Subregional International Economic Integration: Theory and Practice 981994306X, 9789819943067

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Subregional International Economic Integration Theory and Practice Shuanglu Liang

Subregional International Economic Integration

Shuanglu Liang

Subregional International Economic Integration Theory and Practice

Shuanglu Liang School of Economy Yunnan University Kunming, China Translated by Xiaonan Zhang Beijing, China

ISBN 978-981-99-4306-7 ISBN 978-981-99-4307-4 (eBook) https://doi.org/10.1007/978-981-99-4307-4 Jointly published with Social Sciences Academic Press ISBN of the Co-Publisher’s edition: 9787010114200 Translation from the Chinese Simplified language edition: “中国边疆桥头堡经济: 基于空 间经济学的分析” by Shuanglu Liang, © Social Sciences Press 2015. Published by Social Sciences Press. All Rights Reserved. © Social Sciences Academic Press 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Contents

1

Introduction 1.1 Background 1.2 Literature Review 1.3 Methodology 1.4 Basic Concepts 1.5 Major Arguments 1.6 Major Innovations

1 1 2 13 14 21 23

2

Integration and Industrial Cooperation 2.1 Definition and Classification of Economic Integration 2.2 Forms and Characteristics of RIEI 2.3 Types and Characteristics of SIEI 2.4 Industrial Cooperation and Industrial Clusters 2.5 Regional Division of Labor and Specialization 2.6 Economic Development and Industrial Dispersion 2.7 Summary

25 25 31 34 38 40 45 48

3

B-C SIEI 3.1 Empirical Evidence 3.2 Theoretical Model 3.3 Border Effects and Industrial Agglomeration Conditions 3.4 Physical Geographical Barriers and Domestic Iceberg Costs

51 51 55 59 64 v

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CONTENTS

3.5 3.6

Difference in Primary Resource Endowments Institutional Barriers and Costs of International Agreements Summary

69

B-B SIEI 4.1 Empirical Evidence 4.2 Theoretical Model 4.3 Industrial Agglomeration Conditions 4.4 Same-Origin Ethnic Groups and Regional Production Networks 4.5 Citizenship-Based Barrier Effect and Separation of Market 4.6 Opening-Up Effects and Entrepot Trade 4.7 Summary

79 79 92 95

3.7 4

5

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Spatial Structure and Regional Agglomeration of B-C SIEC 5.1 Resource Endowments of the Partner Country and Industrial Agglomeration 5.2 Small Market Potential in the Partner Country and Industrial Agglomeration 5.3 Level of Industrialization of the Partner Country and Industrial Agglomeration 5.4 Domestic Industrial Structure and Resource-Seeking Investment 5.5 Summary and Implications Spatial Structure and Regional Agglomeration of B-B SIEC 6.1 Domestic Resource Endowments and Industrial Agglomeration 6.2 Domestic Industrialization and Industrial Agglomeration 6.3 Foreign Industrial Structure and Industrial Agglomeration 6.4 Summary and Implications

70 76

98 102 104 106 109 109 114 119 122 128 131 131 138 144 151

CONTENTS

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8

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Empirical Confirmation of B-C SIEC: Industrial Cooperation Between Yunnan and Guangxi of China and the Rest of the GMS 7.1 Development Disparities Within the GMS and Regional Industrial Agglomeration 7.2 Industrial Linkages Between GMS Members and Regional Agglomeration 7.3 IIT Between China and Other GMS Countries 7.4 Impact of Integration on IIT Between China and Other GMS Countries 7.5 Summary and Implications Empirical Confirmation of B-B SIEC: Industrial Cooperation Between Yunnan, China and Northern Laos 8.1 Economic Development and Industrial Dispersion in Yunnan, China and Northern Laos 8.2 Resource Endowments and Industrial Agglomeration in Yunnan, China and Northern Laos 8.3 Same-Origin Ethnic Groups and Regional Industrial Agglomeration in Yunnan, China and Northern Laos 8.4 Spatial Structure and Regional Industrial Agglomeration in Yunnan, China and Northern Laos 8.5 Summary and Implications Establishment of SIEC Zones Involving China’s Northwestern and Northeastern Border Areas 9.1 Stage of Development and Economic Structure of Xinjiang, China and Four Central Asian Countries 9.2 IIT Between Xinjiang, China and Four Central Asian Countries 9.3 IIT Between China and Four Central Asian Countries 9.4 Subregional Cooperation Between Jilin in China, Primorsky Krai in Russia and Gangwon in the ROK 9.5 Summary and Implications

vii

155 156 160 167 175 179

183 184

187

196

197 199 203

203 205 212 218 223

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10

Conclusions and Policy Implications 10.1 Conclusions 10.2 Policy Implications 10.3 Future Work

Appendix I:

Tripartite Model of Interregional Factor Movements

225 225 227 229

231

Appendix II: Quadruple Model of Interregional Factor Movements

237

Appendix III: Catalog of Special Necessities for Ethnic Minority Groups (Revised in 2001)

241

Appendix IV: Miscellaneous Data

247

Bibliography

299

List of Figures

Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 2.5 Fig. 3.1 Fig. 3.2

Fig. 3.3

Fig. 4.1 Fig. 5.1 Fig. 5.2 Fig. 5.3

Levels of regional economic integration Sustain points of core-periphery structure with different shares of intermediate inputs Break points of symmetric equilibrium with different shares of intermediate inputs Sustain points of technological changes and industrial dispersion Impact of technological changes on industrial dispersion at different consumption levels Sustain conditions for core-periphery structure comprising two regions of country a Possibility of industrial agglomeration in cooperation zones with strong effects of physical geographical barriers (m = n) Possibility of industrial agglomeration in cooperation zones with strong effects of physical geographical barriers (m > n) Sustain conditions for core-periphery structure comprising two regions of country a Factor movements in the case of foreign resource advantages and domestic symmetry Factor movements in the case of foreign resource advantages and domestic perfect asymmetry Factor movements in the case of foreign resource advantages and domestic imperfect symmetry

30 43 45 47 48 64

68

71 97 110 112 114

ix

x

LIST OF FIGURES

Fig. 5.4 Fig. 5.5 Fig. 5.6 Fig. 5.7 Fig. 5.8 Fig. 5.9 Fig. 5.10 Fig. 5.11 Fig. 5.12 Fig. 8.1 Fig. 9.1

Factor movements in the case of small market potential in the partner country and domestic symmetry Factor movements in the case of small market potential in the partner country and domestic imperfect symmetry Factor movements in the case of small market potential in the partner country and domestic perfect asymmetry Industrial agglomeration in the case of industrialized partner country and domestic symmetry Industrial agglomeration in the case of industrialized partner country and domestic perfect asymmetry Industrial agglomeration in the case of industrialized partner country and domestic imperfect symmetry Factor movements in the case of domestic industrial specialization and symmetry Factor movements in the case of domestic industrial specialization and perfect asymmetry Factor movements in the case of domestic industrial specialization and imperfect symmetry Industrial agglomeration conditions in Yunnan, China and northern Laos Trade value between China and four Central Asian countries

115 116 117 120 120 122 124 124 125 187 213

List of Tables

Table 6.1

Table 6.2

Table 6.3

Table 6.4

Table 6.5

Table 6.6

Table 6.7

Table 6.8

Factor movements in the case of better developed manufacturing in the partner country and domestic perfect asymmetry Factor movements in the case of better developed manufacturing in the partner country and domestic imperfect symmetry Factor movements in the case of less developed manufacturing in the partner country and domestic perfect asymmetry Factor movements in the case of less developed manufacturing in the partner country and domestic imperfect symmetry Factor movements in the case of better developed manufacturing in the partner country and domestic perfect asymmetry Factor movements in the case of better developed manufacturing in the partner country and domestic imperfect symmetry Factor movements in the case of better developed agriculture in the partner country and domestic perfect asymmetry Factor movements in the case of better developed agriculture in the partner country and domestic imperfect symmetry

133

135

137

138

139

141

142

143

xi

xii

LIST OF TABLES

Table 6.9

Table 6.10

Table 6.11 Table 7.1 Table 7.2 Table 7.3 Table 7.4

Table 7.5 Table 7.6 Table 7.7 Table 7.8 Table 7.9 Table 7.10 Table 7.11 Table 7.12 Table 7.13 Table 7.14 Table 8.1 Table 8.2 Table 8.3 Table 8.4

Factor movements in the case of better developed manufacturing in the partner country and domestic perfect asymmetry Factor movements in the case of better developed manufacturing in the partner country and domestic imperfect symmetry Agglomeration forces in cooperation zones under different conditions Industrial structure of GMS members Share of intermediate inputs of China and Yunnan province in particular Trade value between Yunnan and Guangxi of China and the rest of the GMS Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and the rest of the GMS Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Myanmar Section of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Cambodia Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Laos Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Thailand Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Vietnam Top twelve chapters of goods in terms of IIT between China and other GMS countries Thirteen chapters of goods with a high degree of IIT between China and other GMS countries Chapters of goods with a low degree of IIT between China and other GMS countries Chapters of goods with the lowest IIT index between China and other GMS countries Top twenty chapters of goods in terms of IIT between China and other GMS countries Economy of northern Laos in 2006 Minerals in northern Laos Number and share of mineral deposits / occurrences in northern Laos Mineral deposits in northern Laos

145

147 151 157 158 158

162 163 163 164 165 166 168 171 173 174 177 186 188 188 188

LIST OF TABLES

Table 8.5 Table 9.1 Table 9.2 Table 9.3 Table 9.4 Table 9.5 Table 9.6 Table 9.7 Table 9.8 Table 9.9 Table 9.10 Table 9.11

Table 9.12 Table A.1 Table A.2 Table A.3 Table A.4 Table A.5 Table A.6 Table A.7 Table A.8

Top goods imported from Laos to China in terms of import value in 2007 GDP per capita in the Central Asian SIEC zone (constant 2000 USD) Industrial structure of countries and regions in the Central Asian SIEC zone IIT index between Xinjiang, China and four Central Asian countries Sections of goods with a high IIT index between Xinjiang, China and Kazakhstan Sections of goods with a high IIT index between Xinjiang, China and Kyrgyzstan Sections of goods with a high IIT index between Xinjiang, China and Tajikistan Sections of goods with a high IIT index between Xinjiang, China and Uzbekistan Contribution of Xinjiang, China in the trade between China and four Central Asian countries Trade between China and four Central Asian countries and the share of Kazakhstan Top six chapters of goods in terms of IIT index between China and four Central Asian countries Chapters of goods with an IIT index above fifty percent between China and four Central Asian countries for three to four years from 1992 to 2009 Top ten chapters of goods in terms of IIT index between China and Kazakhstan IIT index between Yunnan and Guangxi of China and other GMS countries IIT index between Yunnan and Guangxi of China and Myanmar IIT index between Yunnan and Guangxi of China and Cambodia IIT index between Yunnan and Guangxi of China and Laos IIT index between Yunnan and Guangxi of China and Thailand IIT index between Yunnan and Guangxi of China and Vietnam IIT index between China and other GMS countries Goods with a high IIT index between China and other GMS countries from 2002 to 2008

xiii

199 206 207 208 209 210 210 211 212 214 216

217 218 248 250 252 254 256 258 260 274

xiv

LIST OF TABLES

Table A.9 Table A.10 Table A.11 Table A.12

Industries with a high IIT index between China and other GMS countries since 2002 Main goods with trade between China and Laos in 2007 (Unit: 10,000 USD) China’s import from and export to four Central Asian countries in 2008 (Unit: 10,000 USD) Sixty-four industries with nearly no IIT between China and four Central Asian countries

276 283 285 296

CHAPTER 1

Introduction

While international regional economic integration is underway in diverse ways across the world, subregional economic integration is also thriving. Since the latter covers more areas of cooperation than traditional international economic cooperation, it has attracted considerable attention from researchers of international political economy. However, economists have given scant attention to this topic. This study uses the theories and approaches of spatial economics to examine subregional international economic cooperation (SIEC), explore the theories of subregional international economic integration (SIEI) and verify the main arguments with case studies of SIEC programs involving China.

1.1

Background

As regional groupings thrive amid economic globalization, countries across the world have been exploring and attempting international economic cooperation in ways that suit their characteristics and conditions. Examples include growth triangles which originated in Southeast Asia, SIEC zones in East Asia and cross-border economic cooperation programs within the European Union (EU). Despite their differences in organization and operation, they share some characteristics. All of these cooperation programs are closely linked with cross-border cooperation, primarily aiming to reduce the constraints of borders on trade and investment and improve factor agglomeration and industrial development in © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_1

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border areas. Some cooperation zones have seen rapid development, while some have made slow progress in industrial agglomeration and have failed to catch up economically even with the establishment of SIEC zones. It is thus necessary to examine the causes of such disparity in development between SIEI and SIEC partnerships. As a result of ongoing economic globalization, industrial cooperation has shown new characteristics and patterns. Ultimately, areas in the same geographical region and geographically-close areas cooperate in the form of industrial clusters. Regional agglomeration, specialization, non-specific agreements and linkages characterize industrial clusters. The effects of both regional international economic integration (RIEI) and SIEI can be measured by the performance of industrial clusters. Nonetheless, due to characteristics that distinguish SIEI from RIEI and the special location and geographical conditions of SIEC zones, the top priority of these zones is to form regional industrial agglomerations. Some zones have succeeded, but some are facing reduced regional agglomeration after lowering border barriers. A study of the mechanisms, conditions and influencing factors of regional industrial agglomeration in SIEC zones is required to explain such disparity. It is also necessary to examine the influence of local resource endowments, level of industrialization, external industrial structure and border barriers on SIEI. These issues are also relevant to specialization. Therefore, this study focuses on regional agglomeration in SIEI. Based on an analysis of major SIEC zones, spatial economic models are constructed for two types of international cooperation, respectively between sovereign countries (or customs territories) and border areas without sovereignty and between border areas without sovereignty. This study explores the influencing factors of regional industrial agglomeration in these two types of SIEI and reveals the inherent patterns of regional industrial agglomeration and the approaches to such agglomeration.

1.2

Literature Review

SIEC originated in East Asia. Amid the rapid development of economic globalization, regionalism and groupings, East Asian countries, with their fast-growing economies and increasing economic openness, began to attach importance to cooperation between areas of geoeconomic and geopolitical significance on their shared borders for common development. This gave rise to a new form of economic cooperation: SIEC. In the late 1980s and early 1990s, subregional economic cooperation programs

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mushroomed in East Asia, including the Singapore-Johor-Riau Growth Triangle, the economic cooperation between Zhuhai, Hong Kong and Macao, the Lancang-Mekong subregional international economic and technological cooperation, the regional economic cooperation in the Tumen River area and the economic cooperation between China and Central Asian countries via the New Eurasian Land Bridge. According to Asian Development Bank (ADB) economists, subregional economic zones are “transnational economic zones spread over well -defined, geographically proximate areas covering three or more countries where differences in factor endowments are exploited to promote external trade and investment.”1 Ultimately, SIEC aims to allocate productive resources efficiently by allowing free movements of factors of production within a subregion, thus benefiting all participating parties. 1.2.1

Subregional International Economic Integration (SIEI)

The term SIEI was first used by Wu and Zhou (1994) in a comparative study of RIEI. Since SIEC had only emerged and regional international economic cooperation was making limited progress, in view of the requirements of their time, Wu and Zhou mainly compared economic integration in capitalist countries, socialist countries and developing countries. They mentioned SIEI, but did not define it or differentiate it from RIEI. Instead, they treated it more or less as an equivalent of the latter.2 SIEC has since come a long way and has shown distinctive characteristics. Researchers disagree on whether SIEC is a form of economic integration. Based on an analysis of the conditions for the establishment of regional economic integration organizations and the stages of regional economic integration proposed by Lipsey, Dong (2004) argued, “For China and its neighboring countries, there are not yet sufficient conditions for economic integration through extensive establishment of preferential tariff areas, free trade areas and so forth. A realistic choice for them is to have subregional economic cooperation and establish pilot preferential tariff areas and free trade areas where feasible. Subregional economic 1 Ding Dou, Subregional Economic Cooperation in East Asia (Beijing: Peking University Press, 2001). 2 Wu Yikang and Zhou Jianping, A Comparative Study of Regional International Economic Integration (Beijing: Economic Science Press, 1994), 30.

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cooperation is the primary stage of regional economic integration and the first step towards an international economic cooperation belt along China’s western border.”3 Dong’s argument shows that he regarded subregional economic cooperation as the early stage of regional economic integration and a stage below preferential trade arrangements. Lu from the National Institute of International Strategy, Chinese Academy of Social Sciences (CASS), touched upon SIEI in his research, but did not give a clear definition. According to Lu, “The Association of Southeast Asian Nations (ASEAN) is the first subregional organization attempting integration in East Asia.” He believed that as the ASEAN Charter entered into force, ASEAN would “evolve from a loose subregional association of states to a closer union with higher international standing.” “All regional cooperation mechanisms of ASEAN are confined to a subregion in Southeast Asia and focus on the integration of its members.”4 According to Lu, ASEAN countries constitute a subregion of Southeast Asia, and ASEAN integration and its various cooperation mechanisms are all forms of regional economic integration. Tang considered all forms of integration as regional economic cooperation. Regional economic cooperation had swept the world since the 1950s, a typical example being the European Community (EC). In Asia, however, there was only one regional political organization at that time, namely the Southeast Asia Treaty Organization (SEATO). Nonetheless, regional economic cooperation has boomed in Asia since the 1990s, resulting in the emergence of the ASEAN Free Trade Area, the Asia–Pacific Economic Cooperation (APEC), an agreement to establish the Asia–Pacific Free Trade Area by 2020, and major progress in South Asia Subregional Economic Cooperation. Various forms of smallscale economic cooperation have made rapid progress. These include the economic cooperation between Thailand, Vietnam, Laos, Myanmar, Cambodia and Yunnan province and Guangxi Zhuang Autonomous Region of China in the Greater Mekong area, the South China Growth Triangle encompassing Fujian, Guangdong, Taiwan, Hong Kong and Macao of China, the economic cooperation between Jilin of China, Siberia of Russia and the Democratic People’s Republic of Korea (DPRK) 3 Dong Fan, “Subregional Economic Cooperation along the Border and China’s Adjustment to Foreign Economic Programs,” Finance and Trade Research, 4 (2004). 4 Lu Jianren, “Integration of East Asia: A Case Study of ASEAN Integration,” Journal of Contemporary Asia–Pacific Studies, 1 (2008).

