,351 5,211 9,259 9,165 1,842 2,155 970 1,029 42,480 43,247 3,433 4,007 27,340 25,791 127,186 128,092 97,599 87,909 75,003 74,911

1985 2,510,182 1,833,171 424,068 1,046,883 150,907 655,002 59,232 253,419 156,705 48,463 41,026 32,626 34,590 48,944 12,850 12,701 6,937 12,998 2,455 1,002 43,222 4,547 28,693 137,949 89,868 85,841

1987

1989

2,875,450 3,110,750 2,076,146 2,244,157 459,775 493,324 1,182,568 1,275,367 187,483 209,635 772,283 839,858 65,260 70,899 332,669 378,878 209,163 233,604 63,900 72,149 51,812 60,210 43,869 49,694 49,582 51,552 62,889 79,868 13,489 16,470 16,567 22,589 8,662 11,171 20,301 25,373 2,757 3,032 1,113 1,233 55,352 59,140 5,265 6,265 32,122 33,114 148,731 153,925 99,191 101,029 94,311 102,014

1988

22 Masahiro Kawai and Shujiro Urata

1990 3,517,259 2,573,676 517,020 1,538,964 235,307 939,301 83,618 434,210 271,594 82,482 74,405 60,954 53,753 102,289 22,005 29,170 12,993 33,407 2,842 1,872 53,809 6,517 38,875 153,386 113,071 116,141

(ii) 1990–99 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

Table 2.2 (a) contd.

3,635,510 2,598,478 509,300 1,576,355 236,633 1,033,167 80,183 500,848 311,599 100,274 81,771 66,261 63,293 118,424 25,928 36,749 12,945 37,925 2,483 2,395 63,875 6,950 35,530 140,901 126,750 148,954

1991 3,893,471 2,709,094 552,593 1,639,031 232,852 1,181,465 92,841 569,886 350,803 123,430 82,951 72,175 72,248 129,954 27,280 39,927 14,562 40,686 3,027 4,471 81,871 7,258 40,850 156,128 144,622 177,139

1992

1994

3,794,909 4,319,076 2,529,006 2,881,995 602,976 689,338 1,394,886 1,588,226 241,630 274,181 1,262,815 1,433,943 86,638 90,955 646,007 756,905 387,691 453,649 138,596 161,771 86,630 102,530 85,378 102,642 77,087 86,706 147,319 180,247 28,328 31,985 45,616 59,555 17,638 22,535 46,065 54,394 3,924 5,826 5,748 5,952 103,622 115,705 7,376 7,305 39,990 44,654 158,136 185,831 134,996 126,497 197,049 229,101

1993 5,137,927 3,392,151 770,972 1,914,173 336,027 1,741,525 107,838 931,932 556,160 192,764 135,352 124,394 103,649 235,746 40,629 77,620 28,282 73,692 8,155 7,368 132,163 7,863 58,690 249,563 140,576 252,926

1995

1997

1998

5,381,225 5,583,844 5,519,315 3,507,402 3,622,188 3,705,704 817,818 898,661 944,644 1,956,314 1,974,269 2,062,914 349,597 338,646 281,243 1,868,822 1,957,744 1,809,469 108,298 106,450 110,138 975,595 992,767 811,248 582,227 600,580 484,325 198,551 208,623 184,602 150,662 144,923 93,370 131,329 132,591 101,606 101,686 114,443 104,747 245,950 241,637 179,099 42,902 41,680 27,337 78,441 79,047 58,319 31,756 39,131 31,393 73,336 62,804 43,108 11,143 11,592 12,545 8,371 7,383 6,398 138,949 142,163 140,385 8,469 8,388 7,438 62,626 65,814 67,916 280,227 309,303 308,822 153,659 151,507 156,857 288,417 331,904 354,487

1996

5,810,326 3,940,580 1,048,435 2,143,856 310,733 1,865,191 109,246 892,132 521,150 179,650 119,740 111,071 110,689 197,636 28,950 65,491 31,368 53,207 13,213 5,407 165,718 7,628 72,735 280,455 160,026 350,597

1999

Trade and foreign direct investment in East Asia 23

100.0 72.5 13.4 44.0 7.4 27.5 3.2 7.9 4.6 1.2 1.1 1.3 1.0 2.1 0.6 0.6 0.4 0.5 0.0 0.1 1.0 0.2 1.3 4.5 4.8 5.8

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

100.0 65.9 13.7 37.4 7.1 33.6 4.4 8.5 5.0 1.2 1.3 1.4 1.1 2.3 0.7 0.6 0.4 0.5 0.0 0.1 1.1 0.2 1.3 6.6 6.8 6.0

1981

Source: International Monetary Fund, IFS CD-ROM.

1980

(i) 1980–89 Region/country

Table 2.2 contd. (b) Share of world total (per cent)

100.0 66.6 13.7 38.4 7.1 33.0 4.0 8.8 5.1 1.3 1.3 1.5 1.0 2.6 0.9 0.7 0.4 0.5 0.0 0.1 1.0 0.2 1.4 6.1 7.5 5.2

1982 100.0 67.5 14.9 37.9 7.0 32.1 3.6 9.5 5.5 1.3 1.4 1.6 1.1 2.7 0.9 0.7 0.4 0.6 0.0 0.1 1.2 0.2 1.3 6.2 7.3 4.2

1983 100.0 69.2 17.8 36.1 7.1 30.3 3.1 9.6 5.7 1.5 1.6 1.5 1.1 2.4 0.7 0.7 0.3 0.5 0.0 0.0 1.4 0.2 1.4 6.0 6.2 4.0

1984 100.0 70.0 18.3 36.7 6.6 29.1 2.8 9.8 5.4 1.5 1.6 1.3 1.0 2.0 0.5 0.6 0.3 0.5 0.1 0.0 2.1 0.2 1.4 6.4 4.9 3.8

1985 100.0 72.4 18.0 39.7 5.9 26.8 2.6 9.5 5.4 1.6 1.5 1.2 1.1 1.8 0.5 0.5 0.2 0.4 0.1 0.0 2.0 0.2 1.2 6.0 4.1 3.5

1986 100.0 73.0 16.9 41.7 6.0 26.1 2.4 10.1 6.2 1.9 1.6 1.3 1.4 1.9 0.5 0.5 0.3 0.5 0.1 0.0 1.7 0.2 1.1 5.5 3.6 3.4

1987

1989 100.0 72.1 15.9 41.0 6.7 27.0 2.3 12.2 7.5 2.3 1.9 1.6 1.7 2.6 0.5 0.7 0.4 0.8 0.1 0.0 1.9 0.2 1.1 4.9 3.2 3.3

1988 100.0 72.2 16.0 41.1 6.5 26.9 2.3 11.6 7.3 2.2 1.8 1.5 1.7 2.2 0.5 0.6. 0.3 0.7 0.1 0.0 1.9 0.2 1.1 5.2 3.4 3.3

24 Masahiro Kawai and Shujiro Urata

100.0 73.2 14.7 43.8 6.7 26.7 2.4 12.3 7.7 2.3 2.1 1.7 1.5 2.9 0.6 0.8 0.4 0.9 0.1 0.1 1.5 0.2 1.1 4.4 3.2 3.3

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

100.0 71.5 14.0 43.4 6.5 28.4 2.2 13.8 8.6 2.8 2.2 1.8 1.7 3.3 0.7 1.0 0.4 1.0 0.1 0.1 1.8 0.2 1.0 3.9 3.5 4.1

1991

Source: International Monetary Fund, IFS CD-ROM.

1990

(ii) 1990–99 Region/country

Table 2.2 (b) contd.

100.0 69.6 14.2 42.1 6.0 30.3 2.4 14.6 9.0 3.2 2.1 1.9 1.9 3.3 0.7 1.0 0.4 1.0 0.1 0.1 2.1 0.2 1.0 4.0 3.7 4.5

1992 100.0 66.6 15.9 36.8 6.4 33.3 2.3 17.0 10.2 3.7 2.3 2.2 2.0 3.9 0.7 1.2 0.5 1.2 0.1 0.2 2.7 0.2 1.1 4.2 3.6 5.2

1993 100.0 66.7 16.0 36.8 6.3 33.2 2.1 17.5 10.5 3.7 2.4 2.4 2.0 4.2 0.7 1.4 0.5 1.3 0.1 0.1 2.7 0.2 1.0 4.3 2.9 5.3

1994 100.0 66.0 15.0 37.3 6.5 33.9 2.1 18.1 10.8 3.8 2.6 2.4 2.0 4.6 0.8 1.5 0.6 1.4 0.2 0.1 2.6 0.2 1.1 4.9 2.7 4.9

1995

1997 100.0 64.9 16.1 35.4 6.1 35.1 1.9 17.8 10.8 3.7 2.6 2.4 2.0 4.3 0.7 1.4 0.7 1.1 0.2 0.1 2.5 0.2 1.2 5.5 2.7 5.9

1996 100.0 65.2 15.2 36.4 6.5 34.7 2.0 18.1 10.8 3.7 2.8 2.4 1.9 4.6 0.8 1.5 0.6 1.4 0.2 0.2 2.6 0.2 1.2 5.2 2.9 5.4

100.0 67.1 17.1 37.4 5.1 32.8 2.0 14.7 8.8 3.3 1.7 1.8 1.9 3.2 0.5 1.1 0.6 0.8 0.2 0.1 2.5 0.1 1.2 5.6 2.8 6.4

1998

100.0 67.8 18.0 36.9 5.3 32.1 1.9 15.4 9.0 3.1 2.1 1.9 1.9 3.4 0.5 1.1 0.5 0.9 0.2 0.1 2.9 0.1 1.3 4.8 2.8 6.0

1999

Trade and foreign direct investment in East Asia

1980 3,751,232 2,638,077 477,740 1,595,103 271,719 1,113,155 125,845 300,199 164,410 42,119 39,502 39,399 43,390 92,686 32,747 23,782 14,082 15,714 0 6,362 37,644 5,458 38,864 152,221 281,858 214,168

CO 1980–89 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere 3,915,988 2,543,939 507,089 1,442,186 294,368 1,355,258 164,894 333,712 186,124 46,583 47,424 43,576 48,541 98,347 37,080 23,354 14,198 16,981 707 6,027 43,106 6,135 37,789 238,251 348,966 231,645

1981

1983

3,638,979 3,538,087 2,403,159 2,367,441 467,156 470,407 1,383,052 1,336,775 270,009 273,490 1,221,344 1,155,997 139,447 128,626 325,368 340,908 180,383 192,031 44,337 45,954 46,077 50,655 41,005 45,432 48,964 49,990 98,475 99,766 39,188 37,498 24,452 27,368 13,282 12,795 15,466 16,651 614 613 5,473 4,841 40,785 43,408 5,725 5,703 38,629 36,983 212,020 209,204 309,038 266,180 196,842 174,096

1982

1985

1986

3,757,920 3,850,429 4,190,858 2,552,263 2,648,168 3,027,127 559,059 574,767 604,367 1,362,571 1,432,805 1,722,897 305,891 307,705 338,378 1,191,014 1,167,365 1,129,933 126,618 121,320 109,775 379,278 386,667 415,227 221,930 221,085 249,283 56,871 59,883 70,798 59,887 61,347 66,525 52,434 50,806 63,947 52,737 49,049 48,013 101,039 89,691 84,461 35,761 28,871 25,533 30,620 27,709 24,805 11,605 9,965 10,018 17,829 16,382 18,030 775 2,535 2,944 4,449 4,228 3,131 50,777 69,809 74,614 5,532 6,081 6,869 39,669 40,968 40,686 217,977 236,883 237,273 242,752 207,241 169,648 184,719 174,285 157,324

1984

Table 2.3 Total trade (exports and imports) for selected regions and countries, 198099 (a) Value (US$ million)

1988

4,926,298 5,638,711 3,563,631 4,056,619 676,953 779,188 2,092,702 2,346,201 382,239 452,444 1,320,519 1,530,797 121,478 129,584 529,775 674,560 334,784 432,833 96,936 127,083 88,327 112,491 88,199 110,072 61,322 83,187 104,315 129,262 30,020 32,865 30,636 37,663 12,633 15,696 24,562 36,211 3,309 3,795 3,155 3,032 82,686 103,015 7,990 9,451 46,585 53,017 258,325 277,182 185,997 195,925 178,360 200,529

1987

6,096,402 4,368,063 857,136 2,514,339 484,232 1,676,854 139,012 759,902 477,556 145,263 120,705 117,125 94,462 159,468 38,406 47,638 18,925 45,548 5,504 3,446 112,054 10,825 56,861 283,121 219,964 217,993

1989

26 Masahiro Kawai and Shujiro Urata

6,898,949 7,127,868 5,016,955 5,095,575 910,126 931,055 3,027,329 3,062,832 522,985 551,525 1,875,432 2,026,675 165,894 161,605 862,079 990,048 540,815 617,934 164,626 198,853 142,217 154,143 120,266 139,485 113,707 125,452 193,902 224,979 47,680 55,106 58,590 71,154 21,186 21,784 56,479 66,736 5,367 4,672 4,599 5,527 116,569 135,841 10,792 11,295 66,237 64,074 272,587 260,186 264,537 260,355 244,098 290,406

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

1991

1990

(it) 1990–99 Region/country

Table 2.3 (a) contd.