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in the Tumen River area, the Singapore-Johor-Riau Growth Triangle, the Indonesia-Malaysia-Thailand Growth Triangle (also known as the Northern ASEAN Growth Triangle) encompassing southern Thailand, northern Malaysia and North Sumatra of Indonesia, and the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA). Tang stressed that a salient characteristic of APEC was “open regionalism,” so all of its rules were compatible with those of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). The non-discrimination principle is accepted and followed by APEC members and other economic cooperation programs in Asia. None of the growth triangles in this region discriminates against non-members, and all of them encourage foreign investors to trade and invest in these areas to share the fruits of economic cooperation. According to Tang, “Asia’s openness is intertwined with the export-oriented development strategies of countries in this region.”5 Cross-border economic cooperation zones, including growth triangles, are a form of comprehensive economic cooperation in areas such as trade, transport, communications, energy, resource exploitation and so forth. Compared with free trade areas, these cooperation zones have “deeper cooperation in more areas.” Many researchers believe that the growth triangle is more than a supplement to large-scale economic cooperation, and that it may become a major form of regional economic cooperation in Asia. After comparing the characteristics of economic integration and the subregional economic cooperation between China and its neighboring countries, Zhao and Lu (2004) from Nankai University claimed that the current classification of economic integration levels did not apply to subregional economic cooperation programs involving China. According to them, some Chinese researchers have misperceptions that subregional economic cooperation is a low level of regional economic cooperation below preferential tariff areas and that the mobility of factors of production depends on cross-border coordination. If the tariff level is viewed as an important measure of the level of economic integration, subregional economic cooperation does not fall within the scope of economic integration, because its core issue was not tariffs or barriers to investment and trade, but cooperation in regional economic development. Accordingly, 5 Tang Min, “New Trends in Asia–Pacific Economic Cooperation and Advice on Strategies in Response,” Forward Position in Economics, 4 (1995).

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subregional economic cooperation would not evolve into preferential tariff areas.6 The above disagreement reflects both the differences between SIEI and regional economic integration and the conceptual confusion about the latter. They also shed some light on the characteristics and attributes of SIEI. Subregional economic cooperation zones in Asia mainly pursue export-oriented development, which means that an important characteristic of subregional economic cooperation in Asia is openness to countries and regions beyond the subregion, or non-discrimination against nonmembers. Another important characteristic is unilateral openness of the participating parties. Traditional regional economic integration, on the other hand, shows three features. First, elimination of discrimination among member countries; second, discrimination against non-members; and third, agreement among member countries on the intention to have a lasting common character and to limit the unilateral use of economic policy instruments. Subregional economic cooperation clearly does not fit that profile. It is thus necessary to clarify the concept of regional economic integration and its different levels, and identify the characteristics of SIEI. This study is devoted to the first of these two issues. 1.2.2

Study of Industrial Cooperation Based on Intra-Industry Trade (IIT)

The study of industrial cooperation mainly focuses on cooperation between firms. Competition is the universal norm of interaction between enterprises in the same industry. The industrial structure manifests itself not only as competition or monopoly, but also as cooperation between firms. Cooperation is a basic behavioral characteristic of industrial organizations. Industrial organizations have been evolving with the progress in technological revolution and productivity, and competition and cooperation as forms of industrial organization have different characteristics at different times.7 Following the gradual replacement of contest competition by cooperative competition, or co-opetition, coalitions and clusters

6 Zhao Yongli and Lu Xiaodong, “Subregional Economic Cooperation between China and Neighboring Countries,” Journal of International Economic Cooperation, 1 (2004). 7 Zou Wenjie, “Competition, Cooperation and Evolution of Industrial Organization,” Reformation & Strategy, 1 (2007).

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have emerged as the newest way of co-opetition in various fields.8 Porter claimed in Competitive Advantage: Creating and Sustaining Superior Performance that “coalitions are long-term alliances with other firms that fall short of outright merger, such as joint ventures, licenses and supply agreements. Coalitions involve coordinating or sharing value chains with coalition partners that broadens the effective scope of the firm’s chain.”9 In “Clusters and the New Economics of Competition,” Porter (1998) argued that “clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition.” “Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies or common inputs. Finally, many clusters include governmental and other institution-such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations-that provide specialized training, education, information, research, and technical support.”10 Some researchers believe that clusters and coalitions are different in scale of cooperation and function: cluster members are generally from a single geographical region, while coalition members are spread around the world; firms or organizations form clusters with those in relevant industrial chains because they can only achieve their goals through cooperation, while coalition members are not necessarily a related industry or organization. In many cases, a coalition is formed because one party is able to perform a function of another party’s value chain. For example, a firm may cooperate with a local company or intermediary that has a strong sales network just to obtain the right to sell in a country, even though the partner is not part of a relevant industrial chain.11 IIT is an important indicator of the performance of industrial clusters. In The Spatial Economy: Cities, Regions and International Trade, 8 Li Wenxiu, “New Way of Co-opetition: A Comparative Study of Coalitions and Clusters,” Hubei Social Sciences, 2 (2006). 9 Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985). 10 Michael E. Porter, “Clusters and the New Economics of Competition,” Harvard Business Review, 6 (1998). 11 Li Wenxiu, “New Way of Co-opetition: A Comparative Study of Coalitions and Clusters,” Hubei Social Sciences, 2 (2006).

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Fujita, Krugman and Venables provided empirical evidence of industrial clusters: first, “geographical clustering of industries is central to Porter’s view of competitive advantage”; second, the calculation of Krugman and other European and American researchers showed geographical concentration of industries. Krugman calculated the locational Gini coefficients of three-digit manufacturing industries of the US and found that with the automotive industry as a benchmark, nearly half of other industries in the country had higher coefficients. In their theoretical model of industrial clusters, intra- and inter-industry linkages are important parameters that determine the formation of industrial clusters. When inter-industry linkage effect is stronger than that of intra-industry linkages, the agglomeration cannot sustain regardless of iceberg transport costs (T ). When intra-industry linkage effect is stronger, the geographical agglomeration of industries can sustain with a small enough T . Agglomeration and dispersion of industries are respectively centripetal and centrifugal forces. Krugman et al. measured industry linkages using intra- and inter-industry trade.12 Through numerical simulations, they found a general correlation between economic development and the dispersion of industries. As the economy of peripheral regions reaches a higher level, labor-intensive industries, upstream industries and weakly linked industries tend to spread from central to peripheral regions first. In a study of the characteristics of countries that affect IIT, Helpman and Krugman (1985) claimed that the similarity in relative factor endowments and market size was positively correlated with the extent of IIT. IIT, also known as two-way trade or overlapped trade, refers to the simultaneous export and import of the same types of products. There have been many attempts to define this term. According to Finger (1975) and Falvey (1981), IIT occurs when a country simultaneously imports and exports products of the same commodity group. Brander (1981) defined it as “two-way trade in identical products.” Greenaway (1983) and Grimwade (1989) defined IIT as the import and export of commodities in the same industry. Greenaway and Tharakan (1986) defined IIT as simultaneous import and export of products that are close substitutes for each other in terms of factor inputs and substitution in consumption. Wickham and Thompson (1989) defined IIT as two-way “trade in goods

12 Masahisa Fujita, Paul Krugman, and Anthony J. Venables, The Spatial Economy: Cities, Regions and International Trade (Beijing: China Renmin University Press, 2005).

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which are similarly classified in production but are not perfect substitutes in consumption.” In measurement of IIT, Grubel and Lloyd (1975) defined IIT as the difference between total trade and inter-industry trade or the value of import and export of products of an industry in a country, and they believed that the key was consumption substitutability and similarity between factor inputs in production. Based on the above definitions, considering that industrial cooperation is the core of international and regional economic cooperation, this study defines IIT as the import and export of goods in the same industry. The extent of IIT varies significantly at different levels of industry, and it is impractical to compare the IIT of different levels. IIT is a manifestation of the division of labor and cooperation between trading countries in value chains of the industries concerned. Researchers have proposed different ways to classify IIT, including (1) IIT between countries or economies of similar and different economic development levels; (2) IIT in capital goods and consumer goods; (3) IIT in agricultural goods, manufactures and services; (4) IIT in primary, intermediate and finished products; (5) intra-firm IIT and inter-firm IIT; and (6) IIT in homogeneous and heterogeneous products, the latter further divided into IIT in horizontally and vertically differentiated goods.13 In this study, the measurement of IIT is mainly used to assess international industrial cooperation in a region, so the classification of IIT is not considered. The extent of IIT is measured in the analysis of SIEC zones. For measurement of IIT, researchers mainly use the International Standard Industrial Classification of All Economic Activities (ISIC.REV.3) of the UN and the Industrial Classification for National Economic Activities (GB/T-2002) of China for industrial classification, and the trade statistics in UN COMTRADE for calculation. Main methods for IIT measurement include: a. Balassa index

13 Lin Lin, “On Intra-Industry Trade” (Ph.D. thesis, Shandong University, 2005).

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Balassa (1974) proposed this method for measuring IIT in a study of division of labor and trade within the EC: E=

n 1 E |X i − Mi | × 100% n X i + Mi i=1

X i and M i denote the exports and imports in industry i or type of goods I , respectively. The lower the index E, the greater the share of IIT in the industry or the type of goods. A decline in E means a rise in the share of IIT in the industry or the type of goods, and a rising E indicates a drop in the latter. b. Grubel-Lloyd index The Grubel-Lloyd index (G-L index) is widely used for measuring IIT. Proposed by Grubel and Lloyd (1975), it is used to interpret trade patterns and comparative advantages. The formula is: Bi = 1 −

|X i − Mi | × 100% X i + Mi

X i and M i are the exports and imports in industry i or type of goods I , respectively. The value of the index increases with the level of IIT in the industry or goods concerned. The greater the value, the higher the level. Bergstrand (1983) and Aquino (1978) also proposed methods for measuring IIT. Aquino’s approach of adjusting IIT level in industries with trade imbalance is known as the Aquino adjusted index. This study mainly uses the G-L index for measurement of IIT in SIEC zones. If the value of the index is greater than fifty percent, the trade in an industry or a type of goods in the zone is primarily IIT. Otherwise, inter-industry trade dominates.

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1.2.3

INTRODUCTION

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Strategic Trade Theory

Trade between countries at the same stage of development, especially between industrialized countries, is primarily IIT. As for the possibility of industrial clustering or industrial cooperation between less developed countries, the strategic trade theory provides an answer. In the early 1980s, international trade underwent dramatic changes, and it was no longer the exchange of goods and services as described in classical economics. According to classical economics, among other things, capitalabundant countries tend to export capital-intensive products, countries with skilled labor tend to export technology-intensive products, and underdeveloped countries export raw materials. The rapid development of international trade after the end of World War II has led to new trade patterns, especially since the 1980s. Technological gap between countries and their resource endowments remained the main determinants of international trade patterns, but a considerable part of international trade could not be simply attributed to natural advantages of exporting countries. On the contrary, an increasing share of trade arises from economies of scale and acquired advantages resulting from technological innovation. Strategic trade policy is an external policy introduced by the US and other developed countries in response to the rise of emerging economies in international trade. It is based on the theory of international economics. The theory of increasing returns to scale in the industry in an imperfectly competitive market poses a serious challenge to classical trade theories that assume constant returns to scale. In a market of imperfect competition, rents continue to exist despite the existence of competition, and capital and labor may sometimes enjoy higher return rates in some industries than in others. All these make some sectors strategic. If governments can identify such strategic sectors, they are likely to adopt strategic trade policy. Strategic trade policy refers to government measures such as subsidies and export incentives in an imperfectly competitive market to support industries where economies of scale, external economies or a huge volume of rents are believed to exist. The aim is to increase the market share of domestic firms in the international market and to shift excess profits from foreign firms to domestic ones in order to improve domestic economic welfare and strengthen the strategic position in the international market with foreign rivals. Governments’ participation in international economic competition, which fundamentally changes the general rules of international trade, is considered a strategic activity to enhance international competitiveness.

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To help entrepreneurs and economists identify strategic sectors in the economy, Krugman proposed two criteria. First, a large volume of rents, namely excessively high rates of return on capital or labor. Second, external economies, namely technological spillovers for other firms resulting from the research and development efforts or experience of a firm. However, as spillovers are not priced, it can be difficult to determine whether a sector is strategic according to the second criterion.14 Concerning the measures that governments may consider to protect the development of strategic sectors, Krugman and James proposed the following forms of strategic trade policy: 1. Profit-shifting subsidies. This strategic policy uses subsidies to strengthen the strategic position in the international market with foreign rivals. The basic aim is to shift profits from foreign to domestic firms. Government subsidies can lower the costs of domestic firms so that they can capture a greater share of the profitable international market. Such cost subsidies force foreign rivals to reduce output and enable domestic firms to get more profits that exceed government subsidies. In other words, the profit of subsidized firms outweighs the loss to taxpayers, suggesting that export or production subsidies improve domestic economic welfare. 2. Protectionism. Protectionist policies are widely used to this end. In international trade, the protectionist policies for domestic industries that face competition from imports are based on export incentives. Some of Krugman’s ideas in 1984 were similar to the infant-industry theory. He believed that as economies of scale enabled the output to increase and marginal costs to fall, preventing foreign firms from the domestic market helped domestic firms not only capture the protected domestic market, but also make profits from export. Another idea of his is based on learning-by-doing which is structurally similar to diminishing marginal costs. In a protected domestic market, the learning curves of domestic firms move downward, because they manufacture more and learn faster than their foreign rivals. 14 Paul Krugman, ed., Strategic Trade Policy and the New International Economics, trans. Hai Wen et al. (Beijing: China Renmin University Press, Peking University Press, 2000).

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A review of the existing studies of international economic integration reveals a well-developed theoretical framework. These studies have also touched upon SIEC, but researchers have mainly conducted empirical research of specific cooperation zones. To date, there have been no theories dedicated to SIEI. This study attempts to fill this gap. The research of international industrial cooperation is expanding with the development of international economics and international trade theories. The current focus is the new patterns of industrial cooperation, namely industrial clusters and coalitions. Industrial clusters are suitable for cooperation between geographically-close areas. Among the main characteristics of industrial clusters, i.e., regional agglomeration, specialization, non-specific agreements and linkages, this study mainly examines regional industrial agglomeration in SIEC zones to reveal the industrial development trends in SIEI. Researchers assess international economic relations by measuring IIT, and extensive research has been carried out on the definition and measurement of IIT and the factors that affect it. Drawing upon their findings, this study calculates the IIT index of SIEC zones for assessment and verification of regional industrial agglomeration in SIEI.

1.3

Methodology

To clarify the definition and classification of regional economic integration, this study uses the analytic hierarchy process and divides economic integration into levels, namely integration, economic integration, regional economic integration, international regional economic integration, RIEI and SIEI. Based on such classification, RIEI and SIEI are compared to reveal the basic characteristics of the latter. After examining some major SIEC zones, this study divides SIEI into the B-C type and the B-B type. B-C SIEI takes place between border areas without sovereignty and sovereign countries or customs territories, while participants of B-B SIEI are all border areas without sovereignty. Based on the existing SIEC zones, these two types of SIEI are interpreted respectively using a tripartite spatial economic model that includes two domestic regions and one foreign region (encompassing several countries) and a quadruple model that includes two domestic regions and two foreign regions. In traditional international economics, the studies of international trade are based on the assumptions that factors are immobile across

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borders and that goods can be traded at zero transport cost. In practice, however, factors of production are mobile, and transport costs are positive. Moreover, transport costs are often an important factor. With the implementation of the strategic international trade policy, imperfectly competitive market and increasing returns to scale have become important theories underlying international trade. The approach of simulating the dynamic evolution mechanism of location choice in economic activities based on imperfectly competitive markets, increasing returns to scale and iceberg transport costs is now widely used in many fields of international economics. Spatial economic modeling provides a new perspective more than an approach, because its hypotheses are more realistic than those of traditional international trade theories. This study thus reveals the inherent mechanisms of SIEI using spatial economic models and numerical simulations. The inductive approach and comparative analysis are used to examine the main factors that influence B-C and B-B SIEC zones. Numerical simulations and comparative analysis are performed to reveal the mechanisms of factor agglomeration in SIEC zones and the dynamic evolution of such agglomeration. The mechanisms and influencing factors of industrial agglomeration in B-C and B-B SIEI are verified through case studies and empirical analysis of the GMS and the cooperation between Yunnan, China, and northern Laos. This study also evaluates the potential for industrial cooperation in B-C SIEI between Xinjiang, China, and four Central Asian countries and B-B SIEI between China’s Jilin province, Russia’s Primorsky Krai and Gangwon of the ROK.