7,638,963 5,355,853 999,903 3,211,131 572,751 2,278,189 174,463 1,126,745 692,496 242,942 160,285 153,657 135,612 254,714 61,247 80,636 24,391 73,159 5,945 9,337 167,491 12,044 72,455 292,117 284,742 327,665

1992 7,515,628 5,087,235 1,068,846 2,835,975 604,232 2,423,278 163,339 1,263,776 767,472 273,591 172,438 162,024 159,418 287,687 65,151 92,744 28,909 83,222 6,909 10,752 195,315 13,302 73,909 296,972 267,474 357,809

1993

1995

1996

1997

1998

1999

8,567,886 10,208,754 10,669,743 11,093,436 10,913,197 11,473,636 5,770,097 6,818,075 7,021,103 7,240,385 7,326,542 7,691,464 1,201,743 1,354,423 1,440,767 1,586,242 1,625,050 1,739,124 3,241,603 3,932,463 4,031,035 4,068,249 4,216,311 4,352,347 669,407 779,074 760,899 759,712 669,199 729,940 2,792,411 3,384,083 3,640,778 3,846,590 3,580,245 3,775,383 170,894 197,927 210,612 211,834 203,594 214,651 1,488,917 1,821,544 1,903,938 1,983,845 1,748,480 1,902,836 891,989 1,085,303 1,134,867 1,171,510 1,011,280 1,074,821 313,150 366,321 379,081 396,493 358,295 353,443 198,919 260,940 281,655 281,277 226,073 263,387 180,367 215,462 217,677 235,822 215,420 232,191 199,553 242,581 256,454 257,917 211,492 225,801 346,884 440,163 463,036 471,866 399,238 452,682 72,039 86,056 92,775 95,119 76,180 86,142 118,304 151,344 156,656 157,955 131,789 150,042 35,968 45,653 52,299 64,359 60,889 66,842 99,977 130,892 129,079 120,363 97,597 115,003 9,880 13,606 18,401 20,777 21,765 23,687 10,716 12,611 13,826 13,292 11,018 10,966 236,570 281,118 290,114 325,080 324,129 360,649 13,475 14,959 15,921 15,389 13,832 14,685 82,547 104,697 112,238 116,608 122,151 130,041 366,367 480,013 527,241 572,792 567,275 536,034 265,584 299,206 341,430 345,564 303,832 335,181 418,101 480,696 545,317 615,948 634,912 656,640

1994

Trade and foreign direct investment in East Asia 27

1981 100.0 65.0 12.9 36.8 7.5 34.6 4.2 8.5 4.8 1.2 1.2 1.1 1.2 2.5 0.9 0.6 0.4 0.4 0.0 0.2 1.1 0.2 1.0 6.1 8.9 5.9

1980 100.0 70.3 12.7 42.5 7.2 29.7 3.4 8.0 4.4 1.1 1.1 1.1 1.2 2.5 0.9 0.6 0.4 0.4 0.0 0.2 1.0 0.1 1.0 4.1 7.5 5.7

(0 1980–89 Region/country

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia South Asia Europe Middle East Western Hemisphere

Table 23 contd. (b) Share of world total (per cent)

100.0 66.0 12.8 38.0 7.4 33.6 3.8 8.9 5.0 1.2 1.3 1.1 1.3 2.7 1.1 0.7 0.4 0.4 0.0 0.2 1.1 0.2 1.1 5.8 8.5 5.4

1982 100.0 66.9 13.3 37.8 7.7 32.7 3.6 9.6 5.4 1.3 1.4 1.3 1.4 2.8 1.1 0.8 0.4 0.5 0.0 0.1 1.2 0.2 1.0 5.9 7.5 4.9

1983 100.0 67.9 14.9 36.3 8.1 31.7 3.4 10.1 5.9 1.5 1.6 1.4 1.4 2.7 1.0 0.8 0.3 0.5 0.0 0.1 1.4 0.1 1.1 5.8 6.5 4.9

1984

1986 100.0 72.2 14.4 41.1 8.1 27.0 2.6 9.9 5.9 1.7 1.6 1.5 1.1 2.0 0.6 0.6 0.2 0.4 0.1 0.1 1.8 0.2 1.0 5.7 4.0 3.8

1985 100.0 68.8 14.9 37.2 8.0 30.3 3.2 10.0 5.7 1.6 1.6 1.3 1.3 2.3 0.7 0.7 0.3 0.4 0.1 0.1 1.8 0.2 1.1 6.2 5.4 4.5

100.0 72.3 13.7 42.5 7.8 26.8 2.5 10.8 6.8 2.0 1.8 1.8 1.2 2.1 0.6 0.6 0.3 0.5 0.1 0.1 1.7 0.2 0.9 5.2 3.8 3.6

1987

100.0 71.9 13.8 41.6 8.0 27.1 2.3 12.0 7.7 2.3 2.0 2.0 1.5 2.3 0.6 0.7 0.3 0.6 0.1 0.1 1.8 0.2 0.9 4.9 3.5 3.6

1988

100.0 71.6 14.1 41.2 7.9 27.5 2.3 12.5 7.8 2.4 2.0 1.9 1.5 2.6 0.6 0.8 0.3 0.7 0.1 0.1 1.8 0.2 0.9 4.6 3.6 3.6

1989

28 Masahiro Kawai and Shujiro Urata

100.0 72.7 13.2 43.9 7.6 27.2 2.4 12.5 7.8 2.4 2.1 1.7 1.6 2.8 0.7 0.8 0.3 0.8 0.1 0.1 1.7 0.2 4.0 3.8 3.5

World total Industrial countries United States European Union-15 Japan Developing countries Africa Emerging East Asia NIE-4 Hong Kong South Korea Singapore Taiwan ASEAN-9 Indonesia Malaysia Philippines Thailand Vietnam Other ASEAN-9 China Other East Asia Europe Middle East Western Hemisphere

100.0 71.5 13.1 43.0 7.7 28.4 2.3 13.9 8.7 2.8 2.2 2.0 1.8 3.2 0.8 1.0 0.3 0.9 0.1 0.1 1.9 0.2 3.7 3.7 4.1

1991

Source: International Monetary Fund, IFS CD-ROM

1990

(ii) 1990–99 Region/country

Table 23 (b) contd.

100.0 70.1 13.1 42.0 7.5 29.8 2.3 14.7 9.1 3.2 2.1 2.0 1.8 3.3 0.8 1.1 0.3 1.0 0.1 0.1 2.2 0.2 3.8 3.7 4.3

1992 100.0 67.7 14.2 37.7 8.0 32.2 2.2 16.8 10.2 3.6 2.3 2.2 2.1 3.8 0.9 1.2 0.4 1.1 0.1 0.1 2.6 0.2 4.0 3.6 4.8

1993 100.0 67.3 14.0 37.8 7.8 32.6 2.0 17.4 10.4 3.7 2.3 2.1 2.3 4.0 0.8 1.4 0.4 1.2 0.1 0.1 2.8 0.2 4.3 3.1 4.9

1994 100.0 66.8 13.3 38.5 7.6 33.1 1.9 17.8 10.6 3.6 2.6 2.1 2.4 4.3 0.8 1.5 0.4 1.3 0.1 0.1 2.8 0.1 4.7 2.9 4.7

1995 100.0 65.8 13.5 37.8 7.1 34.1 2.0 17.8 10.6 3.6 2.6 2.0 2.4 4.3 0.9 1.5 0.5 1.2 0.2 0.1 2.7 0.1 4.9 3.2 5.1

1996 100.0 65.3 14.3 36.7 6.8 34.7 1.9 17.9 10.6 3.6 2.5 2.1 2.3 4.3 0.9 1.4 0.6 1.1 0.2 0.1 2.9 0.1 5.2 3.1 5.6

1997 100.0 67.1 14.9 38.6 6.1 32.8 1.9 16.0 9.3 3.3 2.1 2.0 1.9 3.7 0.7 1.2 0.6 0.9 0.2 0.1 3.0 0.1 5.2 2.8 5.8

1998

100.0 67.0 15.2 37.9 6.4 32.9 1.9 16.6 9.4 3.1 2.3 2.0 2.0 3.9 0.8 1.3 0.6 1.0 0.2 0.1 3.1 0.1 4.7 2.9 5.7

1999

Trade and foreign direct investment in East Asia 29

World total 55,390 50,792 Industrial countries 53,60149,869 United States 19,230 9,620 European Union-15 27,067 28,794 Japan 2,390 4,900 Developing countries 1,789 923 Africa 793 756 Emerging East Asia 145 34 NIE-4 124 33 Hong Kong 26 48 South Koreai Singapore 98 -15 Taiwan ASEAN-9 3 2 Indonesia 0 0 Malaysia 0 0 Philippines 0 0 Thailand 3 2 Other ASEAN-9 0 0 China 0 0 Other East Asia 18 -1 South Asia 0 0 Europe 21 3 Middle East 461 -13 Western Hemisphere 369 142

19911992 1993 1994

1995 1996

1997 1998 1999

130 49 1 0 0 0 1 0 93 1 0 1 365 299

151 304 2 0 0 0 2 0 44 3 0 4 331 396

120

1 0 0 0 1 0 134 3 -5 12 137 104 656

591 1,227 238 181 66 1 1 0 0 0 0 0 0 1 1 0 0 629 450 14 -9 -7 0 1 22 128 316

52 92

209

311

515 643 206 118 704 4,120 170 24 0 0 0 0 0 0 170 24 0 0 645 850 7 35 21 15 19 23 990 606 753

598 882 6,950 50 0 0 0 50 0 780 11 45 19 1,178

1,162 1,317 1,967 147 0 0 0 147 0 4,000 26 -10 129 1,695 1,916

1,052 1,489 2,034 526 5,249 2,054 140 167 0 0 0 0 0 0 140 167 0 0 830 913 13 -7 3 1 26 52 549 444 1,062 1,347

2,760

1,340 2,152 2,611 963 356 0 374 233 0 4,400 29 5 235 776

3,529

2,461 4,577 2,640 1,404 609 0 302 493 0 2,000 0 92 313 -531

4,671 6,935 3,843 1,713 600 0 182 931 0 2,114 10 246 1,227 3,023 3,257

3,552 6,281 2,983 1,888 603 0 399 886 0 2,000 -3 118 578 -256 4,072

8,042

8,723

8,367

36,681 39,762 49,888 2,362 1,717 1,991 22,038 27,055 34,652 18,551 24,024 32,465 16,973 19,904 4,449 4,740 4,198 8,858 -1,525 3,943 5,243 3,836 4,420 894 334 359 178 44 72 0 0 0 136 160 -59 580 130 346 0 0 0 2,563 2,634 1,775 30 63 53 92 51 79 3,943 2,664 3,318 205 -447 1,481

15,714 17,886 23,793 28,133 443 1,401 2,580 1,094 11,495 13,082 16,701 19,285 6,103 9,678 12,816 15,448

1,249 1,138 13 198 504 275 456 179

759 1,800 3,040 3,695 6,889 11,520 11,048 7,354 14,581 229 85 130 210 144 255 90 369 2,234 282 1,472 1,916 2,247 5,790 9,270 9,318 5,142 8,618 144 829 1,474 1,425 4,881 8,430 8,334 4,068 4,445

93,855 121,268 160,931 185,013 222,012 412,477 592,633 13,834 18,089 22,508 23,442 26,059 24,625 22,267