1.4

Basic Concepts

Drawing upon the theory of spatial economics, this study analyzes regional industrial agglomeration in SIEI based on the hypotheses about monopolistic competition, increasing returns to scale and iceberg transport costs. 1.4.1

Monopolistic Competition

As the most common market structure, monopolistic competition reflects the relations between market entities in a monopolistic industry where there is only one manufacturer. A monopolistically competitive industry

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consists of all manufacturers of given products, each with its own brand. Products of different brands in the industry are close substitutes for consumers. One manufacturer may have a legitimate monopoly over its trademarks and brands so that others are not allowed to produce identical products, but other manufacturers can make similar products. Such a market structure involves both competition and monopoly. Monopoly exists because all manufacturers in the market, facing a downward demand curve, can determine their own prices, whereas manufacturers in perfect competition are only price takers. This market structure is also competitive because manufacturers of similar products must compete for consumers in terms of price and product variety, resulting in barriers to entry into a monopolistically competitive industry. Combining the fundamental assumption of monopolistic competition with increasing returns, spatial economics uses the Dixit-Stiglitz model of monopolistic competition (known as the D-S model) containing spatial factors to analyze the spatial distribution or choice of economic activities. 1.4.2

Iceberg Transport Costs

Initially proposed by Samuelson, iceberg transport costs refer to the melting or evaporation of products in transport. Of each unit of manufactures priced p, only 1/T arrives at the destination. Therefore, to ensure the arrival of one unit of manufactures, T units should be transported, and the price of arriving manufactures is pT . The cross-border exchange of manufactures is subject to such trade costs. Suppose that T CaBa is the iceberg transport costs from region C to region B of country a, which also applies to interregional trade and investment in country a, T CaR denotes the costs (barriers) of country a’s region C (inland area) that does not participate in SIEC for trade and investment with partner country R, and T BaR means the costs (barriers) of country a’s region B (border area) that participates in SIEC for trade and investment with country R. Therefore, iceberg costs include not only cross-border trade costs, tariff and non-tariff barriers, exchange rates, languages, home bias and so forth, but also transport costs. It shows that T BaR is a manifestation of the degree of SIEI.

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1.4.3

Product Differentiation

In economics, product differentiation refers to the phenomenon in an industry where firms manufacturing similar products at a profit make efforts to distinguish their products from those of their competitors. When the level of product differentiation is high, there is more monopoly than competition. Conversely, a low level of differentiation means more competition than monopoly. 1.4.4

Increasing Returns to Scale

Many social scientists have noticed the extensive existence of learning effect, synergy effect, organization and network effect, externalities, economies of scale and economies of scope, all of which can be attributed to increasing returns. Economists such as Marshall, Hicks and Schumpeter also realized the significance of increasing returns, but did not include it in the neoclassical analytical framework. Krugman believed a major reason for this was that the mathematical analysis back then was unable to deal with multiple equilibria and other issues due to dynamic non-linearity and increasing returns. Increasing returns in spatial economics refer to cost savings resulting from spatial proximity between economically linked industries or economic activities, or economies of scale in intangible assets resulting from the expansion of an industry. Krugman proposed a location theory based on increasing returns. He argued that the best evidence for the practical importance of external economies is the strong tendency of spatial agglomeration of economic activities in general and of particular industries or clusters of industries. Early location economists realized that increasing returns to production activities were a necessary condition for agglomeration. Lösch (1940) argued, “We shall consider market areas that are not the result of any kind of natural or political inequalities but arise through the interplay of purely economic forces, some working toward concentration and other toward dispersion. In the first group are the advantages of specialization and of large-scale production; in the second, those of shipping costs and of diversified production.”15 Hanson’s (2000) estimation of 3075 counties of the US using the nonlinear least squares method showed the 15 A. Lösch, The Economics of Location (Jena, Germany: Fischer, 1940) (English translation, New Haven, CT: Yale University Press, 1954).

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existence of increasing returns and increasingly imperfect competition, thereby proving that monopolistic competition under increasing returns leads to spatial agglomeration of economy. Increasing returns have been proved by economists in research over the years, making it a basic hypothesis in spatial economics. According to Adam Smith, the division of labor results in specialization and consequently leads to inventions, because workers who specialize in certain activities will gradually find better ways to achieve the same results. Regarding the tendency to increasing returns, Marshall argued in Principles of Economics that (1) increasing returns resulting from economies of scale can be external or internal; (2) “while the part which nature plays in production shows a tendency to diminishing return, the part which man plays shows a tendency to increasing return”; (3) “The law of increasing return may be worded thus:- an increase of labor and capital leads generally to improved organization, which increases the efficiency of the work of labor and capital.” “Knowledge is our most powerful engine of production.” Young (1928) claimed that “progressive division and specialization of industries is an essential part of the process by which increasing returns are realized.” Increasing returns depends on the development of the division of labor. The principal economies of the modern division of labor are secured by using labor in roundabout or indirect ways. The division of labor depends on the market size, but the market size also depends on the division of labor. “In this circumstance lies the possibility of economic progress, apart from the progress which comes as a result of the new knowledge which men are able to gain, whether in the pursuit of their economic or of their non-economic interests.”16 Schultz specified specialized human capital as an origin of increasing returns. He attributed the remarkable progress of many low-income countries since World War II to their improvement in primary education and deemed primary education an origin of increasing returns to economic growth in view of the high returns to primary education.17 According to Marshall (1890), externality is crucial for the formation of economic concentration, which causes the lock-in effect.

16 Allyn Young, “Increasing Returns and Economic Progress,” The Economic Journal 38, 152 (1928), 527–542. 17 Theodore W. Schultz, Origins of Increasing Returns (Oxford, UK; Cambridge, MA: Blackwell, 1993).

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Once an industry has chosen a locality, it tends to remain there for a considerable period of time. People see great advantages in being in the same trade as their neighbors. Inventions and improvements in machinery, processes, and general business organization have merits that are promptly discussed. One man’s new idea is the origin of further new ideas, because it is adopted by others and combined with their own suggestions. Marshall believed that externalities associated with the formation of clusters include: (1) large-scale production (internal economies similar to the concentration of firms); (2) the access to specialized inputs and services; (3) specialized labor and new ideas, both depending on the accumulation of human capital and face-to-face communication; and (4) the existence of modern infrastructure. Marshall’s concept of externality is widely used in studies of the location of economic activities, because it captures the phenomenon of agglomeration where more and more agglomerating actors are willing to come together for the advantages resulting from a greater diversity of agglomeration activities and a higher degree of specialization. Economists have since divided externalities into technological externalities (also known as spillovers) and pecuniary externalities. Technological externalities are the result of non-market interactions which are achieved through directly affecting the utility of an individual or the production function of a firm. Pecuniary externalities are the result of market interactions which only affect firms, consumers or workers when they are involved in exchanges caused by the price mechanism. Pecuniary externalities play a role in imperfectly competitive markets. As spatial economics is based on monopolistic competition, all economies of scale are achieved through changes in product varieties. Market size does not affect the marginal cost-plus pricing or the scale of production of a single product. Therefore, economies of scale are an important cause of economic clustering or agglomeration. 1.4.5

Economies of Scope

Economies of scope refer to the decline in unit cost of firms achieved by producing two or more varieties of products, or savings resulting from such production. Economies of scope occur when a firm produces two or more product varieties (including type and size variants) and the unit cost of products is reduced. Economies of scope give firms competitive

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advantages in production costs, differentiation, marketing, technological innovation, risk response and so forth. Differentiation advantages refer to the diversity of products in quality, function, appearance, type, size, services and so forth, with which consumers come to approve of the products of a firm and distinguish them from similar products of other manufacturers. Economies of scope create innovation advantages for firms by encouraging internal collaboration, expediting technological innovation, reducing initial investment and creating internal technological innovation clusters. On a larger scale, economies of scope adjust resource structure, facilitate the creation of common technical standards for new products in a region and help firms win over consumers and suppliers, thus creating technological innovation advantages. While economies of scope can be both internal and external, this study mainly examines the internal type, namely cost reduction of firms through product diversification. 1.4.6

Regional Industrial Agglomeration

In a market of imperfect competition, the market structure is simplified through standardization, so that each firm produces only one type of product with one unit of human capital. In the long term, human capital can move across regions while labor cannot, so human capital is the only mobile factor. Therefore, regional industrial agglomeration is achieved in two ways. Domestic regional agglomeration of industries is achieved through firms’ location choices caused by interregional factor movements. Cross-border regional agglomeration of industries is achieved through interregional movements of factors from partner countries by cross-border investment. In addition, the scale effects cause increase in not only product varieties, but also in the number of manufacturers. Therefore, regional agglomeration manifests itself as an increase in factors, product variety and the number of manufacturers in a region, while the opposite is true for regional dispersion. 1.4.7

Region and Subregion

Researchers have given different definitions of region and subregion. Region is a geographical concept. According to A Dictionary of Modern Geography, a region is a measurable geographical entity with intrinsically linked elements and similar external morphological characteristics.

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Regions have different defining criteria such as geographical location, culture, administration, economy and so forth. The region in this study is more about economic and administrative division than geographical areas, which have the following characteristics: (1) the existence of boundaries; (2) apparent similarity and continuity within a region and distinct differences between regions; (3) certain advantages, unique characteristics and functions; and (4) mutual influence between regions, i.e., the development and changes of a region affect surrounding and related regions. Regions and subregions in international economics are relative. They are not naturally formed or fixed, but created and shaped by humans.18 For example, the GMS is a subregion of Southeast Asia, and Southeast Asia is a subregion of East Asia. Nonetheless, a continent or a continental plate cannot be referred to as a subregion. Therefore, in this study, a subregion is defined as an area of land that is smaller than a continent or a continental plate. A subregion is a subdivision of a region. The concept of subregional economic cooperation is examined in relation to regional economic cooperation. It refers to long-term cross-border economic cooperation between natural or legal persons in the areas on borders between countries and regions based on equality and mutual benefit through factor movements in production. From the perspective of economic development, the essence of subregional economic cooperation is to promote efficient allocation of production factors and higher productivity through efforts for free movements of these factors on a subregional basis. Such cooperation manifests itself mainly as trade and investment freedom in the subregion. Therefore, from an economic point of view, subregional economic cooperation is a form of regional economic integration. 1.4.8

Perfect Asymmetry and Imperfect Symmetry

In this study, the relations between regions of a country that participates in SIEC are divided into three types, namely symmetry, perfect asymmetry and imperfect symmetry. The existing SIEC programs are mainly implemented in border areas that are relatively backward in economic development. This is true for the US, developed countries in Europe and

18 Lu Guangsheng, Regionalism and ASEAN’s Economic Cooperation (Shanghai: Shanghai Lexicographical Publishing House, 2008).

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less developed countries in Asia. In a country, the regions that participate in SIEC are usually economically inferior to its inland area that does not participate in such cooperation. Therefore, the core-periphery structure seems to be the fundamental characteristic of relations between these two types of domestic regions, i.e., the border area and the inland area of a country. The relations between the core and the periphery, i.e., the inland area and the border area, in external economic linkages constitute the spatial structural relations between these regions. The geographical location of countries has a decisive impact on the external economic linkages of these two domestic regions. In a landlocked country, the land border area plays an important role in the country’s openness to the outside world, and such an area participating in SIEC becomes its base for external economic linkages. To establish economic linkages with partner countries in SIEC, the region that does not participate in SIEC must rely on the border area that participates in subregional cooperation. When dealing with partner countries in SIEC, the border area that participates in SIEC thus has complete location advantages, while the region that does not participate in such cooperation does not. This study defines such situation as perfect asymmetry between two domestic regions. Many countries are not landlocked and have coastal borders, ports and coastal cities, where the costs of maritime transport are lower than land transport. In these countries, the region that does not participate in SIEC can forge economic linkages with partner countries in SIEC through maritime transport, so it does not have to rely on the border area that participates in such cooperation. In this case, the SIEC-participating border area has imperfect or relative location advantages. This study defines such situation as imperfect symmetry between two domestic regions. The case where two domestic regions have identical location conditions and transport costs is referred to as symmetry.

1.5

Major Arguments

This study makes the following claims: 1. SIEC is a form of regional economic integration which can also be referred to as SIEI. Regional economic integration theories have explanatory power over the general behavior of SIEI, but SIEI has its own distinctive trends and characteristics. It is thus necessary to conduct theoretical studies of SIEI based on practice and empirical

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studies of SIEC and to formulate SIEI theories to further promote SIEC. 2. The basic theories of spatial economics can be employed for development of a theory of SIEI. The modeling principles of spatial economics are applicable to modeling of factor movements in SIEI. The analysis of industrial cooperation and industrial competition can be based respectively on centripetal forces (industrial agglomeration forces) and centrifugal forces (industrial dispersion forces). 3. According to the geographical scope of existing SIEC programs, SIEC can be divided into B-C SIEC and B-B SIEC. The former involves cooperation between countries and border areas of their neighboring countries. The latter is cooperation between border areas of two or more neighboring countries. The two types of international economic cooperation vary significantly in terms of industrial agglomeration, external influences, the effects and characteristics of cooperation and so forth. 4. The industrial agglomeration in B-C SIEC zones is significantly affected by the market potential of participating countries. When participating countries have great market potential, industrial agglomeration forces of the participating regions of partiallyparticipating countries are significantly influenced by whether they enjoy absolute location advantages in access to the former’s market. If the non-participating region has to pass through the participating region in order to access the market of partner countries, the participating region has strong regional industrial agglomeration forces, and a higher level of SIEI will further strengthen such forces. Otherwise, the participating region has only relative location advantages and its industrial agglomeration forces are comparatively weaker. 5. The industrial agglomeration in B-B SIEC zones is primarily influenced by resource endowments within the zones. The greater the abundance of resources, the larger the space for industrial cooperation. It is also affected by the development level of the countries involved. IIT, industrial agglomeration forces and industrial cooperation potential decrease as the development gap between the countries concerned widens. 6. In economics, the focus of international regional economic cooperation is on industrial cooperation. A study of industrial cooperation by examining the behavior of enterprises will reveal the internal

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mechanisms, problems and policy effects of international regional economic cooperation. This is also the fundamental difference between economics and other disciplines in the study of this issue.

1.6

Major Innovations

1. This study classifies the existing SIEC zones around the world into the B-C type and the B-B type according to the nature of participating parties and examines the factor movements and industrial cooperation in both types of zones. 2. The geographical structure of countries partially involved in SIEC is divided into perfect asymmetry and imperfect symmetry, based on which the mechanisms of factor movements and regional industrial agglomeration are studied from various perspectives under different combinations of spatial structures and SIEI types. 3. This study clarifies the levels of regional economic integration and the objects of study in this area to clear up confusion about the definition and levels of regional economic integration. 4. Theoretical models are created respectively for B-C SIEI and B-B SIEI. Through numerical simulations, the pattern of factor movements is identified in a dynamic analysis. SIEC programs such as the GMS, the cooperation between Yunnan, China, and northern Laos and so forth are analyzed to verify relevant theories and conclusions. 5. Industrial cooperation and its potential are assessed by measuring the IIT index. 6. The explanatory power of the conclusions of theoretical models is tested by comparing and analyzing the differences in transport costs in perfect symmetry and imperfect symmetry based on estimated costs of land and maritime transport in China.

CHAPTER 2

Integration and Industrial Cooperation

Based on an analysis of different forms of economic integration, this chapter clarifies the levels of regional economic integration and identifies the characteristics of SIEI. In view that industrial clustering has become a new way of industrial cooperation, this chapter examines industrial clustering and industrial cooperation, regional division of labor and specialization, stage of economic development and industrial dispersion in spatial economics.

2.1

Definition and Classification of Economic Integration

Given the numerous theories about economic integration, a precise definition and classification are elusive. Puchala (1972) compared the diversity of integration theories to an Indian fable in which each blind man touched a different part of an elephant. According to him, each theory explained, at most, one aspect of integration without grasping the whole picture, just like the blind men in the story.1 Moreover, almost all theories in this 1 Puchala, D. J. (1972). “Of Blind Men, Elephants and International Integration,” Journal of Common Market Studies, 10, 267–284. https://doi.org/10.1111/j.1468-5965. 1972.tb00903.x.

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_2

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realm have their limitations. They are either based on certain premises or applicable only to specific situations. The same theory can have completely different effects when the situation changes. 2.1.1

Major Theories About Economic Integration

To date, there is no agreed definition of economic integration in academia. The following are some major theories: a. Economic integration as a process and a state of affairs In The Theory of Economic Integration, Balassa (1962) proposed defining “economic integration as a process and as a state of affairs. Regarded as a process, it encompasses measures designed to abolish discrimination between economic units belonging to different national states; viewed as a state of affairs, it can be represented by the absence of various forms of discrimination between national economies.”2 His proposal has had significant influences, because it has since been widely accepted and quoted by Western researchers. b. Economic integration as a means In The Economics of International Integration, Robson (1980) argued that international economic integration was a means instead of an end. He believed that arrangements for international economic integration showed three features, namely no discrimination among member countries under certain conditions, discrimination against non-members and agreement among member countries to have a lasting common character and to limit the unilateral use of economic policy instruments.3 c. Economic integration as an end

2 Bela Balassa, The Theory of Economic Integration (London: Allen & Unwin, 1962), 1. 3 Peter Robson, The Economics of International Integration (London: George Allen &

Unwin (Publishers) Ltd., 1980), 2.

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Streeten (1961) argued that integration should not be defined by means such as free trade, common market, exchangeability, liberalization and so forth, but should be defined in terms of the end, namely equality, freedom and prosperity.4 d. Economic integration in terms of effects Tinbergen further elaborated on economic integration from the perspective of relationship between mobility of factors of production and government organizations. He classified economic integration into negative integration and positive integration. The first type refers to the abolishment of institutions, or the removal of barriers to the movement of factors of production such as capital, labor, goods and so forth between member countries. The latter means creating new institutions to correct false signals from free markets so as to strengthen the economic integration forces in these markets. Tinbergen highlighted the role of government in economic integration and how governments play that role, which reflects the dominant role of government in most regional economic cooperation programs in today’s world. Chinese researchers have also proposed definitions of economic integration based on their study of regional economic integration. In Dictionary of Economics edited by Yu, economic integration is defined as “economic association and common economic regulation of two or more countries to varying degrees in some areas of social reproduction towards integration, which are generally established according to agreements between countries with common institutions.”5 According to Wu et al., economic integration refers to “the unimpeded flow of products and factors of production and the coordination of economic policies between two or more countries.” They believe that “the degree of integration is measured by the differences in or scope of

4 Paul Streeten, Economic Integration: Aspects and Problems (Leyden: A. W. Sijhoff, 1961), 16. 5 Dictionary of Economics, ed. Yu Guangyuan (Shanghai: Shanghai Lexicographical Publishing House, 1992).

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the free flow of products and factors of production, so arrangements for RIEI take a variety of forms.”6 2.1.2

Levels of Economic Integration

The development of economic globalization and regional groupings has led to overlapping definitions of regional economic integration, which tends to cause confusion. For research purposes, economic integration involving regions of different types is defined as follows: a. Integration: Some studies show that the use of the term integration in the sense of merging independent economic areas into a larger one, or, economic integration, is traced back to Heckscher’s Mercantilism published in 1931 and another book by two German researchers about trade statistics published in 1933. Despite its different Chinese translations in China’s mainland and Taiwan and Hong Kong, it essentially means connecting and combining scattered factors in a way that the resources of a system are shared and coordinated, ultimately forming a valuable and efficient whole. Integration is thus a process through which independent entities are integrated to form a single entity. It is now a broad concept involving combination in a multitude of areas such as economy, politics, law, culture and so forth. b. Economic integration: Two or more economic actors are integrated in some way into one entity in economic activities in order to gain economic benefits. The integrated economic actors can be sovereign states, regions of sovereign states or companies. Integration can take many forms, such as contracts and agreements, an organization that oversees the implementation of such contracts or agreements, and a loose coordination mechanism. Economic integration includes not only RIEI and the economic integration of regions in a country, but also SIEI and the economic integration of subregions in a country. It also encompasses the division of labor and cooperation in the industrial chain in international and national production networks, known as vertical and horizontal integration. In many studies, the

6 Wu Yikang and Zhou Jianping, A Comparative Study of Regional International Economic Integration (Beijing: Economic Science Press, 1994).

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term economic integration is used in the sense of either international economic integration or regional economic integration within a country. The lack of a precise definition tends to cause conceptual confusion. c. Regional economic integration: Two or more regions of various nature are combined in some way based on the division of labor to enable the free flow of goods and factors, thus forming a larger region without internal trade barriers. Since region is a relative concept, it can be a continent, a country or an area within a country. Therefore, regional economic integration includes regional and subregional economic integration between countries (i.e., RIEI and SIEI) and within a country. d. RIEI: The governments of two or more countries, based on their productivity and international division of labor, enter into an agreement or establish a supernational organization through negotiation to create a multinational economic union. Within the union, there are no trade barriers, and goods, capital and labor can move freely. An organization can be established to oversee the implementation of relevant agreements and common policies and measures. The EU, the North American Free Trade Area (NAFTA), the South African Customs Union (SACU) and ASEAN are all RIEI organizations, though they vary in the degree of integration. There is terminological confusion in many studies: when they mention economic integration, economic integration in a broad sense, international economic integration, regional economic integration, international regional economic integration and so forth, they are actually referring to RIEI. e. SIEI: SIEI, or SIEC, takes place when regions of two or more countries, or countries and regions of other countries, are coordinated or integrated in some way to remove border barriers for mutual benefit, coordinated development and better resource allocation within the subregion. SIEI theories are not well developed, and there is much disagreement on whether integration theories are applicable to SIEI. f. Economic integration of regions in a country: This refers to economic integration and cooperation between two or more administrative regions of the same level in a country by establishing closer economic ties and allowing the free flow of goods and production factors in the regions. The aim is to eliminate the barriers caused by administrative division or obtain greater competitive advantages.

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g. Economic integration of subregions in a country: Two or more administrative regions of different levels in a country, benefiting from certain geographic location and relationships, are integrated to improve the division of labor and cooperation so as to enhance competitive advantages of the participants. The levels of regional economic integration are shown in Fig. 2.1.

Fig. 2.1 Levels of regional economic integration

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Forms and Characteristics of RIEI

Some researchers regard SIEC as a level of RIEI lower than preferential trade arrangements, which implies that the development of SIEI will also follow RIEI theories and go through different stages of development. The existing SIEC zones, however, have shown different characteristics than RIEI. Some argue that RIEI theories are not applicable to SIEC. In view of such disagreement, it is necessary to first examine the major characteristics of RIEI. Theories about RIEI have been well developed. The various forms of RIEI are a manifestation of its major characteristics. RIEI takes place in certain forms. Participating countries establish different forms of RIEI organizations depending on their own situation, conditions, goals and needs. Such difference in organizational forms reflects the various levels of economic integration and the depth and breadth of economic interventions and association between members. There are many ways to classify RIEI. This study follows Lipsey’s (1961) approach and classifies RIEI programs into the following types: 2.2.1

Preferential Trade Arrangement (PTA) or Preferential Tariff Area

PTA is the lowest level and the loosest form of RIEI. PTA members stipulate preferential tariffs on all or some goods traded between them in trade agreements or contracts, and limit imports from non-members through respective tariff policies. Examples include the Imperial Preference before World War II and ASEAN. Trade policies of PTA members are not identical. To be specific, member countries adopt different tariffs and other policies for imports from other members, as they do with imports from non-members. Therefore, many researchers do not consider PTA as a form of RIEI. Nonetheless, we believe that PTAs impose restraints to a certain degree on policy formulation in relation to trade in goods between member countries, which prevents members from unilaterally raising the limits on imported goods, resulting in greater freedom in trade in goods, and in a sense, common economic policies and measures. PTA is therefore considered a form of RIEI.

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2.2.2

Free Trade Area (FTA)

An FTA is a group of countries which have signed free trade agreements and eliminated tariffs and quotas in trade in goods to allow the free flow of goods between each other. But FTA members maintain their limits on import of goods from non-members. The most typical example is the NAFTA. FTAs around the world vary in the scope of free trade. Some FTAs allow only free trade of some goods. The European Free Trade Association (EFTA), for example, limits free trade to industrial goods, while agricultural products are excluded. FTAs like this are also known as industrial FTAs. Free trade of all goods is allowed in some FTAs, such as the Latin American Free Trade Association (LAFTA) and NAFTA, which eliminate tariffs and quotas for trade in all industrial and agricultural products between members. In view of such disparity, a distinction is drawn between partial and complete integration in theories about economic integration. 2.2.3

Customs Union

Members of customs unions abolish all tariffs and quotas in trade in goods to allow free movements of goods between each other. They are required to impose common restrictions on imports from non-members and apply the same tariff rates to goods from outside the customs union regardless of the importing country. Examples include the EC in its early days and the East African Community (EAC). The establishment of a customs union means the replacement of members’ separate customs territories with a common customs territory. It allows the free flow of members’ goods within the union and prevents competition from the goods of non-members. Participating countries of customs unions are completely integrated in trade in goods. Customs unions are supernational, thus laying the foundation for complete economic integration. 2.2.4

Common Market

In a common market, there is not only tariff- and quota-free trade in goods between members and a common tariff on imports from nonmembers, but also free movements of factors of production (capital, labor

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and so forth) between member countries. The EC, for example, established a single unified market at the end of 1992, a main characteristic of which is the free flow of goods, people, services and capital between members, known as the Four Freedoms. 2.2.5

Economic Union

In addition to the free flow of goods and factors of production between members and a common external tariff, the establishment of an economic union requires the implementation of common policies in more economic and social areas, including fiscal policy, monetary policy, industrial policy, regional development policy and so forth. The EU, for example, is an economic union. Theoretically, there is no agreement on the extent to which the economic policies of an economic union are common. But it is agreed that an important indicator is a common monetary policy, i.e., a single central bank and currency and common foreign exchange reserves. Currently, the EU is the only economic union in the world. 2.2.6

Complete Economic Integration

Complete economic integration is the most developed form of economic integration. All participating countries are members of an economic union and have common economic and social policies, thus forming a single economic entity. The supernational organization of these economic entities has full authority over economic policies and governance. None of the existing economic integration organizations has reached this stage, although the EU is working toward complete economic integration. The six forms of RIEI are discussed in ascending order by the degree of integration. They can be arranged this way because the characteristics of one level can be found in a higher level. It is worth noting, however, that despite such arrangement, regional organizations do not necessarily evolve from a lower level to a higher one in terms of the degree of integration. RIEI practice shows that integration does not always start with a PTA, and that an RIEI organization can have the characteristics of two forms as mentioned. In practice, RIEI may take place in many other ways. The arrangement of the above six forms of RIEI also shows an increasing degree of sovereignty ceding. Regardless of the form, the principal actors of RIEI must be sovereign states. This is due to RIEI’s heavy

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reliance on institution building and supernational governance between participating countries. Its implementation requires the partial ceding of sovereignty by participating countries. In addition, RIEI members are quite exclusive. Therefore, the participation of member countries with their entire territory is a prerequisite for supernational governance and establishment of exclusive institutions. The EU and NAFTA, for example, are both international economic integration programs involving the entire territory of participating countries.

2.3

Types and Characteristics of SIEI

The existing SIEC programs can be divided into two types, namely B-B and B-C. B-B SIEI refers to international economic cooperation between geographically-close areas, adjacent areas or geographically-related areas (which, in most cases, are border areas) of more than two countries. Participating areas pursue cooperation with coordination, meeting and dispute consultation mechanisms established under the mandate from respective national governments. B-C SIEI is international economic cooperation between the border areas of some countries and other countries. These countries and areas are not equal in diplomatic relations, so a coordination mechanism can only be established by the national governments of the countries involved, and participating areas can only establish foreign relations under the mandate from their national governments. While many SIEC zones fall into these two types, some have proven difficult to be properly classified. This is especially true with regard to some SIEC zones involving small countries with no obvious administrative hierarchy or geographic division. The Singapore-Johor-Riau Growth Triangle, for example, is considered B-C SIEI in this study, because Singapore, a city-state with a territory of 680 square kilometers which cannot be further divided into administrative regions, participates in the program as a sovereign state. A study of the differences between SIEC and regional international economic cooperation, or between SIEI and RIEI, reveals the characteristics of SIEI. Amid the rapid development of SIEC in Asia, SIEI has demonstrated the following characteristics that distinguish it from RIEI:

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No Sovereignty Ceding or Supernational Authorities

A prominent feature of economic cooperation on the US-Mexico border, border economic cooperation zones in Europe and many growth triangles in Asia is the absence of sovereignty ceding and supernational authorities. Participating countries and regions of these programs cooperate through coordination mechanisms and cooperation committees, associations or civil organizations without supernational power. Such difference from RIEI is due to the membership of regions of one or more countries in SIEC zones, whether it is B-B or B-C. These regions pursue economic cooperation with other participants on behalf of their countries under the mandate of national governments, but do not have the power to cede sovereignty. It is thus unfeasible to establish any supernational body to sustain the cooperation mechanism or guarantee its implementation. Given that East Asian countries have sharp cultural differences and a strong sense of sovereignty, this feature of SIEC suits them. Therefore, SIEC at different levels and in various forms has become an important way of international regional economic cooperation in East Asia. Meanwhile, since SIEI does not require cession of sovereignty or a supernational authority, integration is sustained through coordination among participants. Therefore, SIEI involves higher costs of agreements than RIEI, but does not produce as many benefits. ASEAN is currently a political union rather than an RIEI organization in the strict sense. According to some researchers, the “ASEAN Way”7 facilitates political cooperation between its members and constitutes an important foundation during the primary stage of ASEAN integration, but ASEAN’s economic and security integration has made little progress under its constraint. Without a supernational authority, ASEAN cannot take concerted action or respond effectively to common internal problems. As a result, it failed to serve as a coordinator in the Asian financial crisis and the East Timor crisis. This has undermined the cohesion of 7 The ASEAN Way refers to the way of organization and decision-making that characterizes ASEAN, which centers on the principles of non-interference and consensus through informal consultations. It makes ASEAN an informal organization and its decisions unbinding. It does not seek to establish a binding supernational authority, highlights sovereign inviolability and pursues absolute equality between counties. Following the ASEAN Way, ASEAN is established as a loose and flexible regional organization.

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member countries and its international reputation, and has called into question the “ASEAN Way” of integration. ASEAN countries are calling for its reform. 2.3.2

Geographic Proximity and Geographic Relationships

In Europe and North America, where there is a high degree of RIEI, SIEC takes places in areas that border another country. As borders restrict the cross-border flow of production factors, border areas suffer from poor infrastructure and lag behind in social and economic development. To address these problems, fostering small and medium-sized enterprises (SMEs), attracting external investment, building infrastructure and managing the cross-border flow of residents in border regions are important areas of cooperation in Europe’s border economic cooperation zones. A prominent feature of these zones is the sharing of borders or the proximity of the regions involved to each other. In Asia, where the degree of RIEI is still very low, SIEC is also found between areas with geographic proximity and strong geographic relationships. SIEC participants aim to reduce the constraint of borders on the flow of factors in areas bordering other countries and enhance openness to the outside world to gain competitive advantages. Therefore, the construction of transport infrastructure such as highways and railways and the management of cross-border cargo transport are important areas of cooperation in SIEC of these areas. By contrast, RIEI does not emphasize geographic location and geographic relationships. In recent years, the world has witnessed rapid development of FTAs consisting of two or more countries, including the US-Peru FTA, the US-Singapore FTA, the US-SACU FTA, the Japan-Singapore FTA, the Japan-Mexico FTA, the China-Singapore FTA, the China-Chili FTA and so forth, but none of these areas has border-sharing or adjacent members. 2.3.3

Open Internal Market

Some researchers argue that the goal of SIEC is to “create an internal market through cooperation in areas such as industry, trade, investment

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and so on in the zone” (Lin, 1992).8 Nonetheless, the existing SIEC zones show that the so-called internal market is open to the rest of the world. This is a major difference between SIEI and RIEI. Rules of origin are imposed in both customs unions and free trade agreements. Although FTAs in Europe and North America and those consisting of other countries have different rules of origin for trade with non-members, they all have strict restrictions in the form of tariffs and quotas on goods from outside the FTA. There is a strong correlation between the availability of an open internal market and sovereignty ceding. RIEI involves sovereignty ceding, and the sovereignty conferred is shared only among participating countries. RIEI thus denies non-members access to the internal market. In SIEC, some (or all) participants are areas of one or more countries, and products from non-participating areas of the participating country or countries should not be denied access to SIEC zones. Therefore, rules of origin do not apply to SIEI. Moreover, since no sovereignty transfer is required in subregional cooperation, there are no sovereignty restrictions in opening up the internal market to countries and regions outside SIEC zones. In addition, trade liberalization is generally not the primary goal of SIEC. More accurately, trade liberalization is not the initial goal of SIEC. Instead, SIEC programs, among other things, often aim to improve and coordinate infrastructure, eliminate poverty, boost economic growth and facilitate trade and investment. They aim to achieve better allocation of resources in SIEC zones by leveraging the comparative advantages of participants. Accordingly, an important task for SIEC zones is to make full use of external resources to remedy deficiencies in the subregion, which dictates a high degree of openness. 2.3.4

Extensive Cooperation

As mentioned, the primary goal of SIEC is not trade liberalization. Instead, SIEC focuses mainly on economic cooperation, which stimulates cooperation in other areas, to boost the economic development of participating parties. Therefore, SIEC covers a wide range of areas. It pursues cooperation not only in business and trade, but also in investment,

8 Lin Huasheng, Crustal Changes in ASEAN Economy: Emergence of a Subregional Economic Circle in Anticipation of the 21st Century (Shanghai: Shanghai Fudan University Press, 1992).

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tourism, infrastructure, human resources, environmental protection, technology and so forth. Thanks to their geographic proximity and strong geographic relationships, countries (or their border areas) in a subregion have had frequent business contact with each other before the establishment of SIEC. SIEC programs generally start with trade cooperation and gradually expand to other areas. As the cooperation deepens, more and more areas are involved. RIEI, on the other hand, aims at trade liberalization. The degree of trade liberalization varies with the degree of integration. After the removal of tariffs and non-tariff barriers, the areas of cooperation in RIEI are still limited, even in areas with a single currency and a high degree of integration.

2.4 Industrial Cooperation and Industrial Clusters As the market economy continues to globalize and becomes increasingly dynamic and networked, competition is no longer a zero-sum game between competitors with conflicting interests. Competition in cooperation has gained traction as a development strategy for firms. This trend inevitably has an impact on traditional competition theories, beliefs, strategies and approaches, forcing firms to shift from confrontational competition to co-opetition. Modern firms have little option but to cooperate in competition and compete in cooperation. Co-opetition is an approach that goes beyond the previous rules of cooperation and competition and combines the advantages of both.9 Bleeke and Ernst believe that the era of win-lose competition has come to an end and that the traditional way of competition cannot guarantee winners the lowest cost, the best goods and services, and the maximum profit as they can get in a Darwinian game. Prolonged competition between close competitors only drains them of financial resources and makes it difficult for them to respond to a new round of competition and innovation.10

9 Barry J. Nalebuff, and Adam M. Brandenburger, Co-opetition, trans. Wang Yukun et al. (Hefei: Anhui Renmin Press, 2000). 10 Joel Bleeke, and David Ernst, Collaborating to Compete: Using Strategic Alliances and Acquisitions in the Global Marketplace, trans. Lin Yan et al. (Beijing: Encyclopedia of China Publishing House, 2000).