19,224 21,973 24,375 25,689 47,325 71,486 91,948 111,452 130,595105,992 105,315 4,540 3,610 5,960 6,492 14,673 20,299 35,464 46,024 50,497 31,620 17,390

26,225 37,395 49,917 58,171 96,480141,637172,030 220,269 234,772191,593 184,459 210,066 246,351 311,708 340,966 404,541 637,348 821,122 -982 7,740 12,350 14,060 23,997 35,033 22,527 43,445 37,184 37,889 48,263 83,951 80,167 98,750 91,883 105,017 146,053 150,900

27,474 38,533 50,676 59,971 99,520145,331178,919 231,789 245,820198,947 199,040 225,779 264,237 335,501 369,099 441,222 677,110 871,010

(i) Value (US$ million) Region/country1980 :1981 1982 .1983 1984 1985 1986 : .1987 .1988 1989 1990

Table 2.4 Foreign direct investment for selected regions and countries, 1980–99 (a) Outflows

30 Masahiro Kawai and Shujiro Urata

1987 1988

100.0 100.0 100.0 100.0 100.0 100.0 100.0- 100.0 100.0 World total Industrial countries 96.8 98.2 95.5 97.0 98.5 97.0 96.9 97.5 96.1 United States 34.7 18.9 -3.6 20.1 24.4 23.4 24.1 24.1 12.6 European Union-15 48.9 56.7 70.0 57.0 48.1 42.8 47.6 49.2 51.4 Japan 4.3 9.6 16.5 9.4 11.8 10.8 14.7 14.0 19.8 Developing countries 3.2 1.8 4.5 3.0 1.5 3.0 3.1 2.5 3.9 Africa 1.4 1.5 0.0 0.5 0.5 0.1 0.1 0.1 0.1 Emerging East Asia 0.3 0.1 1.8 0.7 0.6 2.5 1.9 1.5 3.2 NIE-4 0.2 0.1 1.7 0.5 0.3 1.4 1.5 1.0 2.7 Hong Kong 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 South Korea 0.0 0.1 0.6 0.3 0.1 1.0 1.2 0.4 0.4 Singapore 0.2 0.0 1.1 0.1 0.2 0.4 0.2 0.1 0.1 Taiwan 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.5 2.3 ASEAN-9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 Indonesia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Malaysia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Philippines 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Thailand 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 Other ASEAN-91 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 China 0.0 0.0 0.2 0.2 0.3 1.0 0.5 0.4 0.5 Other East Asia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 South Asia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Europe 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Middle East 0.8 0.0 1.2 0.9 0.3 0.2 0.3 0.7 0.3 Western Hemisphere 0.7 0.3 1.4 0.8 0.2 0.2 0.7 0.1 0.2

(ii) Share of world total (per cent) Region/country 1980 1981 1982 1983 1984 1985 1986

Table 2.4 (a) contd.

95.5 15.1 53.1 20.5 4.5 0.0 3.8 3.4 0.0 0.4 0.8 2.1 0.1 0.0 0.0 0.0 0.1 0.0 0.3 0.0 0.0 0.0 0.2 0.4

95.0 18.7 48.1 19.9 5.0 0.1 4.0 3.6 0.0 0.3 0.4 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.5 0.3

0.7

3.7 0.2 2.6 2.0 0.0 0.7 0.3 1.0 0.1 0.0 0.0 0.0 0.1 0.0 0.5 0.0 0.0 0.0 0.2

53.3 15.9

96.3 19.0

100.0 100.0

100.0

1989 1990 1991

1.0

7.3 1.1 4.3 2.2 0.0 0.6 0.7 1.0 0.1 0.0 0.0 0.0 0.1 0.0 2.0 0.0 0.0 0.1 0.9

52.9 8.7

92.7 24.2

100.0

1992

1.2

7.0 0.2 5.1 2.7 0.0 0.6 1.0 1.2 0.4 0.2 0.0 0.2 0.1 0.0 1.9 0.0 0.0 0.1 0.3

41.6 6.1

93.0 37.2

100.0

1993

1.3

6.8 0.5 5.0 3.7 0.0 0.9 1.7 1.0 0.5 0.2 0.0 0.1 0.2 0.0 0.8 0.0 0.0 0.1 -0.2

45.9 6.8

93.2 30.3

100.0

1.2

7.1 0.8 5.0 3.8 0.0 1.1 1.9 0.9 0.6 0.2 0.0 0.1 0.3 0.0 0.6 0.0 0.0 0.2 -0.1

48.0 6.7

92.9 29.4

100.0

1994 1995

0.9

7.6 0.3 5.2 4.2 0.0 1.3 1.9 1.0 0.5 0.2 0.0 0.0 0.3 0.0 0.6 0.0 0.1 0.3 0.8

50.1 6.4

92.4 24.9

100.0

1996

1.8

8.3 0.5 5.0 4.2 0.0 1.0 2.0 1.2 0.2 0.0 0.0 0.0 0.1 0.0 0.6 0.0 0.0 0.9 0.0

50.3 5.9

91.7 23.8

100.0

1997

1.3

5.9 0.3 4.0 3.5 2.5 0.7 -0.2 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.4 0.0 0.0 0.4 -0.1

60.9 3.6

94.1 21.6

1.0

0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.4 0.2

5.7 0.2 4.0 3.7 2.3 0.5 0.5 0.5

68.0 2.6

94.3 17.3

100.0 100.0

1998 1999

Trade and foreign direct investment in East Asia 31

Table 2.4

contd.

World total 52,216 Industrial countries 46,418 United States 16,930 European 21,264 Union-15 Japan 280 Developing countries 5,798 Africa 674 Emerging East Asia 2,374 NIE-4 1,242 Hong Kong South Koreai 6 Singapore 1,236 Taiwan 1,018 ASEAN-9 Indonesia 0 Malaysia 934 Philippines -106 Thailand 190 Other ASEAN-9 0 0 China Other East Asia 114 South Asia 107 Europe 140 Middle East -3,934 Western Hemisphere 6,438

1982

1983

1984

1985

1986

1987 1988

1989

1990

1991

1992 1993

1994 1995

1996 1997

1998

1999

69 1,602

102 1,660

110 1,302

8,686

6,829 5,342 4,210

3,766

5,704 4,484

65,703 72,320 90,388

788 5,575 1,330 6,566 1,093 2,332 530 2,444 167 3,487 271 297 1,156 2,774

7,543 7,768 8,299 13,108 15,017 13,775 28,504 30,159 43,794

1,118 2,887 1,604 4,700 682 1,668 563 1,775 12 3,393 233 235 1,053 1,159

1,180 728 810 1,776 2,326 589 4,887 2,204 4,686 8,550 7,206 8,984 917 1,864 1,271 1,375 879 1,559 8,283 9,514 10,240 9,662 12,593 15,889 1,482 1,777 2,004 2,109 4,346 6,194 3,998 5,183 5,006 4,342 4,178 5,078 544 228 1,238 1,478 1,517 1,591 2,014 1,366 2,068 2,336 2,113 1,804 212 254 764 189 245 523 4,366 11,156 27,515 33,787 35,849 40,180 252 212 164 168 567 163 1,581 388 746 1,114 2,931 3,510 3,418 4,612 6,385 7,124 17,194 16,598 2,176 2,794 3,378 2,520 259 3,211

1,014 3,655 959 3,339 576 719 936 1,105 2 3,194 198 235 472 1,532

73,069 81,757 87,324 13,177 25,897 42,312 14,776 23,068 2,844 5,406 9,333 8,085 5,493 6,984 2,248 222 2,926 15,521 11,844 5,936 4,677 -356 -2,745 5,137 2,163 1,553 1,222 2,287 573 3,895 7,315 6,213 342 435 591 44,237 43,751 38,753 324 265 133 4,899 3,042 2,540 22,006 25,222 27,444 6,157 7,437 3,256

8,081 12,359 13,935 18,017 20,150 24,734 44,159 54,349 59,551 69,412 4,168 5,628 5,608 7,693 7,338 3,812 6,192 10,735 10,541 13,174 616 2,836 715 1,467 385 423 307 352 0 2,314 133 197 198 -53

5,613 2,497 460 1,710 327 1,136 258 489 127 263 0 1,875 104 143 209 2,270

234 1,047

4,248 4,230 1,412 1,280

1,860 1,829 2,007 1,429 1,180 292 222 310 225 133 1,265 1,397 1,261 797 695 12 172 16 105 9 350 401 291 191 163 0 0 0 0 0 0 430 636 1,258 1,659 176 148 111 123 131 158 68 88 157 127 230 161 220 155 191 6,864 11,381 5,456 5,998 2,178

69 1,134

4,061 4,022 1,671 1,202

3,745 1,762

21,198 24,269 16,245 15,849 13,470 13,399 13,682 23,562 26,827 31,749 41,870 50,462 71,687 98,361 114,765 141,348 179,341 194,275 215,028 7,506 4,498 4,075 681 1,493 1,421 2,678 1,205 2,630 2,560 2,877 4,285 4,672 4,823 1,515 1,710 1,202 1,085 1,010

16,272 14,363 15,423 9,110 15,836 22,431 39,452 59,849 80,760 96,173 78,374 81,830 79,889 71,975 115,316 111,560 128,893 245,956 371,839 190 440 410 -10 638 226 1,161 -482 -1,038 1,777 1,286 2,760 912 200 3,200 3,268 12,308 119 39

45,662 30,536 32,410 40,861 42,033 70,623 116,256 132,939166,421170,886114,136 117,554 144,677 141,616 204,117 223,962 271,177 475,979 702,453 25,190 12,474 10,470 24,760 20,010 35,419 58,471 57,736 68,273 48,497 23,171 19,823 51,363 46,121 51,116 86,503 106,035 186,315 275,535

66,860 54,805 48,655 56,710 55,502 84,022 129,938 156,501193,248202,635156,006 168,016 216,364 239,977 318,883 365,310 450,518 670,254 917,481

(i) Value (US$ million) Region/country 1980 1981

(b) Inflows

32 Masahiro Kawai and Shujiro Urata

44.3 3.1 7.4 3.0 0.0 0.1 2.9 0.0 3.3 0.4 2.5 0.0 0.3 0.0 0.8 0.2 0.2 0.3 20.8 12.5

31.7 2.3 5.6 2.6 0.0 0.2 2.5 0.0 2.8 0.2 1.9 0.3 0.4 0.0 0.0 0.2 0.2 0.3 10.3 13.0

11.0

33.4 2.5 8.3 2.5 0.0 0.1 2.3 0.0 4.1 0.6 2.6 0.2 0.7 0.0 1.3 0.4 0.1 0.3 11.2

31.7 0.8

7.4

27.9 1.9 7.5 2.5 0.0 0.2 2.3 0.0 2.5 0.4 1.4 0.0 0.7 0.0 2.2 0.3 0.2 0.4 10.6

16.1 0.0

10.3

24.3 1.8 7.6 2.3 0.0 0.4 1.9 0.0 2.1 0.6 1.3 0.0 0.3 0.0 3.0 0.2 0.3 0.3 3.9

28.5 1.1

5.3

15.9 0.8 6.7 3.0 0.0 0.5 2.0 0.4 1.4 0.3 0.6 0.2 0.3 0.0 2.2 0.1 0.2 0.2 2.7

26.7 0.3

2.9

10.5 1.1 6.2 3.2 0.0 0.5 2.2 0.6 1.1 0.3 0.3 0.2 0.3 0.0 1.8 0.1 0.2 0.2 0.0

30.4 0.9

26.2 0.8

24.3 0.3

84.1 42.2

89.5 45.0

75.7 36.1

55.7 22.8

68.3 37.7

66.6 72.1 21.5 43.7

100.0

100.0 100.0 100.0 100.0 100.0 100.0

Source: International Monetary Fund, IFS CD-ROM.

World total 100.0 Industrial 88.9 countries United States 32.4 European 40.7 Union-15 Japan 0.5 Developing 11.1 countries Africa 1.3 Emerging East Asia 4.5 NIE-4 2.4 Hong Kong 0.0 South Korea 0.0 Singapore 2.4 Taiwan 0.0 ASEAN-9 1.9 Indonesia 0.0 Malaysia 1.8 Philippines -0.2 Thailand 0.4 Other ASEAN-9 0.0 China 0.0 Other East Asia 0.2 South Asia 0.2 Europe 0.3 Middle East -7.5 Western Hemisphere 12.3 4.8

15.1 0.9 7.9 3.6 0.0 0.6 2.3 0.6 2.1 0.4 0.5 0.6 0.7 0.0 2.0 0.1 0.2 0.3 1.0

38.2 -0.3

84.9 36.9

4.0

13-9 1.4 7.2 2.9 0.0 0.6 1.5 0.8 2.4 0.4 0.9 0.3 0.9 0.0 1.8 0.1 0.1 0.5 0.6

41.8 -0.5

86.1 35.3

4.1

15.7 0.6 8.9 3.8 0.0 0.4 2.8 0.7 3.2 0.5 1.2 0.3 1.2 0.1 1.7 0.1 0.1 0.6 1.4

47.5 0.9

84.3 23.9

8.4

26.8 1.7 12.9 4.7 0.0 0.8 3.1 0.8 5.3 0.9 2.6 0.3 1.3 0.2 2.8 0.1 0.2 2.2 1.4

50.2 0.8

73.2 14.9

100.0 100.0 100.0 100.0

8.9

30.0 1.5 14.7 2.3 0.0 0.4 1.3 0.5 5.7 1.1 3.1 0.1 1.3 0.1 6.6 0.2 0.4 2.7 1.7

48.7 1.6

70.0 11.8

100.0

6.4

33.1 1.3 20.4 2.9 0.0 0.3 2.2 0.4 4.7 0.9 2.3 0.6 0.8 0.1 12.7 0.1 0.5 3.0 1.6

36.9 0.1

66.9 23.7

100.0

11.9

41.0 1.8 22.6 4.5 0.0 0.3 3.6 0.6 4.0 0.9 1.8 0.7 0.6 0.1 14.1 0.1 0.7 3.0 1.0

30.0 0.4

59.0 19.2

100.0

9.5

36.0 1.5 18.7 3.3 0.0 0.6 2.3 0.5 3.9 1.4 1.3 0.5 0.6 0.2 11.2 0.2 0.9 5.4 0.1

36.2 0.0

64.0 18.1

12.0

38.7 1.3 19.0 3.6 0.0 0.6 2.5 0.5 4.3 1.7 1.4 0.4 0.6 0.2 11.0 0.0 1.0 4.5 0.9

30.5 0.1

61.3 23.7

100.0 100.0

(ii) Share of wold total (per cent) Region/country 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Table 2.4 (b) contd.

14.6

39.8 1.7 16.2 2.9 0.0 0.6 1.8 0.5 3.4 1.0 1.1 0.3 0.9 0.1 9.8 0.0 1.1 4.9 1.4

28.6 0.7

60.2 23.5

100.0

10.8

29.0 0.7 12.2 3.9 2.2 0.8 0.8 0.0 1.8 -0.1 0.3 0.3 1.1 0.1 6.5 0.0 0.5 3.8 1.1

36.7 0.5

71.0 27.8

100.0

9.9

23.4 0.4 9.5 4.6 2.5 1.0 0.8 0.3 0.6 -0.3 0.2 0.1 0.7 0.0 4.2 0.0 0.3 3.0 0.4

40.5 1.3

76.6 30.0

100.0

1997 1998 1999

Trade and foreign direct investment in East Asia 33

34 Masahiro Kawai and Shujiro Urata steadily in the post-World War II period, after declining in the pre-World War II period, and that the intra-regional trade bias declined in the post-World War II period. Frankel (1993) found a decline in intra-regional bias in foreign trade in the 1980s by estimating the magnitude of the bias in the gravity model framework. Here, we investigate the changing patterns of intra-regional trade and FDI in East Asia from the early 1980s to the late 1990s. Following Petri (1993), we compute three measures: the absolute measure, the relative measure, and the double-relative measure: • • •

absolute measure 04): A = Xij / X.. relative measure (B): B = A / (Xi. / X.) = Xij / Xi. double-relative measure (C): C = B / (X.j / X.) = (Xij/X..) / [(Xi / X.)*(X.j/ X.)],

where Xij represents exports (or outward FDI) from region i to region/, and a dot ('.') indicates the summation across all i or j Therefore, Xi. represents total export (or outward FDI flows) of region i, X.j represents total imports (or inward FDI flows) of region j and X . ' represents world total trade (or world total FDI flows). The absolute measure is the ratio of exports (or FDI outflow) from region i to region j to world total trade (or world total FDI), and represents the relative scale of a particular bilateral trading (or FDI) relationship between two regions as a ratio of the world total. The relative measure is the ratio of the absolute measure to the share of region is total exports (or FDI outflow) in the world total, and represents the relative scale of a particular bilateral trading (or FDI) relationship between two regions as a ratio of total exports (or FDI outflow) of region i. The double-relative measure, which is commonly called the trade (FDI) intensity index, is the ratio of the relative measure to the share of region fs total import (or FDI inflow) in world total trade (or world total FDI). It represents the intensity or bias of a bilateral trading (or FDI) relationship by taking into account the two regions' importance in the world total. The value of unity for the double-relative measure can be interpreted so that the bilateral relationship is neutral; a value exceeding (or falling short of) unity means that the relationship is more (or less) biased. Table 2.5 summarises the estimated values of the three measures of foreign trade and FDI stock for several regions in the world– East Asia, the North American Free Trade Agreement (NAFTA) area, the European Union, and MERCOSUR. The results indicate that, despite the declining trend of intraregional bias over time, for both trade and FDI, intra-regional trade and FDI (inward) in East Asia became more important, not only as a share of the world total but also as a share of the regional total. The share of intra-East Asian trade in world total trade rose significantly from 5 per cent in 1980 to 13 per cent in 1995, though it declined slightly to 11 per cent in 1999. The share of intra-NAFTA trade in world total trade also increased over the same

Trade and foreign direct investment in East Asia Table 2.5

35

Intra-regional interdependence of trade and FDI

(a) Absolute measure (per cent) Trade 1980 1985

1990

1995

1999

FDI 1980

1994

East Asia, incl. Japan Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9, excl. Singapore NAFTA MERCOSUR European Union-15

6.7 2.5 0.5 0.7 0.1 7.9 0.1 21.7

8.3 3.9 0.9 0.8 0.1 6.6 0.1 28.3

12.7 6.6 1.5 1.5 0.3 7.8 0.3 23.8

11.3 6.4 1.2 1.4 0.4 10.3 0.3 23.1

3.5 1.5 0.1 0.5 13.6 12.9

8.4 5.5 0.1 0.8 5.3 19.3

(b) Relative measure (per cent)Exports 1980 East Asia, incl. Japan 35.9 23.3 Emerging East Asia-14 NIE-4 9.7 ASEAN-10 18.7 ASEAN-9, excl. Singapore 3.9 NAFTA 33.6 MERCOSUR 11.6 European Union-15 60.8

1985 34.5 26.4 8.9 19.8 5.1 43.9 5.5 59.2

1990 40.1 32.4 12.4 19.8 5.0 41.4 8.9 65.9

1995 49.3 39.6 16.1 25.4 7.3 46.2 20.3 62.4

1999 45.0 37.0 14.8 22.2 8.1 54.6 20.5 62.8

Imports 1980 35.3 21.1 7.1 18.2 5.0 32.8 8.3 54.0

1985 40.5 24.2 8.2 19.7 6.9 34.4 9.5 57.5

1990 43.6 30.6 10.3 16.4 4.8 33.9 14.2 63.1

1995 51.2 34.6 11.8 19.4 7.3 38.4 18.2 61.3

1999 54.1 40.5 11.4 23.9 10.7 41.1 19.2 59.6

Inward!DI 1980 1994 54.0 42.0 19.7 38.3 4.1 4.6 10.2 11.3 41.5 21.2 36.2 55.0

1995 50.2 37.1 13.9 22.2 7.3 42.0 19.2 61.9

1999 49.2 38.7 13.2 22.9 9.2 46.8 19.8 61.2

FDI (outward and inward) 1980 1994 40.0 42.5 32.1 53.1 5.6 3.5 17.9 18.8 33.0 19.9 37.3 51.2

1995 2.14 2.32 1.64 3.80 1.64 2.39 13.27 1.66

1999

East Asia, incl. Japan Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9, excl. Singapore NAFTA MERCOSUR European Union-15

5.4 1.7 0.4 0.7 0.1 5.7 0.2 24.3

Total trade (exports and imports) East Asia, incl. Japan Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9, excl. Singapore NAFTA MERCOSUR European Union-15 (c) Double-relative measure (trade or FDI intensity index, percent) East Asia, incl. Japan Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9, excl. Singapore NAFTA MERCOSUR European Union-15

1980 35.6 22.2 8.3 18.4 4.3 33.2 9.7 57.2

1985 37.3 25.3 8.6 19.7 5.9 38.3 7.0 58.3

Trade 1980 1985 2.56 2.28 2.97 2.93 2.09 1.75 5.12 6.06 1.70 2.65 2.05 1.96 6.55 4.93 1.48 1.60

1990 41.8 31.5 11.3 18.0 4.9 37.2 11.0 64.5

1990 2.27 2.84 1.70 4.60 1.87 2.15 9.70 1.51

2.25 2.49 1.75 4.15 2.34 2.27 14.68 1.66

Outward FDI 1980 1994 35.0 38.1 86.8 86.6 8.6 2.8 73.2 56.5 27.5 18.7 38.6

FDI 1980 4.59 11.36 4.20 14.09 0.84 1.08

47.9

1994 2.25 6.08 0.98 7.59 0.74 1.37

Notes: Definitions are described in the text. FDI is the stock data. Source: Computed from: IMF Direction of Trade Statistics (trade data) and Industry Canada (FDI data).

36 Masahiro Kawai and Shujiro Urata period, but the share was smaller, at 10 per cent in 1999. The corresponding share for the European Union was significantly higher, at 23 per cent in 1999, although the share had declined sharply from 29 per cent in 1990. Table 2.6 summarises the double-relative measures– or trade (or FDI) intensity indexes– for various regions vis-a-vis economies in the same region and those in different regional groups over the period 1980–99. The table again confirms that these measures have declined over time for East Asia. Nonetheless, it demonstrates that within groups of East Asia, the measures are larger than those for NAFTA or EU-15, though they are smaller than those for MERCOSUR. It is also interesting to observe that inter-regional trade intensity measures are usually low, suggesting that there has been a bias toward regional trade in different parts of the world. Changingpatterns oftrade Intra-East Asian trade has increased its share in East Asian total trade over time, as shown in the increase in the relative measure from 36 per cent in 1980 to 50 per cent in 1995, followed by a slight decline to 49 per cent in 1999 (Table 2.5(b)). The comparable figures for emerging East Asia were 22 and 39 per cent in 1980 and 1999, respectively. The importance of intraregional trade in total regional trade also increased for the members of NAFTA, from 33 to 47 per cent, during the same period, but it declined for the European Union, from 65 per cent in 1990 to 6l per cent in 1999, after having risen between 1980 and 1990. Among the sub-groups in East Asia, intra-group trade within the NIE-4 was quite small, amounting to only 13 per cent of total regional trade, while intra-ASEAN-10 trade was larger, at 23 per cent. A large part of intra-East Asian trade takes place between Japan and emerging East Asian economies. This can be seen from the fact that the share of intra-regional trade among emerging East Asian economies (6 per cent in 1999) amounts to only slightly more than half the level of 11 per cent observed for East Asia as a whole (including Japan) (Table 2.5(a)). The magnitudes of intra-regional trade for the Asian NIE-4 and ASEAN-10 are still quite small as a share in world trade, amounting to 1.2 per cent and 1.4 per cent of world trade in 1999, respectively. Analysis of the relative measures computed for exports and imports shows that intra-East Asian trade is more important as a source of imports than as a destination for exports. This finding indicates that the East Asian economies follow a trading pattern of procuring products within – or importing from – the region and selling products outside– or exporting to– the region. This appears to reflect the behaviour of multinationals, as will be confirmed below. Many multinationals use East Asia as an export platform, in which they assemble export products for regions outside East Asia by importing parts and components from within the region. In contrast, intra-NAFTA trade is more important for NAFTA's exports than for its imports.