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With the shift away from confrontational competition to co-opetition, coalitions and clusters have become the newest form of co-opetition in various fields. Industrial clusters characterized by regional agglomeration, specialization, non-specific agreements and linkages, while coalitions are characterized by common market development efforts, shared resources, specific agreements and contracts. Since geographic proximity and a given geographic scale are characteristic of subregions, cross-border investment by related industries or firms is more likely to occur after SIEI has lowered the costs of factor movements, making it easier for industry clusters to emerge. On the other hand, economic integration of countries that are not geographically close to each other (such as the China-Chili FTA) usually pursues industrial cooperation in the form of coalitions, because distance-incurred transport costs inhibit the regional agglomeration of related industries. Regional industrial agglomeration is caused by the interaction between declining iceberg transport cost and economies of scale. Assuming increasing returns to scale and imperfect competition, spatial economics shows through dynamic simulations that the interaction between external economies of scale and transport costs is the key factor in the formation of regional industrial agglomeration and the core-periphery structure. Transport costs affect the dispersion of industries, while accidental technological progress in a certain region creates a self-reinforcing advantage in manufacturing, reinforcing manufacturing agglomeration and raising wages in the region. If this process continues, the regional wage gap will keep growing to the extent of being unsustainable. It is then more profitable for manufacturing firms to relocate to a second region with lower wages. This starts a new round of self-reinforcing manufacturing advantages and wage growth in the second region and eventually leads to manufacturing growth in a third region. A strong correlation exists between regional industrial agglomeration and transport costs. When transport costs are very high, it is difficult to form regional industrial agglomeration due to weak forward and backward industrial linkages (centripetal forces) between countries. When transport costs are very low, it is also difficult to form regional industrial agglomeration, because the centrifugal force, namely the increase in wage costs arising from minor labor productivity improvement, is stronger than the centripetal force, i.e., industrial linkages. Only when transport costs are at the intermediate level, it is easier to sustain regional industrial agglomeration, because

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industries in core countries have the strongest forward and backward linkages, i.e., centripetal forces. Krugman’s model of industrial agglomeration shows that the correlation between IIT and inter-industry trade has a significant impact on regional industrial agglomeration in regional integration. The agglomeration cannot sustain when inter-industry linkages are stronger than intra-industry linkages, because companies can obtain the most important locational benefits from its linkages with companies in other industries, and countries tend to develop a diverse and mixed economy. If intra-industry linkages are stronger than inter-industry linkages, regional industrial agglomeration can sustain at a low enough level of trade costs (iceberg transport costs). In that case, the possibility of regional agglomeration depends on trade costs. “At high trade costs, both industries operate in both economies, but at lower trade costs, concentration becomes first possible, then necessary.”11 Krugman thus concluded that Europe’s borders caused higher de facto trade costs, which blocked continental-scale industrial clustering. He claimed that the growing integration of the European market would break the symmetry of Europe’s multi-industry geography, leading to American-style monocentricity.

2.5 Regional Division of Labor and Specialization Krugman et al. developed a spatial economic model with intermediates to demonstrate the process of international specialization. They have shown that industrial linkages lead to a spatial process of specialization and concentration of manufacturing or specific industries in a limited number of countries. This model can also explain the conditions for industrial agglomeration in economic integration of countries. In this model, there is no labor mobility between countries. “National boundaries are associated with barriers to labor mobility, and we take this as the defining characteristic of ‘nations’.”12 Within a country, however, labor can move freely between agriculture and manufacturing. The manufacturing sector is considered a single unit that produces a variety of goods. Manufacturing uses itself as an input, and the manufactured goods required by 11 Masahisa Fujita, Paul Krugman, and Anthony J. Venables, The Spatial Economy: Cities, Regions and International Trade (Massachusetts: The MIT Press, 1999). 12 Masahisa Fujita, Paul Krugman, and Anthony J. Venables, The Spatial Economy: Cities, Regions and International Trade (Massachusetts: The MIT Press, 1999).

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consumers are also inputs into the goods in the market. Therefore, the same industry is both the downstream that produces output for final consumption and the upstream that produces intermediate inputs. The production is a Cobb–Douglas function of the inputs of labor and intermediates. The share of intermediates in inputs is a, and that of labor is 1 − a. In such an environment, the sustain point of the core-periphery structure and the break point of the symmetric equilibrium are derived. The former, which is also a critical point for spatial dispersion of industries, can explain the critical point at which the spatial agglomeration of industries becomes unsustainable. The latter, which is also the critical point for the spatial agglomeration of industries, explains the critical point at which the industrial division of labor and the pattern of specialization become unstable. 2.5.1

Development Stage, Spatial Agglomeration and Trade Costs

Assume that manufacturing concentrates in country 1 and agriculture concentrates in country 2. The equation for wage in country 2’s manufacturing is thus w21−a = T −a

|

| 1 + a 1−σ 1 − a σ −1 1/ σ T T + 2 2

(2.1)

where w is the manufacturing wage, T is trade costs, a is the share of intermediates, and σ is the substitution elasticity of varieties of manufactured goods. σ is correlated with consumers’ preference for variety: ρ = σ σ−1 As long as the result of Formula 2.1 is less than 1 (the agricultural wage), there is no movement of labor from agriculture to manufacturing in country 2, and concentration of manufacturing in country 1 is an equilibrium, thus maintaining the core-periphery pattern between the two countries. Formula 2.1 represents the sustain condition for international specialization. To identify the correlation between the stage and level of economic development and industrial agglomeration and trade costs in integration, this study examines the influence of different shares of intermediate inputs on industrial agglomeration. Numerical simulations show that the trade cost for sustaining the core-periphery structure increases and decreases

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with the share of intermediates in inputs. When a = 0.6, the coreperiphery structure can be sustained at trade costs (T ) less than 5. When a = 0.5, the core-periphery structure can be sustained at trade costs (T ) less than 2.52. When a = 0.4, the core-periphery structure can be sustained at trade costs (T ) less than 1.8. When a = 0.7, the core-periphery structure can be sustained at trade costs (T ) less than 44.45. The increase in the share of intermediate inputs is a manifestation of the industrialization process. According to Chenery, the increase in the share of intermediate inputs means that a greater proportion of output is sold to other producers rather than to final users. He broke down this phenomenon to two parts: “first, a shift in output mix toward manufacturing and other sectors that use more intermediate inputs; second, technological changes within a sector that lead to a greater user of intermediate inputs. The second aspect is illustrated by the increased use of manufactured inputs in agriculture and transportation that accompanies increasing mechanization.”13 As shown in Fig. 2.2, the value of trade costs for sustaining the coreperiphery structure increases and decreases with the share of intermediate inputs. The results of dynamic simulations demonstrate that in a region, countries at a higher stage of development and level of industrialization as shown in their industrial structure have a great share of intermediate inputs (meaning a large share of industries with strong industrial linkages in the economy). They also have a high degree of specialization and obvious spatial agglomeration and regional division of labor in manufacturing (or, in industries with strong industrial linkages), while the influence of trade costs is weak. On the other hand, countries at a low stage of development and level of industrialization as shown in their industrial structure have a low share of intermediate inputs (meaning a small share of industries with strong industrial linkages in the economy). In these countries, lower trade costs are required for industrial agglomeration to take place. Therefore, to promote industrial agglomeration in less developed regions, measures should be taken to improve the terms of trade, promote integration, build and improve infrastructure in border areas, and improve customs facilitation. Considering the above development path, since the economies in the GMS and the Central Asian subregion are not well developed and do 13 Hollis Chenery, Sherman Robinson, and Moshe Syrquin, Industrialization and Growth: A Comparative Study (Washington, DC: World Bank Group, 1986).

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Fig. 2.2 Sustain points of core-periphery structure with different shares of intermediate inputs

not have a large share of industries with strong industrial linkages, transport improvements and lower trade costs are important conditions for industrial agglomeration. 2.5.2

Development Stage, Specialization and Trade Costs

Assuming that agriculture has labor as the only factor input and constant returns to scale, simplify the dynamic model by finding the total derivative near the symmetric equilibrium point and obtain the following equation of break point of symmetric equilibrium of international specialization: | | −Z a(1 + ρ) − Z (a 2 + ρ) dw = dλ μ/ 1−ρ

(2.2)

λ is the share of labor in manufacturing in a country. ρ is consumers’ preference for variety, which is correlated with the substitution elasticity ρ . μ denotes the share of consumers’ of manufactured goods σ : σ = 1−ρ expenditure on manufactures, and 1 − μ is the share of consumers’ expenditure on agricultural goods. a is the share of intermediates. /=

1 (1 − ρ)2

{

Z 2 [ρ(ρ − a) − a(1 − ρ)(a + μ(1 − a))]

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+Z (1 − ρ)[a + ρ(a + μ(1 − a))] − (1 − a)ρ} Z≡

1 − T 1−σ 1 + T 1−σ

(2.3) (2.4)

In a symmetric equilibrium, agriculture and manufacturing are evenly divided between countries and all countries have manufacturing. The influence of the share of intermediate inputs on industrial agglomeration is examined using the equation of the break points of symmetric equilibrium. Numerical simulations show that a high share of intermediate inputs means a high trade cost for breaking the symmetric equilibrium, and vice versa. When a = 0.75, the symmetric equilibrium is broken at a trade cost around 3.84. When a = 0.6, it is broken at a trade cost around 2.31. When a = 0.5, it is broken at a trade cost around 1.9. When a = 0.4, it is broken at a trade cost around 1.62. As shown in Fig. 2.3, the value of trade cost for breaking the symmetric equilibrium increases and decreases with the share of intermediate inputs. The results of dynamic simulations prove that countries at a higher stage of development and level of industrialization as shown in their industrial structure have a great share of intermediate inputs (meaning a large share of industries with strong industrial linkages in the economy). They are subject to a minor influence of trade costs in breaking the symmetric distribution of manufacturing in countries. Even with strong border effects and high trade costs, specialization and industrial agglomeration tend to emerge in these countries. Countries at a low stage of development and level of industrialization as shown in their industrial structure have a low share of intermediate inputs (meaning a small share of industries with strong industrial linkages in the economy). To break the symmetric distribution of industries between countries and encourage industrial agglomeration in these countries, trade costs need to be significantly reduced (to abolish border barriers). Therefore, industrial cooperation in better developed regions does not require a high level of integration, while less developed regions at a low level of industrialization needs a high level of integration in industrial cooperation. In view of the above development path, since the economies in the GMS and the Central Asia subregion are not well developed and do not have a large share of industries with strong industrial linkages, transport

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Fig. 2.3 Break points of symmetric equilibrium with different shares of intermediate inputs

improvements, improved integration and lower trade costs are important conditions for enhanced industrial cooperation and emergence of industrial agglomeration.

2.6 Economic Development and Industrial Dispersion Krugman’s model of industrial dispersion draws on the model of international specialization and adds a growth process as the driving force of economic changes. It considers the growth process as exogenous and assumes that technological progress leads to a steady increase in all primary factors of production. The efficiency of primary factors, L, is measured in efficiency units. Lλr and L(1 − λr ) are respectively the number of efficiency units of labor used in country r’s manufacturing and agriculture, and wr is the wage per efficiency unit of labor. In this model, consumers are assumed to have a minimal subsistence level of food consumption. If a consumer’s income is Y , all of the consumer’s income below some is spent on agricultural products. Of the income above Y , the model assumes that is spent on manufactures, and is 1 − μ spent on agricultural goods. As L increases, so does household income and therefore so does the share of expenditure on manufactures.

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An analysis that assumes the concentration of manufacturing in some countries can identify the point at which manufacturing starts to disperse from the existing industrial center to other countries. In spatial economic models, this point can be found by identifying the sustain point of the core-periphery structure. In a two-country model, suppose that manufacturing concentrates in country 1, so λ1 > 0 and λ2 = 0. The sustain equation is thus derived: ) |1/ σ (1−α) |( E1 E2 A' (1) ≥ A' (1 − λ1 ) T 1−σ + T σ −1 T −ασ E1 + E2 E1 + E2 (2.5) Agriculture in Formula 2.3 has diminishing returns. The agricultural production function takes the form: ( ) K 1 − λ1 n A(1 − λ1 ) = (2.6) η K η is the share of labor in agriculture, and K is a constant. is the wage for each efficiency unit of labor in agriculture. T is trade cost, a is the share of intermediates, σ is the substitution elasticity of varieties of manufactures, and E is the equation for consumption expenditure. Numerical simulations show that as L increases, agglomeration of manufacturing in country 1 eventually becomes unsustainable. When Y > 0, improved technical efficiency raises both wages and manufacturing employment in country 1, and income growth increases the demand for manufactures relative to agricultural goods. This has two effects on the sustain condition for manufacturing agglomeration in country 1: first, wage growth in country 1 makes country 2 more attractive to manufacturing; second, country 1 can produce more manufactures and pay higher wages, resulting in a rise in country 1’s share in manufacturing expenditure and stronger backward linkages (terms in the square brackets of Formula 2.5), thus reinforcing the existing agglomeration. The net effect of sustain condition depends on the tension between relative wages and backward linkages. When relative wages dominate, economic development passes through the SS curve and breaks the core-periphery structure to spread to country 2. When backward linkages dominate, the economy remains below the SS curve and industrial agglomeration remains in country 1. Whether the core-periphery structure is sustainable also depends on parameter values.

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The SS curve in Fig. 2.4 contains two vertical sections, which means that there is always a range of T below SS for technical efficiency. Figure 2.5 shows the decrease in μ from 0.9 to 0.086. At a high level of manufacture share in consumption expenditure μ, a small increase in technical efficiency makes it difficult to sustain the core-periphery structure. When μ it is very low, it requires considerable improvement in technical efficiency to sustain the core-periphery structure (while the range of T becomes very small). The share of consumption expenditure on manufactures, μ, reflects the level and amount of consumption and income of residents, which indirectly reflects the economic development level of a country. The coreperiphery sustain curves in Fig. 2.5 at different levels of μ show that economically developed regions tend to have dispersion of manufacturing, because their large share of consumption expenditure on manufactures and a great demand for manufactures enable all countries in these regions to develop manufacturing, and any small improvement in technical efficiency may cause manufacturing agglomeration in a country to be unsustainable. On the other hand, less developed regions have low income levels, a small share of manufactures in consumption expenditure and a low demand for manufactures. When manufacturing is concentrated in a country, greater improvement in technical efficiency

Fig. 2.4 Sustain points of technological changes and industrial dispersion

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Fig. 2.5 Impact of technological changes on industrial dispersion at different consumption levels

is required in these regions to overcome the core-periphery structure so that manufacturing can spread to other countries. For a region with a certain level of technical efficiency, the larger the share of manufactured goods in consumption, the better developed the economy, the higher the market demand for such goods, and the greater its attractiveness to investors. This is also true for SIEC zones, where it is easier for better developed countries to have manufacturing cooperation than for less developed countries. In both the GMS and the Central Asian subregion, countries are largely less developed, making it difficult for the industries that have agglomerated in one country due to historical factors to spread to other countries. The dispersion of industries to other countries is only possible when technological progress reaches a certain level.

2.7

Summary

After clarifying the concept of integration, to define the scope of research, this chapter classifies integration into economic integration, political integration and other integration. Economic integration is then divided into regional economic integration, industrial integration and other economic integration. Regional economic integration is divided into international

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regional economic integration and domestic regional economic integration, and the former is further divided into RIEI and SIEI. Based on an analysis of RIEI and SIEI, this study examines the classification and characteristics of SIEI and divides SIEI into the B-C type between regions of one or more countries and one or more other countries, and the B-B type involving regions of one or more countries. The characteristics of SIEI are summarized as no sovereignty ceding and supernational authorities, geographic proximity and relationships, open internal market, and extensive cooperation. Industrial clustering has become a new way of industrial competition and cooperation in international economic relationships involving geographic relationship. Prominent features of cooperation in the form of clustering include regional agglomeration, specialization, non-specific agreements and linkages. In spatial economics, the centripetal forces for the movement of factors are also forces for industrial agglomeration, as shown in regional industrial agglomeration and industrial cooperation; the centrifugal forces are also forces for industrial dispersion, as shown in regional dispersion of industries. A high level of development and industrialization means a large share of intermediate inputs (namely a large share of industries with strong industrial linkages in the economy), a high degree of specialization, apparent spatial agglomeration of manufacturing (or industries with strong industrial linkages) and regional division of labor, and minor influence of trade costs. Better terms of trade and increased integration facilitate industrial agglomeration in better developed countries. At any given level of technical efficiency, the larger the share of manufactured goods in consumption, the more developed the economy is, and the higher the market demand for such goods the easier cooperation would be in manufacturing cooperation. And the less developed the economy, the harder cooperation in manufacturing would be.

CHAPTER 3

B-C SIEI

The existing B-C SIEI programs are mainly cross-national economic cooperation between the border area of one country with a large territory and its neighboring countries with comparatively smaller territories. Assuming a tripartite economy consisting of two domestic regions and partner countries (considered collectively as a region), this chapter examines the regional industrial agglomeration in SIEI. Specifically, the following questions are addressed: Where do industries agglomerate? Why do they agglomerate? How do they agglomerate?