1980 2.555 3.159 2.782 3.622 3.806 1.837 1.350 0.598 0.306 1980 3.159 2.973 3.008 3.498 3.044 3.381 1.214 0.338 0.336 1980 2.782 3.008 2.091 3.459 4.213 2.513 1.362 0.256 0.333

East Asia Emerging East Asia-14 NE-4 ASEAN-10 ASEAN-9 Japan NAFTA MERCOSUR European Union-15

Emerging East Asia-14

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9 Japan NAFTA MERCOSUR European Union-15

NIE-4

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9 Japan NAFTA MERCOSUR European Union-15

2.395 3.042 2.667 3.662 3.778 1.613 1.368 0.520 0.301

3.042 3.121 3.068 3.823 3.348 2.947 1.220 0.332 0.320

2.233 2.796 2.467 3.232 3.359 1.534 1.420 0.513 0.305

2.693 3.010 2.092 3.365 4.127 2.330 1.317 0.273 0.321

2.667 3.068 1.891 3.709 4.724 2.183 1.434 0.246 0.311

2.281 2.868 2.524 3.215 3.368 1.548 1.444 0.565 0.312

2.146 2.729 2.490 3.096 3.200 1.440 1.630 0.634 0.345

2.234 2.732 2.508 3.069 3.151 1.546 1.571 0.575 0.358 2.175 2.613 2.424 2.817 2.903 1.524 1.485 0.610 0.366

2.172 2.599 2.424 2.714 2.790 1.511 1.442 0.623 0.362

2.942 3.025 2.928 3.819 3.341 2.840 1.271 0.503 0.322 2.796 2.816 2.687 3.372 3.002 2.772 1.210 0.397 0.316

2.596 2.928 1.719 3.648 4.701 2.186 1.548 0.297 0.301 2.467 2.687 1.633 3.118 3.977 2.196 1.477 0.235 0.307

2.729 2.813 2.636 3-333 3.033 2.627 1.304 0.484 0.340

2.732 2.782 2.521 3.239 2.995 2.663 1.308 0.435 0.338 2.613 2.655 2.425 2.888 2.702 2.549 1.246 0.505 0.335

2.599 2.672 2.468 2.742 2.555 2.485 1.199 0.526 0.331

2.524 2.836 1.751 3.136 4.003 2.135 1.485 0.228 0.308 2.490 2.636 1.665 3.012 3.755 2.314 1.621 0.296 0.310

2.508 2.521 1.576 2.832 3.520 2.491 1.586 0.323 0.330

2.424 2.425 1.551 2.578 3.224 2.423 1.490 0.373 0.334

2.424 2.468 1.600 2.483 3.049 2.356 1.426 0.413 0.333

2.218 2.600 2.413 2.687 2.761 1.536 1.286 0.628 0.362

2.211 2.551 2.398 2.567 2.620 1.544 1.246 0.551 0.355

2.042 2.293 2.192 2.391 2.410 1.523 1.163 0.563 0.378 2.101 2.338 2.241 2.427 2.431 1.575 1.136 0.538 0.367

2.138 2.335 2.255 2.415 2.396 1.673 1.138 0.580 0.365 2.179 2.365 2.268 2.448 2.457 1.709 1.077 0.556 0.368

2.172 2.363 2.283 2.421 2.420 1.665 1.035 0.544 0.374

2.272 2.502 2.429 2.546 2.548 1.666 1.084 0.535 0.386

2.253 2.458 2.396 2.539 2.544 1.714 1.030 0.486 0.375

1991 1992 1993 1994 1995 1996 1997 1998 1999

2.707 2.837 2.629 2.808 2.641 2.495 1.152 0.512 0.336

2.507 2.629 1.697 2.599 3.200 2.308 1.349 0.450 0.337

2.551 2.663 2.528 2.515 2.357 2.332 1.042 0.462 0.324

2.293 2.310 2.267 2.318 2.159 2.258 0.980 0.503 0.365

2.338 2.362 2.314 2.405 2.246 2.283 0.950 0.495 0.356

2.335 2.316 2.297 2.346 2.163 2.380 0.968 0.552 0.352

2.365 2.356 2.334 2.394 2.248 2.388 0.918 0.540 0.358

2.363 2.391 2.377 2.391 2.250 2.292 0.888 0.505 0.365

2.502 2.580 2.572 2.597 2.481 2.298 0.934 0.493 0.370

2.458 2.493 2.492 2.576 2.465 2.366 0.896 0.442 0.358

2.413 2.530 1.635 2.471 3.038 2.204 1.231 0.533 0.333

2.398 2.528 1.642 2.405 2.910 2.143 1.188 0.481 0.323

2.192 2.267 1.585 2.249 2.725 2.035 1.085 0.527 0.355

2.241 2.314 1.579 2.316 2.840 2.080 1.048 0.522 0.346

2.255 2.297 1.636 2.266 2.705 2.154 1.072 0.567 0.343

2.268 2.334 1.639 2.338 2.819 2.101 1.008 0.541 0.350

2.283 2.377 1.655 2.336 2.777 2.031 0.961 0.495 0.357

2.429 2.572 1.771 2.496 2.996 2.053 0.981 0.505 0.364

2.396 2.492 1.747 2.503 2.982 2.144 0.954 0.440 0.349

1991 1992 1993 1994 1995 1996 1997 1998 1999

2.600 2.715 2.530 2.640 2.471 2.395 1.066 0.518 0.331

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

2.267 2.707 2.507 2.826 2.931 1.547 1.398 0.616 0.365

1985 1986 1987 1988 1989 1990

2.868 2.933 2.836 3.444 3.124 2.787 1.177 0.504 0.323

1983 1984 1985 1986 1987 1988 1989

2.326 2.942 2.596 3.538 3.624 1.567 1.425 0.613 0.311

1983 1984 1985 1986 1987 1988 1989 1990

1981 1982 1983 1984

3.033 2.990 3.010 3.435 3.012 3.082 1.147 0.351 0.331

1981 1982

2.386 3.033 2.693 3.459 3.612 1.645 1.304 0.549 0.308

1981 1982

Trade intensity index for selected g r o u p s a n d economies, 1980–99

East Asia

Table 2.6

Trade and foreign direct investment in East Asia 37

1.645 3.082 2.330 3.486 4.299

1.484 1.547 1.614 1.679 1.777 2.024 1.935 1.841 1.819 1.800 0.777 0.748 0.750 0.656 0.641 0.816 0.769 0.765 0.773 0.785 0.282 0.277 0.297 0.291 0.298 0.351 0.386 0.414 0.409 0.413

1.837 3.381 2.513 3.770 4.714 1.512 0.907 0.271

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9 Japan NAFTA MERCOSUR European Union-15

1981

3.359 3.002 3.977 4.977 1.933 3.801 0.902 0.316 0.340

3.368 3.124 4.003 5.606 2.650 3.672 0.882 0.274 0.348

3.200 3.033 3.755 5.841 2.523 3.403 0.986 0.389 0.384 3.151 2.995 3.520 5.849 2.592 3.366 0.987 0.373 0.371

1.613 2.947 2.183 3.467 4.299

1.567 2.840 2.186 3.192 3.972

1.534 2.772 2.196 3.060 3.801

1.548 2.787 2.135 2.930 3.672

1.440 2.627 2.314 2.809 3.403 1.546 2.663 2.491 2.834 3.366

1982 1983 1984 1985 1986 1987

3.624 3.341 4.701 5.346 1.761 3.972 0.953 0.313 0.348

2.826 2.808 2.599 4.597 4.254 2.855 0.975 0.502 0.352

1980

3.778 3.348 4.724 5.017 1.700 4.299 0.950 0.211 0.340

2.714 2.742 2.483 4.773 4.446 2.672 0.991 0.494 0.346

Japan

3.612 3.012 4.127 4.418 1.728 4.299 0.925 0.298 0.343

2.817 2.888 2.578 5.374 5.029 2.710 1.003 0.468 0.349

3.806 3.044 4.213 4.378 1.702 4.714 1.054 0.268 0.335

3.069 3.239 2.832 6.296 5.849 2.834 1.016 0.358 0.346 2.567 2.515 2.405 4.226 3.847 2.669 0.955 0.398 0.362

2.391 2.318 2.249 3.842 3.517 2.541 0.900 0.389 0.384

2.427 2.405 2.316 4.018 3.680 2.475 0.865 0.362 0.369 2.415 2.346 2.266 3.804 3.464 2.579 0.879 0.402 0.366

2.448 2.394 2.338 3.765 3.471 2.584 0.852 0.395 0.377

2.421 2.391 2.336 3.796 3.524 2.501 0.851 0.351 0.392

2.546 2.539 2.597 2.576 2.496 2.503 4.328 4.146 4.088 3.882 2.411 2.444 0.925 0.852 0.296 0.296 0.386 0.363

2.790 2.555 3.049 4.446 2.007 3.154 0.928 0.560 0.358 2.931 2.641 3.200 4.254 1.872 3.403 0.928 0.597 0.368

2.761 2.471 3.038 4.036 1.650 3.279 0.883 0.501 0.373

2.620 2.357 2.910 3.847 1.754 3.136 0.931 0.423 0.380

2.410 2.159 2.725 3.517 1.613 2.930 0.884 0.401 0.404

2.431 2.246 2.840 3.680 1.666 2.842 0.859 0.391 0.386

2.396 2.163 2.705 3.464 1.637 2.947 0.861 0.446 0.385

2.457 2.248 2.819 3.471 1.754 2.985 0.824 0.450 0.395

2.420 2.250 2.777 3.524 1.929 2.870 0.836 0.416 0.410

2.548 2.481 2.996 4.088 2.424 2.723 0.919 0.341 0.395

1.524 2.549 2.423 2.710 3.203

1.511 2.485 2.356 2.672 3.154

1.547 2.495 2.308 2.855 3.403

1.544 2.332 2.143 2.669 3.136

1.523 2.258 2.035 2.541 2.930

1.575 2.283 2.080 2.475 2.842

1.673 2.380 2.154 2.579 2.947

1.709 2.388 2.101 2.584 2.985

1.665 2.292 2.031 2.501 2.870

1.666 2.298 2.053 2.411 2.723 1.678 1.646 1.541 1.549 1.539 1.476 1.425 1.478 0.826 0.724 0.686 0.632 0.645 0.595 0.647 0.647 0.416 0.415 0.406 0.394 0.397 0.393 0.399 0.428

1.536 2.395 2.204 2.772 3.279

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

2.903 2.702 3.224 5.029 2.054 3.203 0.941 0.507 0.369

1.382 0.599 0.420

1.714 2.366 2.144 2.444 2.753

1999

2.544 2.465 2.982 3.882 2.343 2.753 0.850 0.339 0.366

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

3.096 3.333 3.012 6.369 5.841 2.809 1.002 0.348 0.351

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9 Japan NAFTA MERCOSUR European Union-15

1982 1983 1984 1985

3.215 3.444 3.136 6.065 5.606 2.930 0.888 0.253 0.334

1981

3.232 3.372 3.118 5.635 4.977 3.060 0.884 0.292 0.321

1980

3.538 3.819 3.648 6.222 5.346 3.192 0.929 0.289 0.316

ASEAN-9

3.662 3.823 3.709 5.865 5.017 3.467 0.874 0.235 0.312 2.687 2.640 2.471 4.439 4.036 2.772 0.920 0.446 0.350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

3.459 3.435 3.365 5.116 4.418 3.486 0.858 0.279 0.321

1986 1987 1988 1989

3.622 3.498 3.459 5.124 4.378 3.770 0.965 0.260 0.319

1982 1983 1984 1985

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9 Japan NAFTA MERCOSUR European Union-15

1981

1980

ASEAN-10

Table 2.6contd.

38 Masahiro Kawai and Shujiro Urata

1.350 1.214 1.362 0.965 1.054 1.512 2.052 1.361 0.495 1980 0.598 0.338 0.256 0.260 0.268 0.907 1.361 6.552 0.696 1980 0.306 0.336 0.333 0.319 0.335 0.271 0.495 0.696 1.480

East Asia Emerging East Asia-14 NIE-4 ASEAN-10) ASEAN-9

MERCOSUR

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9

European Union-15

East Asia Emerging East Asia-14 NIE-4 ASEAN-10 ASEAN-9 0.308 0.331 0.321 0.321 0.343 0.282 0.520 0.660 1.531

1981

0.549 0.351 0.273 0.279 0.298 0.777 1.237 5.187 0.660

1981

1.304 1.147 1.317 0.858 0.925 1.484 2.026 1.237 0.520

0.613 0.503 0.297 0.289 0.313 0.750 1.212 4.584 0.673

0.301 0.320 0.311 0.312 0.340 0.277 0.526 0.623 1.528 0.311 0.322 0.301 0.316 0.348 0.297 0.500 0.673 1.563

1982 1983

0.520 0.332 0.246 0.235 0.211 0.748 1.299 5.329 0.623

1984 1985 1986

0.312 0.323 0.308 0.334 0.348 0.298 0.515 0.660 1.600 0.345 0.340 0.310 0.351 0.384 0.351 0.498 0.671 1.546

1985 :1986

1984 0.305 0.316 0.307 0.321 0.340 0.291 0.505 0.682 1.611

0.565 0.504 0.228 0.253 0.274 0.641 1.3Q3 4.931 0.660

0.634 0.484 0.296 0.348 0.389 0.816 1.436 7.700 0.671

1985 :1986

0.513 0.397 0.235 0.292 0.316 0.656 1.292 5.158 0.682

1984

1.425 1.420 1.444 1.630 1.271 1.210 1.177 1.304 1.548 1.477 1.485 1.621 0.929 0.884 0.888 1.002 0.953 0.902 0.882 0.986 1.614 1.679 1.777 2.024 2.046 1.918 1.961 1.919 1.212 1.292 1.303 1.436 0.500 0.505 0.515 0.498

1983

1982 1983

1.368 1.220 1.434 0.874 0.950 1.547 2.047 1.299 0.526

1981 1982

Source-. International Monetary Fund, IFS CD-ROM.

NAFTA MERCOSUR European Union-15

Japan

NAFTA MERCOSUR European Union-15

Japan

NAFTA MERCOSUR European Union-15

Japan

1980

NAFTA

Table 2.6 contd.

0.358 0.338 0.330 0.346 0.371 0.386 0.478 0.661 1.538

.1987

0.575 0.435 0.323 0.358 0.373 0.769 1.483 7.367 0.661

.1987

1.571 1.308 1.586 1.016 0.987 1.935 2.013 1.483 0.478

1987

0.366 0.335 0.334 0.349 0.369 0.414 0.473 0.666 1.573

1988

0.610 0.505 0.373 0.468 0.507 0.765 1.425 7.090 0.666

1988

1.485 1.246 1.490 1.003 0.941 1.841 2.005 1.425 0.473

1988

0.362 0.331 0.333 0.346 0.358 0.409 0.467 0.679 1.582

1989

0.623 0.526 0.413 0.494 0.560 0.773 1.368 8.832 0.679

0.365 0.336 0.337 0.352 0.368 0.413 0.460 0.664 1.510

1990

1.246 1.042 1.188 0.955 0.931 1.646 2.259 1.310 0.428

0.355 0.324 0.323 0.362 0.380 0.415 0.428 0.679 1.577

1991 .1992 0.362 0.331 0.333 0.350 0.373 0.416 0.440 0.675 1.550

1993

1.163 0.980 1.085 0.900 0.884 1.541 2.163 1.182 0.434

1993

0.378 0.365 0.355 0.384 0.404 0.406 0.434 0.679 1.652

1993

0.551 0.563 0.462 0.503 0.481 0.527 0.398 0.389 0.423 0.401 0.724 0.686 1.310 1.182 13.14514.364 0.679 0.679

1991 .1992

1.286 1.066 1.231 0.920 0.883 1.678 2.227 1.351 0.440

1991 1992

0.616 0.628 0.512 0.518 0.450 0.533 0.502 0.446 0.597 0.501 0.785 0.826 1.397 1.351 9.699 11.316 0.664 0.675

1990

1.398 1.152 1.349 0.975 0.928 1.800 2.148 1.397 0.460

1.442 1.199 1.426 0.991 0.928 1.819 1.982 1.368 0.467 1989

1990

1989

0.367 0.356 0.346 0.369 0.386 0.394 0.424 0.706 1.674

1994

0.538 0.495 0.522 0.362 0.391 0.632 1.194 13.600 0.706

1994

1.136 0.950 1.048 0.865 0.859 1.549 2.255 1.194 0.424

1994 1.077 0.918 1.008 0.852 0.824 1.476 2.410 1.169 0.412

0.556 0.540 0.541 0.395 0.450 0.595 1.169 14.369 0.689

0.365 0.352 0.343 0.366 0.385 0.397 0.414 0.704 1.660

0.368 0.358 0.350 0.377 0.395 0.393 0.412 0.689 1.672

1995 1996

0.580 0.552 0.567 0.402 0.446 0.645 1.173 13.266 0.704

1995 1996

1.138 0.968 1.072 0.879 0.861 1.539 2.394 1.173 0.414

1995 1996

1998

1.084 0.934 0.981 0.925 0.919 1.478 2.302 1.076 0.426

1999

1.030 0.896 0.954 0.852 0.850 1.382 2.270 1.129 0.423

1999

0.374 0.365 0.357 0.392 0.410 0.399 0.426 0.686 1.691

1997

0.386 0.370 0.364 0.386 0.395 0.428 0.426 0.694 1.621

1998

0.375 0.358 0.349 0.363 0.366 0.420 0.423 0.711 1.661

1999

0.544 0.535 0.486 0.505 0.493 0.442 0.495 0.505 0.440 0.351 0.296 0.296 0.416 0.341 0.339 0.647 0.647 0.599 1.106 1.076 1.129 13.97114.191 14.676 0.686 0.694 0.711

1997

1.035 0.888 0.961 0.851 0.836 1.425 2.347 1.106 0.426

1997 1998

Trade and foreign direct investment in East Asia 39

40 Masahiro Kawai and Shujiro Urata The results of the double-relative measure – or the trade intensity index – reveal an interesting contrast concerning the intra-regional trade bias for East Asia, on the one hand, and NAFTA and the European Union, on the other hand (Table 2.5(c)). Specifically, the intra-regional trade bias declined in East Asia from 2.6 in 1980 to 2.3 in 1999, while the corresponding values for NAFTA and the European Union increased from 2.1 and 1.5 to 2.3 and 1.7, respectively, over the same period. Among East Asian subgroups, the intraregional trade bias is very high for ASEAN, with the double-relative measure at 4.2 in 1999, although the size of the bias has declined over time. The above measures of intra-regional trade dependence reveal that the importance of intra-regional trade in East Asia rose not only as a share in world total trade but also as a share in regional total trade over time. However, extra-regional trade also expanded rapidly. Indeed, the intra-regional trade bias declined in East Asia, while this bias increased in NAFTA and the European Union. One may attribute these differences partly to differences in institutional arrangements. Both NAFTA and the European Union have trade arrangements that give preferential treatment to their members, possibly leading to an increasing regional bias. In East Asia, a preferential trading arrangement has been set up only for the ASEAN members that make up a small portion of intra-East Asian trade, and other economies do not have any discriminatory arrangements. The absence of discriminatory trade arrangements may have caused a decline in trade bias. Essentially, a declining bias over time, despite the rise in the share of intra-regional trade in the world total and the regional total, means that the weight of the regional economies in world trade– the denominator in the definition of the bias– has expanded. In this sense the region has become more important in world trade. Unilateral trade liberalisation without discriminatory treatment among trading partners, even including those of ASEAN, may have contributed to a decline in regional trade bias in East Asia. Furthermore, a decline in the cost of communications and transportation services, resulting from technological progress and liberalisation, contributed to the diversification of trading partners. Rapid industrialisation centred on similar industries such as textiles and electric machinery has forced many East Asian economies to look outside the region for markets for their products, diminishing the intra-regional trade bias.2 Changingpatterns ofFDI Like patterns of trade, intra-regional FDI stock in East Asia increased from 4 per cent of world total FDI in 1980 to 8 per cent in 1994 (Table 2.5(a)). The corresponding share for the European Union also increased from 13 to 19 per cent, while it declined for NAFTA, from 14 to 5 per cent. Among the East Asian sub-groups, the stock of intra-regional FDI in the emerging economies registered relatively high growth, increasing from 2 to 6 per cent of world total FDI stock during the 1980–94 period.

Trade and foreign direct investment in East Asia 41 The share of intra-regional FDI stock (outward plus inward) in East Asia's total FDI stock increased from 40 per cent in 1980 to 43 per cent in 1994. Among the sub-groups, intra-regional FDI became particularly important for emerging East Asia. Coupled with this observation, the relatively small shares of intra-regional FDI for NIEs and ASEAN indicate the importance of FDI from the former to the latter sub-group. Intra-regional FDI is particularly important because 87 per cent of outward FDI has been directed to emerging East Asia. The share of inward FDI has also risen in East Asia, which means that an increasing volume of inward FDI originates inside the region. However, the share of intra-regional FDI in East Asia's total FDI is substantially smaller for emerging East Asia, reflecting the importance of Japan as a source of FDI. The results of double-relative measures– FDI intensity indexes– reveal an interesting contrast between East Asia and the European Union. Although the magnitude of the bias is higher for East Asia than for the European Union, this magnitude has declined for East Asia, while it has increased for the European Union. The extent of the bias remained more or less the same for NAFTA. These observations are consistent with those made for foreign trade, and differences in the direction of bias for East Asia and for the European Union may reflect differences in institutional arrangements, as argued in the case of foreign trade. To summarise, patterns similar to those of trade are found for intra-regional FDI in East Asia. That is, from 1980 to 1994 the importance of intra-regional FDI in East Asia increased not only in world total FDI but also in regional total FDI in East Asia. However, a regional bias declined during the 1980–94 period. These findings indicate that the increasing importance of intra-regional trade and FDI is attributable largely to the rapid expansion of overall trade and FDI in the region that is driven by market forces. This contrasts with the case in the European Union or NAFTA, where the intra-regional bias in foreign trade and FDI increased largely because of discriminatory institutional arrangements under which regional members receive preferential treatment, worsening resource allocation. Factors behind the rapid expansion of trade and FDI The factors behind the significant expansion in foreign trade and FDI inflows in East Asia fall into two groups, one concerning domestic factors and the other concerning external factors. The most important domestic factor was the liberalisation of both trade and FDI regimes. In addition, a favourable macroeconomic environment, reflected in relatively stable price levels, together with an abundant supply of well-educated, low-wage labour, contributed to the expansion of exports and FDI inflows. As for the external factors, the substantial realignment of exchange rates, particularly the yen–dollar exchange rate in the mid-1980s, was crucial, as was the remarkable technical progress achieved in information technology, which reduced the cost of communications. Finally, increased competition among multinational firms,

42 Masahiro Kawai and Shujiro Urata which resulted partly from liberalisation and deregulation in various sectors in many countries of the world, led to promotion of their global activities, thereby expanding trade and FDI. Liberalisation oftrade and FDI regimes In the 1980s and 1990s, East Asian emerging economies embarked on the liberalisation of trade and FDI and deregulation in domestic economic activities as part of more comprehensive structural reform policies. Such policy changes were induced by the realisation that liberalisation and deregulation would promote economic growth. The liberalisation of trade and FDI regimes led to the expansion of exports and inward FDI because it shifted the incentives from import-substituting production to export production and increased the attractiveness of these economies to foreign investors. These economies liberalised their import regimes by lowering tariff rates and non-tariff barriers from the early 1980s through the early 1990s. The notable exceptions were Hong Kong and Singapore, which had adopted virtually free trade regimes for a long time. China and Indonesia had significantly reduced their average tariff rates. The incidence of non-tariff barriers declined in many East Asian economies, except in China. The most remarkable is Indonesia, which reduced non-tariff barriers from 95 per cent in 1984–87 to less than 3 per cent in 1991–93. South Korea also reduced both its tariff rates and the incidence of non-tariff barriers from 1988 to 1993. Inward FDI was liberalised in the mid-1980s, as the East Asian economies began to realise that FDI inflows would promote economic growth. Although it is difficult to quantify the restrictiveness of an FDI regime, it is clear that many East Asian emerging economies have liberalised their inward FDI since the mid-1980s. Restrictions on FDI took various forms, including restrictions on market access, most favoured nation treatment, and national treatment. Many countries reduced the restrictions on market access by decreasing the number of sectors and industries on the negative list and by relaxing the limits on foreign equity ownership. Among them, Indonesia, South Korea, Malaysia, the Philippines and Thailand adopted substantial FDI liberalisation measures in an effort to attract foreign investors. Furthermore, recognising the important contribution that FDI may make toward economic growth, a number of economies introduced incentives such as tax breaks to attract FDI. Indeed, there has been keen competition among the regional economies to attract FDI by reducing barriers and providing incentives. AFTAy APEC and WTO liberalisation processes Liberalisation of trade and FDI also progressed in regional and global contexts. The members of ASEAN started the ASEAN Free Trade Area (AFTA) process in 1992. This was the only formal regional trade arrangement in East Asia until 2002, when Japan and Singapore signed a bilateral FTA.3 The 1992 agreement provided for the liberalisation of tariff and non-tariff measures under the 'common effective preferential tariffs'. The target year for achieving tariff and non-tariff liberalisation was originally 2008, but was later moved