3.1

Empirical Evidence

The main B-C SIEC zones currently include the following: 3.1.1

GMS

Advocated by ADB, the Greater Mekong Subregion Economic Cooperation Program (GMS) was launched in 1992 by six countries sharing the Mekong River (known as the Lancang River in China), namely China, Myanmar, Laos, Thailand, Cambodia and Vietnam. Members include Yunnan province and Guangxi Zhuang Autonomous Region of China, Myanmar, Laos, Thailand, Cambodia and Vietnam. As the initiator, coordinator and the major funder of the GMS, ADB provides technical and financial support for GMS meetings and project implementation. The © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_3

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GMS has a coordination mechanism, but has not established a supernational organization. Its highest decision-making body is the Summit of Leaders hosted by GMS member countries in alphabetical order every three years. The GMS Ministerial Conference makes day-to-day decisions, with nine forums and working groups respectively in charge of transport, telecommunications, energy, environment, human resource development, tourism, agriculture, trade and investment. The GMS program aims to enhance members’ economic connectivity, eliminate poverty and promote economic and social development in the subregion. The program is based on consultation among member countries and all decisions must be unanimous. Due to the absence of a supernational authority, the enforcement is not so good. 3.1.2

Southern ASEAN Growth Triangle

Established in 1990, the growth triangle initially comprised Singapore, Johor of Malaysia and Riau Islands of Indonesia, and was also known as the Singapore-Johor-Riau Growth Triangle. Malacca, Negeri Sembilan and Pahang of South Malaysia and West Sumatra, South Sumatra, Jambi, Bengkulu and West Kalimantan of Indonesia joined the growth triangle in 1996 and 1997. Also known as the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT), the Southern ASEAN Growth Triangle is the first subregional economic cooperation zone established among ASEAN countries. Goh Chok Tong, then deputy prime minister of Singapore, first proposed the establishment of the Singapore-Johor-Batam (an island of Riau in Indonesia) Growth Triangle in December 1989, which was positively received by then Indonesian President Suharto and then Malaysian Prime Minister Mahathir Mohamad in 1990, and an international economic cooperation zone was thus established. The Southern ASEAN Growth Triangle was launched after the heads of state of the participating countries reached a consensus, so a firm and efficient cooperation mechanism was established among the governments of these countries. In its early days, however, the growth triangle was based on Singapore’s bilateral cooperation mechanisms respectively with Malaysia and Indonesia, rather than a multilateral cooperation mechanism among these three countries. A multilateral cooperation mechanism was not established until 1994 when the three countries signed the Memorandum of Understanding on the IMS-GT .

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Singapore’s cooperation committees with Malaysia and Indonesia consist of ministerial officials. Bilateral civil organizations and public services could also coordinate between Singapore and Malaysia, but a bilateral minister-level committee was established for maximum benefits of their consultation. As for the cooperation between Singapore and Indonesia, since the joint development of the Riau Islands was a new attempt for which fundamental agreements and improved cooperation between both governments are required, a minister-level bilateral committee was also set up. Malaysia and Indonesia also set up a development adjustment authority in the province of Riau Islands and hold two ministerial conferences every year, at which ministers consult on policies. The consultation results are implemented by relevant authorities of each country. To give full play to Singapore’s strengths in development and management of industrial zones, Malaysia and Indonesia acknowledge Singapore’s dominance in the cooperation program, so that Singapore can advance the development in a proper and efficient way. Though Singapore plays a dominant role in the growth triangle, no sovereignty ceding is still a pronounced characteristic of this SIEC program. Combining Singapore’s financial strength and advanced technologies with an abundance of natural resources and labor in Johor, Malaysia, and Riau Islands, Indonesia, the Southern ASEAN Growth Triangle has developed rapidly. It is a successful example of subregional economic cooperation among ASEAN countries. Nonetheless, most of the policies introduced by Singapore, Indonesia and Malaysia for development of the growth triangle are bilateral, rather than multilateral, making the partnership not so effective as other international organizations. The cooperating parties propose and adopt different preferential policies on foreign investment for their own interests. Such policies mainly deal with investment, entry procedures and transport, but rarely involve cooperation in areas such as trade and finance. The existing bilateral cooperation agreements mainly focus on resource exploitation and investment cooperation instead of economic integration or trade liberalization. This reveals serious limitations of the growth triangle in economic cooperation and demonstrates the characteristics of SIEI that distinguish it from RIEI.

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3.1.3

East ASEAN Growth Area (BIMP-EAGA)

The proposal for BIMP-EAGA was put forward by the Philippines and welcomed by other countries in the area. Established in Davao City, Philippines, in March 1994, the growth area has enhanced the cooperation between relevant areas of the participating countries in aviation, shipping, telecommunications, tourism and so forth. It comprises Sabah, Sarawak and Labuan in eastern Malaysia, the provinces of Kalimantan, Sulawesi, West Papua and Maluku in eastern Indonesia, the island of Mindanao and the province of Palawan in southern Philippines, and Brunei, covering an area of 1.56 million square kilometers and a population of around 55 million. In addition to regular Senior Officials’ Meetings and Ministerial Meetings, BIMP-EAGA sets up working groups for all areas of cooperation. It has also established the Business Council (BEBC), the general secretariat of which is currently in Brunei. The BEBC encourages private sector participation in economic cooperation in the growth area, making it an economic growth engine. The BEBC also attends the Senior Officials’ Meeting on behalf of the private sector. Its chair consults with government departments of member countries and seeks support from local and central governments in order to create a favorable business and trade environment. 3.1.4

South Asia Growth Quadrangle (SAGQ)

The South Asian Association for Regional Cooperation encourages subregional cooperation between its member countries. Accordingly, the SAGQ, a subregional cooperation organization, was established by India, Bangladesh, Nepal and Bhutan in April 1997. It aims to strengthen economic cooperation between member countries in projects in areas such as extraction and exploitation of natural resources, transport, communications and energy to promote economic development in the region. All of the above B-C SIEC programs involve no sovereignty ceding and supernational authorities, which is characteristic of SIEI. Cooperation is mainly promoted through consultation, coordination and efforts of non-governmental organizations. Working mechanisms include decisionmaking through leaders’ summits, coordination through ministerial-level meetings, and implementation and enforcement through working groups. Such regional cooperation takes place mainly because of geoeconomic and

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geopolitical factors, so geographic proximity is a marked characteristic. With markets open to non-members, these cooperation programs do not have any binding effect on its members and do not reject bilateral cooperation between members. Another pronounced characteristic of these cooperation zones is a wide range of areas of cooperation. Their objective is not to create an FTA or to reach a higher level of integration, but to promote economic and social development of the cooperation zones.

3.2

Theoretical Model

In view of the common characteristics of the above B-C SIEC programs, this chapter examines an economy comprising country a and its neighboring country/countries R (R = 1, 2, … N . Hereinafter partner country R). Suppose that region B of country a participates in SIEC with country R, so the economy spatially consists of three regions, namely country a’s region B (border area) that participates in the cooperation, country a’s region C (inland area) that does not participate in the cooperation and partner country R. The economy is assumed to consist of two sectors. One is monopolistically competitive manufacturing with increasing returns to scale, producing differentiated products according to the linear cost function. The other is agriculture in perfect competition, which is used as the numeraire. Two factors of production are used in this economy. Labor L is the only factor input in agriculture, and manufacturing uses human capital K as the fixed cost and labor as the variable cost,1 as shown in input into R&D and service for headquarters economy. All goods are traded in all regions concerned. Country R’s economic composition and size are assumed to be completely exogenous. Its economy contains L R units of labor and K R units of human capital, both immobile between Rs and between R and a. In country a’s economy, the regional supply of labor is fixed: regions participating and not participating in subregional cooperation respectively own L Ba and L Ca units of labor, so L a = L Ca + L Ba . Human capital can move between regions B and C in country a. Country a’s domestic

1 Labor employed in agriculture is considered agricultural labor, and those employed in manufacturing are considered surplus rural labor. Human capital employed in manufacturing is considered skilled talents and better ones.

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economy provides K units of human capital, which are endogenously distributed between regions B and C, so K a = K Ca + K Ba . Human capital and labor show the following characteristic preferences as consumers: U = α ln C X + C A

Cx =

| n E

σ −1 σ

|

(3.1)

σ σ −1

xi

(3.2)

i=1

x i is the consumption amount of variety i of manufacture, σ is the elasticity of substitution between any two varieties of goods, and n is the number of variety. Human capital moves between regions B and C based on utility differentials. The regional shares of human capital are K Ca /K a = λ and K Ba /K a = 1 − λ. The product markets of these three regions are separated by trade costs. Varieties of manufactures produced in these regions are sold by manufacturers at ex-factory prices, and all transaction costs are borne by consumers. T stands for trade costs, which are iceberg costs. Of each unit of manufactures priced at p, only 1/T arrives at the destination. Therefore, to ensure the arrival of one unit of manufactures, T units should be transported, and the price of arriving manufactures is pT . The cross-border exchange of manufactures submits to such trade cost. T CaBa is the interregional iceberg transport costs in country a, which applies to interregional trade and investment within the country. T CaR is the costs (barriers) of trade and investment between country a’s nonparticipating region C and country R. T BaR is the costs (barriers) of trade and investment between country a’s participating region B and country R. The latter includes not only cross-border trade costs, tariff and nontariff barriers, exchange rates, languages, home bias and so forth, but also transport costs. It thus reflects the degree of SIEI. In short-run equilibrium, the income equation is: Y = PC X + C A

(3.3)

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The price index equation is: ( Pq =

)

⎛

σ ⎝ σ −1

E

⎞

1 1−σ

1−σ ⎠ K s Tsq

(3.4)

s=Ca,Ba,R

The wage equation is: ⎛ Wq =

α⎜ ⎝ σ

E

s=Ca,Ba,R

⎞ 1−σ (L s + K s )Tsq ⎟ E 1−σ ⎠ K s Tsq

(3.5)

s=Ca,Ba,R

In the long run, human capital moves between two domestic regions according to indirect utility determined by price indexes of manufactures and consumers’ income level. Human capital, or consumers, tends to move to the region with higher indirect utility, which causes changes in firms’ location choice. Such movement of human capital does not stop as long as utility differentials exist between the two domestic regions. Only when consumer utility in these two regions becomes equal, will human capital stop moving. Then, the spatial distribution of human capital becomes stable, so do manufacturers’ location choice. A long-run equilibrium is thus achieved. The indirect utility function with maximum utility is: Vs (P, Y ) = α(ln α − 1) + Y − α ln(Ps ) where P s is the price index, and Y is consumers’ income level. The utility differential between the two domestic regions is: ( ) ( ) Ps + Wq − Ws Vq − Vs = α ln Pq

(3.6)

(3.7)

In long-run equilibrium, Vq − Vs = 0. The first item on the righthand side of Formula 3.7 reflects the supply, which shows that the region with a greater share of human capital has more manufacturers, thus a greater manufacturing share and a lower price index. The second item on the right-hand side of Formula 3.7 reflects the demand. It shows that the rise in human capital share of a region means increased purchasing power and thus a larger market, which raises firms’ profits expressed as and therefore attracts more human capital. As a relatively stable resistance

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in the model, trade costs tend to cause production dispersion in both regions. When trade costs increase, firms closer to immobile labor (who are also consumers) are more profitable. Therefore (Vq − Vs ) in Formula 3.7 depends only on the human capital share of the two regions. The changes in utility differentials and λ, the share of mobile factor of production (i.e., human capital) of country a’s region B, demonstrate the effects of SIEI on industrial agglomeration in the region participating in cooperation. (See Appendix I for model construction.) Suppose m is the coefficient of ratio of agriculture in country a’s region C to manufacturing in country a, and n is the coefficient of ratio of agriculture in country a’s region B to manufacturing in country a, so the relationship between the relative levels of development of country a’s agriculture and manufacturing is expressed as L Ca = m(K Ca + K Ba ) and L Ba = n(K Ca + K Ba ). Let o be the coefficient of ratio of agriculture of country R to manufacturing of country a, so the relationship between the relative levels of development of country R’s agriculture and country a’s manufacturing is expressed as L R = o(K Ca + K Ba ). Let q be the coefficient of ratio of country R’s manufacturing to country a’s manufacturing, so the relationship between the relative levels of development of manufacturing in country R and country a is expressed as K R = q(K Ca + K Ba ). Therefore, L a = (m + n)K a , L a = (m+n) o L R , K R = q Ka . Conduct standardization and let K Ba = 1, so regional industrial agglomeration is demonstrated as relative changes in human capital in country a’s region C. As λ = K Ca /(K Ca + K Ba ), K Ca = λ/(1 − λ). The analytical expression of utility differentials is derived based on general trade costs: ) ) ( ( ⎡ 1−σ 1−σ 1−σ − T + q) T + λ) 1 − T (o (m Ca R Ba R Ca Ba α + VCa − VBa = ⎣ 1−σ 1−σ 1−σ 1−σ σ q + λTCa R + (1 − λ)TCa R qTCa R + λ + (1 − λ)TCa Ba ) ⎤ ( )⎤ ( ⎡ 1−σ 1−σ 1−σ qTBa R + 1 + λ TCa Ba − 1 (1 + n + λ) TCa Ba − 1 ⎦ + α ln⎣ )⎦ ( + 1−σ 1−σ 1−σ 1−σ 1−σ qTBa R + λTCa Ba + (1 − λ) qTCa + 1 + λ 1 − T R Ca Ba (3.8) Examine the special case where primary resource endowments are evenly distributed between partner country R and country a, and between region C and region B of country a. Under the circumstances,

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m = n = o = q = 1, and the long-run equilibrium of manufacturing in both regions of country a is VCa − VBa = 0. It is easily verified that there is always an equilibrium in the distribution of manufacturing between the two regions of country a. However, this equilibrium is not necessarily stable, because the model contains two agglomeration forces. There is a supply linkage: the region with a higher human capital share has a larger manufacturing share and therefore lower price indexes. The supply linkage is captured in the first term of Formula 3.8. There is also a demand linkage. Increase in the human capital share of a region implies a larger market, which raises the profits of firms and therefore attracts more human capital. The demand linkage is captured in the second term of Formula 3.8. Trade costs act as a stable resistance in this model, tending to disperse production. Higher transport costs are more beneficial to firms that are closer to consumers.

3.3

Border Effects and Industrial Agglomeration Conditions

Borders are an important influencing factor in spatial economics. National borders limit not only territorial sovereignty, but also cross-border movement of labor and human capital. Therefore, Krugman believed that “national boundaries are associated with barriers to labor mobility, and we take this as the defining characteristic of ‘nations’.” 3.3.1

Border Effects

National borders have significant impacts on cultural and economic differences and spatial linkages between both sides of the border. Functionwise, national borders have two main types of effects. The first type is to discourage spatial interaction, which may be referred to as barrier effects. International borders demarcate the spatial power of administrative structures and hinder the free flow of objects, information and people across the border in order to protect the interests within borders. National borders usually represent a compromise between interest groups in relation to spatial distribution of power reached through competition and confrontation. Initially, they are necessarily a result of huge economic, historical, cultural and linguistic differences across the border. Many ethnic communities living across national borders have the same origin. After national borders are determined, as spatial barriers, they

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cause and reinforce discontinuity and heterogeneity between both sides of the border. The extension of time series witnesses profound differences between both sides in spatial understanding, administrative systems, economy, history, culture, language and so forth. The second type of border effects is the intermediary effects. Borders are lines of contact, which serve as a spatial intermediary for terrestrial communication between both sides of the border. The two types of border effects constitute a dialectical unity of opposites that are interdependent and mutually convertible (Yeung and Hu 1999). Under the influence of economic globalization, regional groupings and international regional economic integration, borders’ barrier effects are weakening, while the intermediary effects are strengthening. Closed borders are being replaced by semiclosed and consequently open ones (Herzog 1991a, 1991b; Arreola and Curtis 1993; R. Cappellin 1993). Meanwhile, border areas formed as a result of man-made national borders are inherently open and complementary to neighboring countries’ border areas in resources as contact areas with these countries. Their location enables them to use both domestic and foreign markets and resources. Border ports constitute the core space for a straightforward and comprehensive display of border effects. Each port is closely connected with a hinterland, the economy of which is subject to the port’s impact, making the hinterland a peripheral space demonstrating border effects. Border ports are hubs of material, capital and information flow for hinterlands. Their impact on hinterlands depends on the energy level of ports, distance in between, traffic accessibility and complementarity of advantages. The higher the energy level of a port, the greater the area of its hinterland. The appeal of ports for hinterlands shows a clear distance decay, declining as the distance in between increases. However, the dispersion space of border effects also shows the axial effect of traffic arteries thanks to the latter’s reinforcing role. According to the intensity of interaction between ports and hinterlands, hinterlands are divided into three levels, namely core hinterlands, close hinterlands and peripheral hinterlands, which reflects border effects’ hierarchical spatial dispersion. The most direct manifestation of border effects is bilateral economic relations. Some researchers believe that subregional economic cooperation is a border effect per se, which includes preferential trade arrangements, division of labor based on intergovernmental agreements, project development through multilateral cooperation, financial transfer organized by development banks and so forth (Tang et al. 2002). Corridors,

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ports and development zones are three major forms of subregional economic cooperation (Tang and Mu 1993). Development zones are the most suitable for taking full advantage of border effects. These zones may outperform countries on both sides of the border and attract third-party trade and investment. Based on existing literature on this subject, border effects can be divided into barrier effects and opening-up effects. The first includes barrier effects caused by physical geographical barriers, institutional barriers and citizenship. The second includes the intermediary effect, market expansion, resource agglomeration, cross-border capital flow, cross-border technology transfer, cross-border labor mobility2 and dualcurrency in border areas. SIEI is a process in which border effects shift from barrier effects to opening-up effects. Therefore, in the model of B-C SIEI, T BaR includes not only factors such as cross-border trade costs, tariff and non-tariff barriers, exchange rates, languages, home bias and so forth, but also transport costs. It is thus a manifestation of the degree of SIEI. 3.3.2

Industrial Agglomeration Conditions

The effects of SIEI refer to the reduction of border barriers to factor movements and the subsequent distribution, and changes thereof, of industrial activities in SIEC zones. Such changes are enabled by two forces. First, access to the market of partner country R at a lower cost reduces the interest of firms in country a in establishing factories in region C, which is near domestic consumers; on the other hand, increasing foreign demand leads to lower domestic demand3 and stronger motives of firms to locate in areas closer to country R, hence increased agglomeration force for manufacturing in areas participating in subregional cooperation. Second, SIEC has an impact on domestic competition. As integration is increased and trade costs are reduced, industrial competition from the partner country prompts firms to stay away from the participating region where there are foreign competitors. In other words, SIEI also causes dispersion forces. The intensity of both forces depends on 2 In this study, the spatial economic model assumes labor immobility across the border, but there is always labor movement of various scales in border areas. 3 In Formulas A.15 and A.16 in Appendix I, there is an increase in the foreign demand (shown in the form of income) in aggregate demand.