Trade and foreign direct investment in East Asia 43 forward to 2002. FDI liberalisation in ASEAN has been under way following the creation in 1998 of the ASEAN Investment Area (AIA), which provides coordinated investment cooperation and facilitation programs, market access, and national treatment of all industries.4 The AFTA has been in operation among the original five ASEAN members– Indonesia, Malaysia, Singapore, Thailand and the Philippines– since January 2002, when the tariff rates were reduced to 0–5 per cent, though the exclusion list is long and individual country circumstances vary. Furthermore, Vietnam is to comply with the same tariff standards by 2003, Laos and Myanmar by 2005, and Cambodia by 2007. By 2015 the ASEAN area is expected to become a complete free trade area free from tariffs. APEC has also contributed to the liberalisation and facilitation of trade and FDI for emerging East Asia. This trans-regional forum includes not only East Asian economies but also countries in North and South America and Oceania. One important characteristic of APEC is its inclusion of China and Taiwan as members. Indeed, APEC was the only international economic forum in which both China and Taiwan pursued trade and investment liberalisation outside the World Trade Organisation (WTO).5 Following the Bogor declaration in 1994 calling for full liberalisation of trade and FDI by 2010 for developedcountry members and by 2020 for developing-country members, APEC members agreed to prepare and implement individual action plans specifying near- and medium-term liberalisation measures. Peer pressure has played a crucial role in implementation. All APEC members have made significant progress toward freer trade and FDI regimes, helping both China and Taiwan to join the WTO in 2001. The Uruguay Round of multilateral trade negotiations under the former General Agreement on Tariffs and Trade (GATT) started in 1986 and ended in 1994. Although the negotiations lasted eight years, the Uruguay Round made substantial progress toward liberalising trade and FDI. The achievements include a reduction in tariff rates; framework agreements on trade in services, on intellectual property rights and on trade-related investment measures; a timetable for phasing out all quantitative restrictions on trade; first steps toward bringing agriculture more firmly under a multilateral discipline; a stronger dispute settlement mechanism; and the establishment of the WTO. Though it is difficult to estimate the impact of these achievements individually, there is no doubt that the GATT–WTO mechanism has promoted trade and FDI liberalisation in East Asia. CHANGING PATTERNS OF TRADE Changing patterns of exports and imports in East Asia Expansion of manufactured trade One notable development of East Asia's trade has been the rapid expansion of manufactured exports. The share of manufactured exports in total exports increased notably for the major East Asian economies during the 1990s except

44 Masahiro Kawai and Shujiro Urata for South Korea and Hong Kong (Table 2.7). Similar tables for imports are available from the authors on request. From 1990 to 1995 and then to 1999, the shares of manufactured exports in total exports for the East Asian economies except Hong Kong and South Korea increased as follows: Taiwan (93 per cent in the first two years to 95 per cent), China (71 per cent to 84 per cent, and then to 88 per cent), Singapore (71 per cent to 84 per cent, and to 86 per cent), Malaysia (54 per cent to 75 per cent, and to 80 per cent), Thailand (63 per cent to 73 per cent, and then to 74 per cent), Indonesia (35 per cent to 51 per cent, and to 54 per cent), and the Philippines (38 per cent to 41 per cent in each of the last two years). For Hong Kong, the corresponding share declined throughout the period from 95 per cent in 1990 to 93 per cent in 1999. South Korea also witnessed a trend decline from 93 per cent in 1990 to 90 per cent in 1999. The observed changes in the share of manufactured exports from emerging East Asia indicate that a large part of the increase in the manufacture export share took place in the first half of the 1990s; the share increased only slightly in the second half. For example, the share of manufactured exports in total exports from Singapore increased by 13 percentage points from 1990 to 1995, while the corresponding increase was a mere two points from 1995 to 1999. A similar pattern can be found for Malaysia, Thailand, Indonesia and the Philippines. Despite the general rise in shares of manufactured exports, there are wide variations in export structure in emerging East Asia. Taiwan registered the highest share of manufactured exports in its total exports (95 per cent in 1999), followed by Hong Kong, South Korea, China, Singapore, Malaysia, Thailand, Indonesia, and the Philippines. Several reasons may be given for the rapid rise in the share of manufactured exports in total exports in the early 1990s as compared with the latter half of the 1990s. First, one may argue that it is relatively easy to expand the share of manufactured exports in total exports in early stages of development, where room exists for expansion in the share. Second, because of the intraregional nature of manufacturing trade, the economic crisis of 1998 led to shrinkage of imports of the crisis-affected economies, thereby reducing their neighbouring economies' exports. This resulted in simultaneous contraction or slowdown of exports. Third, reflecting the patterns of the export production system, where a large part of inputs are imported, substantial currency depreciation in the affected economies in 1997 made it difficult for them to increase exports of manufactured products. This resulted in relatively low growth of manufactured exports after 1997. Product structure oftnanufiictured trade Types of manufactured exports differ among the East Asian economies. For Singapore, Malaysia, Taiwan and South Korea, the share of machinery and transport equipment exports in total exports are more than one half (66 per cent, 62 per cent, 56 per cent, and 54 per cent, respectively, in 1999). Thailand recorded a lower share at 42 per cent, followed by the Philippines (32 per

Trade and foreign direct investment in East Asia 45 cent), China (30 per cent), Hong Kong (23 per cent), and Indonesia (11 per cent). Singapore and Malaysia, and to a lesser extent Taiwan, South Korea, Thailand and the Philippines, had some similarity in that, among machinery and transport equipment, office machines and telecommunications equipment took up a sizeable portion. Indeed, for Singapore and Malaysia, more than 50 per cent of total exports came from office machines and communications equipment in 1999. For Taiwan, South Korea, Thailand and the Philippines, the share of office machines and telecommunications equipment in total exports was lower, in the range of 26–36 per cent, while the corresponding share for Indonesia was significantly lower, at 2 per cent. Our findings so far indicate that for major East Asian emerging economies, except Indonesia, manufactured exports, particularly office machines and telecommunications equipment, account for a large portion of exports. By contrast, Indonesia has had a relatively low share of manufactured exports despite a rapid increase in the share in recent years. This reflects the fact that, as an oil-producing country, Indonesia has a sizeable value of exports in mining products such as fuel (28 per cent of the total in 1999). In relation to manufactured exports, Indonesia also exhibits a different pattern from that of other ASEAN members. For other ASEAN-4 countries, office machines and telecommunications equipment amount to a large part of manufactured exports; for Indonesia, textiles, clothing and other semi-manufactures– consumer goods such as household articles and footwear– account for a higher share of manufactured exports than office machines and telecommunications equipment. Destination of manufactured exports An examination of export structures for East Asian economies by destination reveals several interesting patterns. First, the share of manufactured exports in total exports is low for exports to Japan, except for the Philippines. By contrast, relatively large shares of exports to Japan consist of non-manufactured goods such as agricultural products and mining products. These patterns reflect poor natural resource endowments in Japan, requiring Japan to import natural resource intensive products. Second, the share of manufactured exports in total exports is high for exports to NAFTA and the European Union. The most distinctive case is Malaysia: the share of manufactured products in total exports for Malaysia's overall exports was 80 per cent in 1999. The corresponding share for its exports to Japan was significantly lower, at 72 per cent, meaning that 28 per cent of Malaysian exports to Japan are nonmanufacturing products– in mining, agriculture and others. In contrast, their shares to NAFTA and the European Union were significantly higher, at 96 per cent and 88 per cent, respectively. Among the manufactured products, the share of office machines and telecommunications equipment in Malaysia's total exports is particularly high for its exports to NAFTA and the European Union in comparison with its exports to other regions. These observations indicate that developed countries except Japan are important markets for the

1990

1.7 1.5 4.1

2.7

15.5 7.6 0.5

2.2

9.8 5.6 0.4

2.4 9.8

6.6 0.4

4.5 1.2

9.0

23.7

10.0

0.9 13.3 15.8 16.5 0.0 100.0

4.1

4.5

0.2

6.4

5.8 2.4 3.0 1.5 5.9 7.4 6.8 10.0 8.7 9.5 2.4 4.6 16.2 15.5 1.5 7.4 3.0 6.8 19.9 21.5 0.0 0.4 0.1 0.0 0.5 100.0 100.0 100.0 100.0 100.0

5.9

1.0

0.8

7.2

2.5 14.7 14.8 15.5 0.2 100.0

6.8 0.1

10.5

1.5

0.8

26.3 22.2

1.6

42.5

29.2

15.6

21.0 30.1

5.5

0.5 0.5 4.1 3.6 1.0 1.9 83.3 83.9 1.5 4.3 5.2 4.5

3.2 10.3 15.7 15.9 0.0 100.0

8.7 0.1

16.8

1.8

1.1

31.8

6.3

3.7 0.2

8.3

1.0

1.3

15.4

5.1

1.2 6.9 1.7 73.0 4.4 4.1

1.9 7.8

6.8

11.1 6.3 0.4

3.6

0.3

1.8 1.7

21.1

5.1

1.0 9.9 1.1 73.1 2.4 4.9

5.6 0.3

7.7 0.3

1.5 1.9

1.9

15.0 9.3

3.1

2.0

1.8

0.3

6.3 0.7

12.8

2.0

0.5

24.7

7.3

6.4 9.2

0.7 1.8 0.4 94.1 1.3 3.6

3.0 2.4 0.6 2.8

1995

1.9 12.0 1.4 74.7 1.3 5.8

1.4

28.9

6.1

0.6 3.8 2.0 83.3 2.0 4.8

10.0 8.7 1.3 15.3

1990

NAFTA

1.0

20.3

6.8

0.8 4.7 1.8 79.7 5.1 5.4

10.3 8.9 1.4 6A

12.9 10.8 2.1 7.2

15.0 11.7 3.3 12.0

22.4

5.5

0.8 3.5 1.2 79.0 1.5 3.7

15.5 13.6 1.9 5.5

1995 1999

1990

East Asia

1.1 2.4 2.6 0.6 2.4 0.8 0.1 0.9 8.4 11.8 10.0 7.4 6.1 5.0 3.9 11.3 22.4 12.8 18.7 15.1 26.1 27.3 14.9 17.5 14.4 13.4 19.6 40.5 12.9 2.9 11.8 13.7 0.2 0.2 0.0 0.0 0.1 0.1 0.0 0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

0.4 1.7

0.5

0.7

0.5

3.8

2.7

2.6 29.8 1.5 40.5 3.3 5.3

0.4 4.0 2.6 86.4 2.2 4.3

17.1 14.5 2.5 9.7

9.9 8.0 2.0 6.0

11.1 9.0 2.1 5.6 25.6 18.9 6.7 33.9

1990 1995 1999

1990 6.5 5.4 1.1 7.1

Japan 1995 1999

NIE-4

1.2

6.8

9.6

8.4

7.6

7.7

1.0

0.6 0.7 4.5 5.1 1.7 2.2 76.6 80.5 2.8 10.5 9.4 9.2

1.1 23.1 0.9 54.1 8.1 7.5

0.8 0.6 2.4 3.6 1.3 1.4 83.9 88.3 1.6 3.7 6.0 5.3

11.5 10.0 1.5 8.0

16.1 14.1 2.0 6.8

20.9 17.0 3.9 25.0

10.1 8.3 1.8 5.7 7.3 6.0 1.3 4.4

19951999

ASEAN-10 1995 1999

World 1990

Changing export structures of East Asian economies (share > P e rcent)

1. Agricultural products 16.2 1-1 Food 12.7 1-2 Raw materials 3.5 2. Mining products 10.6 2-1 Ores and other 1.2 minerals 8.4 2-2 Fuels 2-3 Non-ferrous metals 1.0 71.4 3. Manufactures 2.1 3-1 Iron and steel 3-2 Chemicals 6.0 3-3 Other semimanufactures 6.0 3-4 Machinery and transport equipment 17.5 (1) Power generating machinery 0.3 (2) Other nonelectrical machinery 3.7 (3) Office machines and telecommunications 5.0 equipment (4) Electrical machinery 1.8 and apparatus (5) Automotive product 5.6 (6) Other transport 1.1 equipment 11.6 3-5 Textiles 3-6 Clothing 15.6 3-7 Other consumer goods 12.7 4. Others 1.9 Total 100.0

China

Table 2.7

12.1 5.9 0.1

2.0

1.4 0.6 1.0

2.8

18.6

8.9 0.4

19.5

3.0

0.6

35.9

9.4

0.7 1.0 1.4 91.3 1.3 7.2

5.6 3.6 1.9 3.1

1999

2.2 1.4 3.4 1.5 13.0 2.7 3.7 5.5 17.0 13.3 9.7 10.3 12.1 24.3 37.6 23.5 0.0 0.0 0.1 0.0 100.0 100.0 100.0 100.0

7.9 0.8

2.0

0.2

0.4

21.9

6.8 0.5

32.9

9.4

1.1 2.0 1.1 87.7 2.7 10.6

8.0 5.3 2.8 4.2

1995

9.4

2.0 2.0 0.9 73.3 1.2 13.9

0.4 0.6 0.7 96.0 1.2 3.5 8.5

21.7 13.3 8.4 5.0

1990

European Union-15

2.4 1.9 0.5 1.6

1999

46 Masahiro Kawai and Shujiro Urata

1.9 2.9 2.6 1.7 0.3 0.2 2.2 1.7 0.7 0.6 0.3 0.4 1.2 0.7 93.6 93.3 0.1 0.1 3.2 3.9

1. Agricultural products 2.8 1-1 Food 2.6 1-2 Raw materials 0.3 1.4 2. Mining products 2-1 Ores and other minerals0.7 0.4 2-2 Fuels 2-3 Non-ferrous metals 0.3 3. Manufactures 94.5 0.1 3-1 Iron and steel 3-2 Chemicals 2.9 3-3 Other semimanufactures 3.9 3-4 Machinery and transport equipment 24.9 (1) Power generating machinery 0.4 (2) Other non-electrical machinery 2.1 (3) Office machines and telecommunications equipment 16.5 (4) Electrical machinery 5.8 and apparatus (5) Automotive products 0.0 (6) Other transport equipment 0.2 3-5 Textiles 7.5 3-6 Clothing 32.0 3-7 Other consumer goods 23.3 4. Others 1.3 100.0 Total 4.5

4.6

28.6 6.6 0.0

1.7

2.7

19.8 16.1 6.2 0.0

8.4 0.0 7.7 0.0

41.7 36.8

4.1

0.3

0.2 0.2 0.2 0.6 0.3 6.1 5.5 19.9 10.5 11.9 1.7 3.1 31.9 42.8 1.3 18.0 16.7 17.6 14.5 17.6 2.6 0.8 0.9 1.8 0.7 100.0 100.0 100.0 100.0 100.0

4.5 0.0

0.2

0.1

0.4

0.4

3.2

55.1 49.5

22.9

29.4 40.1

2.3

5.0

6.8 7.6 6.0 7.1 0.8 0.5 1.1 2.2 0.4 0.3 0.0 0.0 0.7 1.9 91.3 89.3 0.1 0.0 4.4 5.8

4.2

4.1

7.8 6.9 0.9 1.8 1.4 0.0 0.5 89.7 0.4 4.6

1990

19951999

ASEAN-10 1995 1999

Kong

World

Hong 1990

Table 2.7 contd.

2.9

7.0 0.0

39.1

3.0

0.5

49.6

1.7

0.2 0.2 0.0 2.2 1.0 6.3 4.5 10.8 12.3 18.8 13.7 16.5 0.5 0.5 10.7 100.0 100.0 100.0

8.3 0.0

49.7

34.4 8.1 0.0

2.6

0.1

1.9

0.4

44.9 60.8

3.5

2.0 2.0 0.0 3.1 2.4 0.1 0.6 84.1 0.0 2.9

3.8 0.0

4.2 0.0

34.9

0.8

0.6

20.9

0.1

40.6

2.5

4.3 4.3 0.0 2.5 2.4 0.0 0.1 92.6 0.0 1.0

0.4

26.1

3.8

9.4 9.3 0.1 4.0 3.7 0.0 0.3 86.2 0.1 1.4

0.7 0.5 0.3 1.7 0.9 0.9 34.0 19.7 10.3 30.6 34.2 37.2 0.7 0.5 0.3 100.0 100.0 100.0

2.5 0.0

10.1

0.5

0.6

14.0

4.6

6.1 6.0 0.1 6.3 6.1 0.0 0.2 87.4 0.3 2.2

1990 1995 1999

15.5 4.9 4.6 14.7 0.8 0.3 3.1 1.9 2.2 1.5 0.0 0.0 0.4 0.9 80.9 92.8 0.1 0.0 2.9 2.3

Japan

1990 1995 1999

NIE-4

0.1 12.4 8.5 22.0 1.9 100.0

6.5 0.0

0.2 8.5 10.0 17.1 2.2 100.0

8.1 0.0

25.2

5.1

4.4

19.9

0.7

39.2

6.9

4.6 3.9 0.7 3.5 1.5 0.7 1.3 89.7 0.3 7.7

0.2 7.6 24.7 16.5 3.0 100.0

7.3 0.0

20.1

3.3

0.8

31.7

3.7

2.5 2.0 0.5 3.3 1.2 0.8 1.3 91.1 0.2 6.9

1995 1999

0.8

31.6

6.5

5.9 5.3 0.6 3.5 1.8 1.0 0.7 88.8 0.3 7.5

1990

East Asia

4.8 0.0

15.2

0.4

0.2

0.4 0.3 2.8 2.5 50.8 58.0 22.2 15.2 0.4 0.5 100.0 100.0

5.5 0.0

13.9

0.5

0.2

21.0

1.7

2.1 20.5

1.1 1.1 0.0 0.1 0.0 0.0 0.1 98.4 0.0 0.1

1995

1.1 1.0 0.0 0.1 0.0 0.0 0.1 98.4 0.0 0.1

1990

NAFTA

0.3 3.0 65.5 14.4 0.2 100.0

2.6 0.0

11.0

0.4

0.1

14.2

1.3

1.1 1.1 0.0 0.1 0.0 0.0 0.1 98.6 0.0 0.1

1999

4.9 0.0

16.0

0.5

0.0

21.5

1.4

0.8 0.7 0.0 0.2 0.0 0.0 0.2 98.6 0.0 0.2

1995

0.1 0.1 0.6 2.3 49.2 57.5 21.9 17.5 0.4 0.2 100.0 100.0

5.8 0.0

17.0

0.4

0.3

23.5

2.1

0.5 0.4 0.1 0.2 0.1 0.0 0.1 99.1 0.0 0.1

1990

0.0 0.6 57.7 16.9 2.4 100.0

2.3 0.0

18.1

0.2

0.0

20.6

0.6

0.9 0.9 0.0 0.2 0.1 0.0 0.1 96.5 0.0 0.1

1999

European Union-15

Trade and foreign direct investment in East Asia 41

Korea

9.1 47.9 0.9 8.5

28.3 4.0 1.0

6.2 54.2 0.6 4.6

29.9 4.0 8.9

5.6

3.1 0.7

5.0 3.5 5.9 8.8 25.8 15.5 0.8 0.6 0.3 8.4 3.6 8.5 1.1 2.5 8.3 100.0 100.0 100.0

5.2 0.9

3.8 0.3

6.2 2.6 3.5 2.2

40.0

27.4 33.0

0.3

31.3 43.6

2.0

4.6

0.4 2.3

0.6

0.4

40.0 47.0 49.9

5.7

6.2

6.6

1.8 0.8 1.0 9.5 0.1 6.7 2.8 86.2 4.5 8.5

3.5 0.8 2.8 11.4 10.9 10.1 0.9 100.0

3.5 0.7

4.1 0.4

0.8 0.6 1.5 2.4 4.1 3.7 7.0 19.3 10.9 13.0 11.1 11.1 0.1 0.8 1.5 100.0 100.0 100.0

3.1 0.3

15.7

19.4

3.5

2.6 . 3.2

25.5

0.5

30.5

6.9

9.3 7.0 2.3 4.6 0.7 2.7 1.3 85.2 9.4 6.1

0.5

0.5

34.0

5.0

5.4 32.8

13.3 12.2 1.1 14.5 0.4 13.1 1.0 72.1 7.2 5.4

11.4 10.1 1.3 7.2 0.6 5.5 1.2 79.9 10.9 5.2

1990

3.9

5.2

2.5 11.4 3.5 5.7 4.0 100.0

4.4 1.6

2.1 8.6 2.2 7.0 1.0 100.0

3.4 1.1

30.6

0.5

0.4

24.1

41.6

38.2

7.9

6.9

10.4 7.1

42.1

3.5

1.7

67.8

6.0

1.3 0.7 0.6 0.6 0.0 0.4 0.1 98.1 2.5 1.8

1995

3.0 3.7 3.6 3.2 17.2 7.4 9.6 23.9 0.0 0.0 100.0 100.0

3.6 7.2

24.5

2.6

1.9

43.3

5.9

1.3 1.1 0.2 0.2 0.0 0.1 0.1 98.5 3.3 1.3

5.2 3.7 1.5 10.6 0.1 8.2 2.2 83.3 5.9 11.2

5.8 3.8 2.0 5.6 0.2 3.7 1.6 84.6 7.3 10.7

1990

NAFTA

1995 1999

East Asia

24.4

1.9

0.5

23.0

5.9

13.0 10.7 2.3 5.8 1.0 4.0 0.8 80.4 11.1 3.9

1990 1995 1999

5.0 2.4 1.2 1.9 1.2 3.1 2.9 4.6 0.1 0.1 2.4 0.8 2.0 2.1 91.0 84.8 3.8 3.7 5.6 8.3

Japan

1990 1995 1999

NIE-4

2.5

7.7

0.6

53.0 60.1

7.1

2.0 1.8 0.8 0.9 1.1 1.0 6.4 3.5 0.1 0.1 2.4 4.4 1.0 2.0 87.8 90.7 7.0 4.3 8.7 8.9

5.8 6.2 5.2 4.6 9.0 8.6 8.1 13.3 0.2 3.4 0.3 0.3 6.1 2.7 3.2 4.3 2.1 1.1 6.7 0.9 100.0 100.0 100.0 100.0

3.1 2.0 1.1 2.6 0.2 1.2 1.3 93.3 10.0 8.5

2.9 2.0 1.0 5.4 0.1 4.1 1.3 89.6 4.2 7.4

1990

19951999

ASEAN-10 1995 1999

World 1990

1. Agricultural products 4.6 3.5 1-1 Food 3.3 2.3 1-2 Raw materials 1.3 1.3 2. Mining products 3.0 1.9 0.1 2-1 Ores and other minerals0.3 2-2 Fuels 1.1 2.0 0.6 2-3 Non-ferrous metals 0.9 3. Manufactures 93.2 91.5 4.4 3-1 Iron and steel 5.7 3-2 Chemicals 3.8 7.1 3-3 Other semimanufactures 6.7 7.1 3-4 Machinery and transport equipment 52.5 39.3 (1) Power generating machinery 0.8 0.9 (2) Other non-electrical machinery 2.8 4.8 (3) Office machines and telecommunications 22.1 equipment 26.6 (4) Electrical machinery and apparatus 3.5 7.3 (5) Automotive products 3.3 7.3 (6) Other transport equipment 5.8 6.7 9.4 3-5 Textiles 9.9 3-6 Clothing 4.0 12.3 3-7 Other consumer goods 16.0 6.5 4. Others 2.0 0.3 100.0 100.0 Total

South

Table 2.7 contd.

2.7 4.2 7.4 7.3 0.0 100.0

5.0 12.2

40.9

4.8

1.2

66.8

5.4

1.1 0.7 0.5 1.6 0.0 1.0 0.5 97.3 3.6 2.7

1999

1