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border effects. Generally, stronger barrier effects result in weak agglomeration forces and strong dispersion forces in the participating region, and stronger opening-up effects cause strong agglomeration forces and weak dispersion forces in the participating region. In the model of B-C SIEI, if the core-periphery structure of country a’s regions B and C is an equilibrium, the sustain conditions for such structure can be used for analyzing the improvement in degree of SIEI: the extent to which reduced cross-border trade barriers make the coreperiphery structure unsustainable and cause industrial agglomeration in region B participating in subregional cooperation. The model derives the analytical expression Formula 3.8 with the quasi-linear utility function, which is still rather complicated. It can be simplified to identifying the sustain conditions for the core-periphery structure by finding the total derivative near the equilibrium point. When the core-periphery structure of country a’s regions B and C is an equilibrium, λCa = 1, λ Ba = 0, in which case it is assumed that WCa = 1. Examine the migration of a small proportion of human capital from country a’s region C to its region B near the equilibrium point, and compare their reward in region B with that of the remaining human capital in region C. Analysis is also conducted to see whether the decreasing T BaR value, which reflects the increasing degree of SIEI due to removal of border barriers, leads to increasing reward to human capital W Ba in region B. If the result is affirmative, the core-periphery structure will be unsustainable, and industries will disperse from the nonparticipating region to the participating region, setting off the industrial agglomeration in the latter. For convenience, human capital, K, is assumed to be the only factor of production. In long-run equilibrium, the wage in country a’s region B is: | 1−σ 1−σ K Ca TCa K R TBa α R Ba + W Ba = 1−σ 1−σ 1−σ 1−σ σ K R + K Ca TCa + K T K T + K + K Ba TCa Ba R Ca R Ba R Ca R Ba | K Ba + (3.9) 1−σ 1−σ K R TBa R + K Ca TCa Ba + K Ba

3

When K R = K Ca , Formula 3.9 is simplified as: | | 1−σ 1−σ + K T α K Ca TBa Ca R Ca Ba W Ba = 1−σ σ K Ca + K Ca TCa R

B-C SIEI

63

(3.10)

When region C needs to establish economic linkages with country R through region B, TCa R = TBa R × TCa Ba . So, | | 1−σ 1−σ α TBa R + TCa Ba W Ba = (3.11) 1−σ 1−σ σ 1 + TBa R TCa Ba Find the derivative and: |( ) ( ) | 1−σ 1−σ 1−σ 1−σ 1−σ 1−σ α(1 − σ )T 1 + T − T T T + T Ba R Ca Ba Ba R Ca Ba Ba R Ca Ba dW Ba = )2 ( dTBa R 1−σ 1−σ σ 1 + TCa Ba TBa R | ( )2 | 1−σ 1−σ 1 − T α(1 − σ )TBa R Ca Ba dW Ba = )2 ( dTBa R 1−σ 1−σ σ 1 + TCa Ba TBa R |( | )2 1−σ 1−σ αρTBa R TCa Ba − 1 dW Ba = (3.12) ( )2 dTBa R 1−σ 1−σ 1 + TCa T Ba Ba R ( )2 d W Ba 1−σ where ρ = σ σ−1 . TCa < 1, so dT < 0. Ba Ba R It shows that strengthened cooperation between border areas, increased SIEI and reduced border barriers lead to increasing wage rates in border areas, satisfying the conditions for industrial agglomeration. Figure 3.1 shows the sustain conditions for the core-periphery structure comprising country a’s region B and region C. As SIEI is advanced and border barriers are reduced, the border area participating in subregional cooperation will see increasing wage rates and growing agglomeration forces to attract human capital and firms. The changes in wage rates in this process are not consistent. When border barriers are very high, reducing border barriers only cause slight changes in the wage rates in the region that participates in subregional

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Fig. 3.1 Sustain conditions for core-periphery structure comprising two regions of country a

cooperation. When border barriers keep decreasing to an extent, this region’s wage rates rise dramatically. Therefore, from a dynamic perspective, if there is a great development gap between border areas that participate in subregional cooperation and inland areas that do not, it is not realistic to expect to reverse the backwardness of border areas in a short period of time through cross-border trade and investment facilitation and transaction cost reduction. Continued efforts are required to improve the terms of trade and enhance the participation in SIEI. The superiority of participation in SIEC becomes apparent in border areas only when the wage rates in these areas suddenly change.

3.4 Physical Geographical Barriers and Domestic Iceberg Costs In B-C SIEC zones, sovereign countries are willing to cooperate with non-sovereign participants, i.e., regions of other countries, because they are impeded by poor infrastructure and high transport costs. They hope to take advantage of the economy of better developed countries and improve their infrastructure through cooperation. SIEC zones at this stage are not profitable for foreign direct investors, because firms have to bear

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enormous transport costs to enter these zones, and a lot of the profits “melt” in transport. Therefore, such cooperation is generally initiated by governments or between governments. 3.4.1

Effects of Physical Geographical Barriers

National borders appear with countries as lines of demarcation between territories and sovereignty. In international law, borders refer to lines separating the territory of one country from that of other countries or areas beyond its sovereignty.4 National borders are inherently barriers as dividing lines between land, ocean and airspace of countries, which are a manifestation of a country’s sovereignty. According to Deutsches Wörterbuch, borders are external features separating a country from its neighboring countries, which may be man-made ones such as ramparts and border monuments or natural ones such as mountain ranges, watersheds and watercourses.5 Historically, national borders are often natural or man-made barriers to limit the expansion of countries on both sides of the border in terrestrial and even vertical space, and the extension of regimes and laws. National borders thus have had barrier effects since its appearance. According to Tang et al. (2002), barrier effects refer to the border effects of impeding spatial interaction. Physical geographical barriers in border areas, especially because of political and military confrontations, have made borders insurmountable chasms in international economic and trade activities. Borders, like obstacles, prevent the spatial linkages and economic and trade activities between both sides. The barrier effects of closed borders are especially apparent.6 While neighboring countries advance economic integration through cooperation arrangements and other institutional framework agreements, cross-border factor mobility is still significantly impeded by physical geographical barriers. This is because of the poor transport and other infrastructure in border areas due to such barriers. Countries only open 4 Wang Tieya, International Law (Beijing: Legal Publishing House, 1995). 5 Feng Gequn, “Grenzueberschreitende Zusammenarbeit: die Euregio Oberrhein, ein

Modell fuer das Tumen Projekt?” Doctoral dissertation, Christian-Albrecht University of Kiel, 2003. 6 Tang Jianzhong, Zhang Bing, and Chen Ying, “The Boundary Effect and Crossborder Subregional Economic Cooperation: A Case Study of East Asia,” Human Geography, 1 (2002).

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their borders to a limited degree even in integration. The construction of facilities facilitating cross-border factor movements is also a long process. National borders, whether man-made or natural, create border areas that fall into three types in terms of their physical geographical features, namely mountain border areas, river border areas and plain border areas. Based on the definition of border in Deutsches Wörterbuch, border areas defined by mountain ranges or watershed are mountain border areas, those defined by watercourses are river border areas, and areas adjacent to national boundaries demarcated by ramparts, border monuments and the like on plains, plateaus and in deserts without natural barriers are plain border areas. Border areas vary considerably in physical geographical barriers in the process of integration. It is comparatively easy to establish infrastructure facilitating cross-border movement of factors of production in plain border areas, where there are no natural barriers, and it is easier for international cities to grow along the border and for large hubs of logistics, storage and trade to emerge in cross-border cooperation in such areas. The effects of physical geographical barriers are thus weaker in these areas. Mountain border areas are separated from other areas by natural barriers of mountains, and it requires a substantial amount of investment and time to complete the infrastructure facilitating cross-border factor movements, so the effects of physical geographical barriers are stronger. River border areas are often adjacent to international rivers in mountains or on plains, so the effects of physical geographical barriers in these areas show characteristics of the other two types of border areas in integration. 3.4.2

Domestic Iceberg Transport Costs

Physical geographical barriers are often an important basis for border delineation between countries. When borders are closed or countries are in conflict, they reduce the costs of governance. In the context of opening-up, however, they become significant barriers to external economic linkages. This is particularly true in areas adjacent to borders imposed by mountains or valleys, where borders’ barrier effects are very strong due to physical geographical barriers. These areas face difficulties attracting investment even though they have excellent resource endowments. If the partner country in SIEC is underdeveloped with small market potential, it is only feasible to make investment in markets outside

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SIEC zones. Poor transport and other infrastructure cause high transport costs, which offset the reduction of production costs enabled by resource endowment advantages firms acquire through investment in the subregion. A lot of goods “melt” in mountains and valleys in SIEC zones without bringing any profits. Therefore, it is impossible for SIEC zones at the early stage to attract investment of firms or to form regional aggregation of industries. When the effects of physical geographical barriers play a dominant role, firms will only locate in areas with developed manufacturing. Border areas of an economy closed due to physical geographical barriers are generally not significantly influenced by participation in SIEC. For dispersed allocation of factors of production between two regions in a country to be the only / stable equilibrium, the condition is that when λ = 0.5, ∂(VCa − VBa ) ∂λ = 0. Strong effects of physical geographical barriers not only prevent goods from various regions of country a from entering country R’s market, but also prevent country R’s goods from country a’s market. Region B of country a and country R does not appeal to firms, so whether region C of country a needs to enter country R through region B is irrelevant, and dispersed allocation is the only equilibrium (see Fig. 3.2) (this conclusion depends on the initial distribution of agricultural factors). Under the circumstances, the impact of interregional transport costs T CaBa is dλ∗ /dTCa Ba = 0. At high levels of domestic transport costs, the utility differential decreases. At low levels of domestic transport costs, the utility differential increases, and the symmetric equilibrium is stable. Improvements in domestic transport conditions between two regions of a country and domestic market environment only change the value of utility differential between the two regions, but does not alter the equilibrium value when λ = 0.5. When the effects of physical geographical barriers play a dominant role, SIEC can only focus on removing these barriers, improving transport conditions and reducing iceberg transport costs. At this stage, cooperation is mainly conducted in the form of assistance provided by international organizations and developed countries, and common efforts of participating countries to develop transport infrastructure in the hope of reducing the effects of physical geographical barriers and iceberg transport costs. Industrial agglomeration is rare at this stage.

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Fig. 3.2 Possibility of industrial agglomeration in cooperation zones with strong effects of physical geographical barriers (m = n)

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Difference in Primary Resource Endowments

A distinct feature of the spatial economic analysis paradigm based on the Dixit-Stiglitz model, increasing returns to scale and iceberg transport costs is that conclusions are very sensitive to hypotheses. Therefore, the goodness of fit between fundamental hypotheses and real-world economy has a significant impact on the explanatory power of research conclusions. Primary resource endowments have a decisive impact on regional economic development. It is hard to locate symmetric equilibrium in real life. Among the many factors that may lead to asymmetric equilibrium, primary resource endowments have a decisive impact. In the coreperiphery model, the regional distribution of agricultural labor without interregional mobility has a significant impact on regional industrial agglomeration in SIEC. In B-C SIEC, it is almost impossible that labor in country a is evenly distributed between region B and region C. According to the theory of economic development, the appearance of agricultural surplus is the foundation of industrial development. The hypothesis that agricultural factor endowment is evenly distributed between domestic regions has in fact determined the possibility of symmetric equilibrium. However, the even distribution of agricultural factor endowment is a special case. Border areas lag behind economically not only in manufacturing, but also in agriculture. Therefore, for B-C SIEC, promotion of agricultural technologies, training of agricultural labor force and the like are important areas of cooperation. When m > n, the primary agricultural factor endowment is greater in region C than in region B, so industrial agglomeration tends to form in region C, the inland area. Strong effects of physical geographical barriers do not cause dispersed distribution of human capital, but facilitate the agglomeration of human capital in regions with greater agricultural resource endowments. When effects of physical geographical barriers are strong, firms are reluctant to invest in the partner country or the domestic border area that participates in SIEC, so it is difficult to form industrial agglomeration in SIEC zones. Instead, firms concentrate in region C, the inland area that does not participate in subregional cooperation. The intensity of agglomeration depends on the primary factor endowments of agriculture. Its characteristic is as follows:

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When TBa R → ∞, at high levels of domestic transport costs T CaBa , ∂(VCa − VBa )/∂λ < 0, dλ∗ /dm > 0; at low levels of domestic transport costs T CaBa , ∂(VCa − VBa )/∂λ > 0, dλ∗ /dm < 0. Both reflect the tendency of industries to concentrate in region C that does not participate in subregional cooperation. SIEC under such conditions can only focus on infrastructure that reduces physical geographical barriers to bring down iceberg transport costs or strengthening agricultural cooperation. In this model, the objective of strengthening agricultural cooperation is to raise the value of n to create conditions for industrial agglomeration (Fig. 3.3).

3.6

Institutional Barriers and Costs of International Agreements

In the context of economic globalization, countries with less developed economy or manufacturing have an ambivalent attitude to SIEC. They hope to stimulate their own development by participating in SIEC, but at the same time, they want to protect their domestic and infant industries. To mitigate the institutional barrier effects of borders is thus an important area of cooperation in B-C SIEC. The extent of cooperation depends on the costs and benefits of international agreements for participants. 3.6.1

Institutional Barrier Effects of Borders

Borders impose constraints on governments and jurisdiction and embody institutional differences between countries. The border is endowed with a constraining power over the countries within and outside the border from its inception, resulting in institutional barrier effects. The greater the differences between countries in political system, economic system, economic policy, foreign policy and so forth, the stronger the institutional barrier effects of the border. The following are some major institutional barriers: a. Tariff and non-tariff barriers Tariff and non-tariff barriers constitute a composite of tangible and invisible national borders. A country usually sets up customs and other administrative organizations to exercise its sovereignty, especially

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Fig. 3.3 Possibility of industrial agglomeration in cooperation zones with strong effects of physical geographical barriers (m > n)

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economic control, implement tariff and non-tariff barriers and other foreign economic policies. Tariff and non-tariff barriers are major impediments to integration, and economic integration means constant efforts to reduce them. Such barriers are reduced to different degrees at different stages of integration. Dennis R. Appleyard and Alfred J. Field, Jr. believed that in integration, when countries form economic coalitions, they hope to obtain some benefits of a more open economy, “without sacrificing control over the goods and services that cross its borders and hence over its production and consumption structure.” “The more they remove restrictions on the movement of goods and services between members of the group, the more domestic control of the economy is lost. Consequently, actions taken to integrate economies often take place in stages.” Formal regional economic agreements fall into four types.7 The most common integration scheme is an FTA, under which group members remove tariffs on each other’s products, but each member retains its independence in establishing trading policies with non-members. The second level of economic integration is a customs union, where all tariffs are removed between members and the group adopts common external commercial policies toward non-members. The third level of economic integration is a common market. In a common market, all tariffs are removed between members, a common external trade policy is adopted for non-members, and all barriers to factor movements among member countries are removed. The free movement of labor and capital between members represents a higher level of economic integration, but also means a further reduction in national control of its economy. The most comprehensive form of economic integration is an economic union. In addition to the characteristics of a common market, an economic union has unified economic institutions and coordinated economic policies among all members. Member countries of an economic union are separate political entities. The existing research of the economics of integration is mainly based on the development of the EU, which is north–north economic integration. Further research is required to determine whether its reduction of tariff and non-tariff barriers and higher-level cooperation and coordination strategies also apply to south-north economic integration and south-south economic integration. Despite the EU’s expansion eastward, 7 Dennis R. Appleyard and Alfred J. Field, Jr., International Economics (New York: McGraw-Hill, 2013).

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European integration has been rather slow due to differences in culture and the level of development and other factors. For Asian countries, the case is different: cultural difference, development gap, regional conflicts and other uncertainties are all worse than in Europe. Tariff and non-tariff barriers thus impede integration more severely in Asia than in Europe. b. Difference in size of economy and level of development In a considerable amount of literature, researchers use the gravity model to measure border effects in integration. The results show that border effects, which reflect the size of economy, are still significant in Canada, a member of NAFTA and a smaller economy than the US, and in EU members that are at a high stage of integration. Empirical studies have revealed that regardless of the level of integration, due to impediments to integration in border areas, the foreign trade multiplier in small countries is much greater than in big countries. On the other hand, the size or level of development of a country’s economy determines the country’s intensity of participation in integration. Therefore, in integration, small or less developed countries tend to set up barriers to impede integration. This is due in large part to the homogeneous industrial structure of small countries. Their firms are at the lower end of the value chains in integration. Setting up barriers to integration helps them protect domestic industries. This also raises a thorny issue in ASEAN+1 and AEAN+3. The eleven members of the ASEAN-China FTA are at different stages of development. In 2010, Singapore’s GDP per capita was 43,867 USD, fifty-three times that of Myanmar, forty-one times that of Laos and nine times that of China; China’s GDP that year reached 4430 USD, five times the figure in Myanmar and four times the figure in Laos. Of the eleven members of the ASEAN-Japan FTA, Japan’s GDP per capita is fifty-two times more than the figure in Myanmar, a least developed country, and forty times as much as in Laos. As a result, developed countries prefer to advance integration to a higher level, while less developed countries prefer to delay the integration to ensure their control over domestic economy. c. Uncertainties Due to historical factors and development gap, compared with inland areas, border areas are peripheral areas that are not yet developed or

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less developed, where centrifugal forces are stronger than agglomeration forces. The government’s presence in border areas in terms of administration, economy and social management is comparatively weaker. Uncertainties tend to accumulate in these areas. Border areas also abound in territorial and border disputes, conflicts between residents on both sides of the border, cross-border crime and other problems. All these factors and regional disputes have made border areas major impediments to integration. The drug problem in the Golden Triangle, for example, has been a significant obstruction to economic integration of East Asia. Poppy replacement and alternative development in poppy growing areas are important areas of economic cooperation for the GMS. 3.6.2

Costs of International Agreements

When institutional barrier effects are very strong, iceberg transport costs are very high, making it unprofitable for firms to invest in SIEC zones. In this case, SIEI is advanced mainly through coordination and consultation between central governments of participating countries, which are also important ways to reduce institutional barriers. Whether SIEI can be brought to a higher level depends on how partner countries weigh the benefits and costs of international coordination. John Commons interpreted transactions as cession of rights and transaction costs as costs thus incurred. Oliver Williamson divided transactions costs into ex ante transaction costs and ex post transaction costs.8 Tian (2004) referred to the costs resulting from sovereignty ceding as international transaction costs and divided such costs into costs of agreements and governance. According to Tian, costs of international agreements are incurred from obtaining information about potential trading partners and the external environment, specifying the rights and obligations of trading partners, and negotiating the terms of transaction before reaching an agreement on transfer of rights. International governance costs are incurred after reaching an agreement on transfer of rights, from monitoring the performance of trading partners, re-negotiating, imposing sanctions on non-performing trading partners and so forth.

8 Oliver Williamson, The Economic Institutions of Capitalism, trans. Duan Yicai and Wang Wei (Beijing: The Commercial Press, 2002).

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Tian believed that the costs of agreements and governance correspond to Williamson’s ex ante transaction costs and ex post transaction costs.9 While a pronounced feature of SIEC is that no sovereignty is ceded, coordination and consultation in SIEC still involve transaction costs. This study adopts the concept of international transaction costs which are divided into costs of agreements and governance. For countries participating in SIEC, SIEI means an open market and lower investment barriers. Less developed countries face the risk of damaging their domestic industries. High transaction costs may preclude mutually beneficial SIEC. Tian (2004) used E(c) to represent the expected benefits of a country when all parties conform to the agreement, E(n) to mean the expected benefits of a country when none of the parties conform to the agreement, and E(v) to mean the benefits a country expects to receive from an opportunistic breach of the agreement. E(c) and E(v) generally depend on the terms of the agreement. If a country hopes to receive E(v) by violating the agreement and other countries respond by terminating the agreement, each country will receive E(n). Therefore, the sufficient and necessary condition for implementation of the agreement is: E(c) − E(n) > E(v)

(3.13)

If E(n) is greater than E(c), countries will violate the agreement (or they will not reach an agreement), so the above inequality is the necessary condition for a self-enforcing agreement. Countries will conform to the agreement if it is more advantageous than to violate it, so the above inequality is also the sufficient condition for a self-enforcing agreement. In such circumstances, the expected benefits of violating the agreement must not exceed that of conforming to the agreement. When this condition is satisfied, the agreement is self-enforcing. In SIEC without any supernational authority and closer institutional arrangements, reciprocity is probably the only way to enforce international agreements. According to Williamson, the expansion of unilateral trade to bilateral trade enables reciprocal trade: reciprocity transforms a unilateral supply relation into a bilateral one, and both parties understand that the transaction will continue only if reciprocity is observed. Robert Keohane defined 9 Tian Ye, “The Mechanism of Self-enforcing International Agreements: an Analysis from the Perspective of Transaction Costs,” World Economics and Politics, 12 (2004).

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reciprocity as exchanges of roughly equivalent values in which the actions of each party are contingent on the prior actions of the other party. Reciprocity is often (but not necessarily) mutually beneficial. It can be based on self-interest or on shared concepts of rights and obligations. Through computer simulations and theoretical analysis of the Prisoner’s Dilemma, Robert Axelrod found that the reciprocity-based “live and let live” strategy is an effective way to promote cooperation. In many circumstances with mixed conflicting and complementary interests, i.e., in non-zero-sum games, actors are motivated to implement reciprocal strategies, and reciprocity-based strategies bring more benefits than others. Since reciprocity does not depend on central authorities and reciprocal strategies reduce the expected benefits of breaking an agreement, any party attempting to violate an agreement must be cautious and deliberate in decision-making. Reciprocity is only feasible when a contractual relation expands from a unilateral transaction to a bilateral transaction. Partner countries that are less developed may derive benefits from setting up institutional barriers and from participating in SIEC. If they can benefit more from participation in SIEC, subregional cooperation makes progress. If the costs of agreements and governance are less than the benefits from cooperation, SIEC will also proceed. In the model of this chapter, institutional barriers and costs of international agreements are included in T BaR . In B-C SIEI, since the participating countries and regions are not equivalents sovereignty-wise, the cooperation does not involve cession of sovereignty and consequently incurs low costs of international agreements. In other words, when other conditions remain unchanged, T BaR in SIEI is less than T ar in RIEI (r ∈ R).

3.7

Summary

The GMS, the Southern ASEAN Growth Triangle, the BIMP-EAGA and the SAGQ demonstrate the typical spatial structure of B-C SIEI. They are all international economic cooperation programs participated by regions of one country and several other countries. Therefore, this chapter builds a model of a core-periphery structure comprising two regions of one country and one foreign region (which may include several countries), and derives the expression of industrial agglomeration conditions. Numerical simulations show that reduced

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border barriers and increased SIEI generally favor the agglomeration of domestic factors and industries in the regions participating in subregional cooperation. Based on the existing literature, border effects are divided into barrier effects and opening-up effects. SIEI is a process in which border effects transform from the former to the latter. As the degree of SIEI increases, border barriers keep decreasing, and border areas of the country participating in subregional cooperation sees growing wage rates, hence having greater agglomeration forces to attract human capital and firms. Border areas are divided to mountain border areas, river border areas and plain border areas according to their physical geographical features. With natural barriers, mountain border areas are subject to strong effects of physical geographical barriers due to substantial investment and time required to build infrastructure facilitating cross-border factor movements. Such barrier effects are weaker in plain border areas. River border areas show characteristics of the other two types of border areas. When the effects of physical geographical barriers play a dominant role, SIEC can only focus on eliminating such barriers, improving transport conditions and reducing iceberg transport costs. Cooperation at this stage mainly takes the form of assistance provided by international organizations and developed countries, and common efforts of participating countries to develop transport infrastructure in the hope of reducing the effects of physical geographical barriers and iceberg transport costs. Industrial agglomeration is rare at this stage. Primary resource endowments have a decisive impact on a region’s economy. Generally, regions with great primary resource endowments have strong industrial agglomeration forces. In addition to effects of physical geographical barriers, tariff and non-tariff barriers and other institutional barriers also contribute to the barrier effects of national borders. Participating countries of SIEC need to bear the costs of international agreements shown as iceberg trade costs. However, since the participants include both sovereign countries and regions of a country without the power to cede sovereignty, SIEI involves no sovereignty ceding and consequently low costs of international agreements. Therefore, trade costs are lower in B-C SIEI than in RIEI.

CHAPTER 4

B-B SIEI

The existing B-B SIEI programs are mainly cross-border economic cooperation between neighboring or adjacent border areas of two or more countries. In this chapter, the tripartite model is expanded to a quadruple one comprising two regions of two countries to reveal the patterns of interregional factor movements in B-B SIEI.

4.1

Empirical Evidence

The main B-B SIEC programs currently include the following: 4.1.1 China-Kazakhstan Cross-Border Cooperation (China-Kazakhstan Horgos International Center for Border Cooperation) The establishment of a cooperation center in the border areas between China and Kazakhstan was proposed in June 2003 by President Nursultan Nazarbayev of Kazakhstan to then Chinese President Hu Jintao during the latter’s visit to Kazakhstan. Hu welcomed the proposal. Then the governments of the Xinjiang Uygur Autonomous Region, China, and Almaty province, Kazakhstan, signed the Framework Agreement on the Establishment of the China-Kazakhstan Horgos International Center for Border Cooperation on July 27, 2004. The governments of China and Kazakhstan signed the Framework Agreement on the Establishment of the © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_4

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China-Kazakhstan Horgos International Center for Border Cooperation on September 24, 2004, during President Nursultan Nazarbayev’s visit to Yili of Xinjiang, China, through Horgos Port. After several rounds of talks, the governments of China and Kazakhstan signed the Agreement on Administration of China-Kazakhstan Horgos International Center for Border Cooperation on July 5, 2005, when then Chinese President Hu Jintao was attending the 2005 Summit of Shanghai Cooperation Organization at Astana. The State Council of China issued a document on March 17, 2006, clarifying, inter alia, the function of the cooperation center and its supporting area, and preferential policies. The cooperation center commenced operation in October 2010, covering 15.01 square kilometers on both sides of the border. It consists of the major area and the supporting area. The major area focuses on trade promotion, display and sales of goods, tourism and related services such as warehousing and transport. The supporting area is mainly for import and export processing and bonded logistics. The cooperation zone comprises adjacent areas on both sides of the border between China and Kazakhstan. It serves as a cross-border economic and trade zone and an investment and cooperation center near Horgos Port. The China-Kazakhstan Horgos International Center for Border Cooperation is established, and both sides have set up state-owned companies for development and management. On the Kazakhstan side, the company’s president is Kazakhstan Minister of Industry and Trade, and its board of directors include some state-level departments. Therefore, many problems in construction are immediately reported to the state level and dealt with. On the Chinese side, the cooperation center is under the charge of the Ministry of Commerce. The central government’s policies are passed on first to the Ministry of Commerce, then to the Xinjiang Uygur Autonomous Region, Yili Kazakh Autonomous Prefecture and Horgos Port, and ultimately to Horgos International Border Cooperation Center Investment and Development Co., Ltd. Customs, entry-exit inspection and quarantine and similar procedures are set at the entrance to the cooperation center, and there are no inspection agencies at the border. Citizens, goods and vehicles of China, Kazakhstan and any third country can move freely across the border in the cooperation center and can stay in the center for up to thirty days without a visa. Both sides are enclosed and connected by a corridor in between. The Chinese and Kazakhstan sides are under the jurisdiction of respective countries, where the laws in force in respective countries and

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relevant international treaties and agreements between China and Kazakhstan shall apply. Payment and transfer of funds in relation to trade in goods and services in the cooperation center are handled according to the principle of current account convertibility. Banks and other institutions on both sides in the cooperation center provide cash exchange services according to the laws of respective countries. As evidenced by its organization and management, China-Kazakhstan Horgos International Center for Border Cooperation is the fruit of consultations between leaders of both countries. It does not have a supernational authority. Problems are reported to the central governments through the management and local governments of both sides and solved through consultations. 4.1.2 Northern ASEAN Growth Triangle (Indonesia-Malaysia-Thailand Growth Triangle, IMT-GT) Indonesia, Malaysia and Thailand proposed the launch of a new subregional economic cooperation scheme in 1992. After a ministerial conference between these countries, the North ASEAN Growth Triangle, also known as the IMT-GT, was launched in 1993. Its aim is to enhance cross-border cooperation and spur economic growth in the subregion. The IMT-GT includes ten provinces of Sumatera in Indonesia, fourteen provinces in southern Thailand and eight states of Peninsula Malaysia. In addition to regular senior officials’ meetings and ministerial conferences, the IMT-GT also sets up an implementation and technology team comprising entrepreneurs and officials to carry out assessment and indepth consultations on business cooperation and investment under the framework of the growth triangle. It is also a topic for discussion at the senior officials’ meeting. The IMT-GT Joint Business Council is established to promote private sector participation, which is actually a business forum aiming at strengthening the economic connectivity between Indonesia, Malaysia and Thailand. The IMT-GT has also acted as a successful coordinator between governments and the private sector to facilitate cooperation in various areas in the subregion. Entrepreneurs, ministers of economic affairs and other senior officials attend the regular meetings of the IMT-GT, including meetings of the Joint Business Council, Senior Officials’ meetings and Ministerial Meetings. For greater connectivity between the three countries, the meetings of local officials, ministers and entrepreneurs have been institutionalized, so these people

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have effective channels to convey opinions to the annual Ministerial Meeting. The IMT-GT also has a consultant team composed of professionals. In summary, setting up and improving necessary institutions are important for the sustainability and effective operation of the subregional cooperation program. The members of the IMT-GT are geographically close and economically complementary. For example, North Sumatra and Aceh of Indonesia can export crude oil, refined oil and liquid natural gas thanks to their oil and gas resources, which can meet the shortages in northern Malaysia and southern Thailand. The IMT-GT has been thriving in recent years, showing regional economic advantages. 4.1.3

Tumen River Growth Triangle

At a press conference in October 1991, the United Nations Development Program (UNDP) published the purpose and implementation plan of the Tumen River Area Development Program (TRADP) at its headquarters in New York. The program was designed to invest thirty billion US dollars in twenty years to transform the Tumen River Area to a second Hong Kong, Singapore or Amsterdam, which was expected to benefit three hundred million people in the area. Besides UNDP, there are a coordination commission comprising representatives from China, the DPRK and Russia, and a consultative commission comprising representatives from China, the ROK, the DPRK, Russia and Mongolia to strengthen the development of the Tumen River area. 4.1.4

Cross-Border Cooperation in the Upper Rhine Region

Cross-border cooperation in the Upper Rhine region dated back to 1963, which was originally non-governmental cooperation initiated by firms. The intergovernmental cooperation did not start until 1975 when the governments of Germany, France and Switzerland signed the Bonn Agreement and set up the Franco-German-Swiss Intergovernmental Commission. The cooperation area consists mainly of neighboring areas of Germany, France and Switzerland in the Upper Rhine region. Various formal and informal organizations and institutions have played an important role in the development of border areas in the region. Regio Basiliensis was established in 1963 to plan and promote the economic, political and cultural development in the Upper Rhine Region, which later

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merged with another border zone cooperation organization comprising mainly people from the business sector. Similar organizations were established in the border areas of France and Germany in 1965 and 1985. Since late 1980s, cooperation in the Upper Rhine region has been funded by Interreg Europe, an interregional cooperation program. In 1989, heads of France, Germany and Switzerland pledged their common obligations for cooperation in the Upper Rhine region. All these efforts have significantly facilitated this region’s development. Cross-border cooperation in the Upper Rhine region falls into two categories. The first is to solve problems arising from cooperation through consultations, and the second is to formulate common development strategies for development issues, press home their respective advantages and promote regional cooperation and development through cross-border projects. Considering the asymmetry of administrative power and decision-making in neighboring countries, the Upper Rhine region considers the development of cooperation organizations and institutions in cross-border zones the central task of cooperation. Development strategies of cross-border cooperation are implemented by these organizations to ensure smooth progress in cross-border cooperation. The relevant organizations are as follows: 1. Upper Rhine Conference: As the biggest formal intergovernmental organization in the Upper Rhine region, the Upper Rhine Conference holds two to three meetings each year to discuss different topics of cooperation. The Steering Committee is the coordinating body of the Upper Rhine Conference responsible for preparing for meetings of the Conference. It also has a Joint Secretariat consisting of three representatives respectively from France, Germany and Switzerland, which deals with day-to-day work and the whole cooperation process. Joint secretariat has a working group, which is divided into three sub-working groups respectively responsible for cooperation projects in the areas of economy and environment, transport planning, health and sanitation. The sub-working groups consist of experts in different fields, who are ready to discuss cooperation projects and solve problems through consultations where necessary. 2. Upper Rhine Council: Comprising parliamentary members of the regions and states of member countries, it is the biggest nongovernmental organization in the Upper Rhine Region. France,

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Germany and Switzerland take turns hosting the biennial meetings. Each session of meeting focuses on one topic and promotes the implementation of the outcome. Issues related to transport, culture, environment, economy, youth education and employment, vocational training, regional planning and so forth have been discussed at these meetings. 3. Cross-border services: INFOBEST Kehl/Strasbourg and three other information centers are established to provide citizens, firms, administrative authorities and industrial associations with information and support on topics such as law, employment, investment and so forth in relation to border mobility issues. 4. Industrial associations: There are many industrial associations in the Upper Rhine region, and firms in the region are managed according to their industries, not nationality. Industrial associations are like homes for firms. They help firms with various issues in development, such as industrial cooperation, legal issues, protection of rights and so forth. Cross-border cooperation in the Upper Rhine region has gone through six levels: people-to-people contacts, exchange of information, coordination of relationship, joint planning of development strategies, joint decision-making and joint implementation. The Upper Rhine cross-border cooperation region is settled by the Alemanni, the components of which have similar languages, cultures, customs and architecture, and residents in this area have a strong sense of belonging. This region consists of economically developed areas of France, Germany and Switzerland, lying at the center of gravity of the economy of both northern and southern Europe. Location in the same geographical units, shared history and strong regional economy lay a solid foundation for the tri-national cooperation. As the birthplace of RIEI, Europe has seen integration organizations of various levels, including the EU which requires cession of monetary sovereignty and partial financial sovereignty. Nonetheless, cooperation organizations for SIEC in Europe’s border areas mainly perform a coordinating role and address problems during the cooperation through consultation at regular meetings. While supernational bodies are established for RIEI, no such authorities have been established specially for border cooperation areas, and there are no exclusive, internal markets.

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The cross-border cooperation covers a wide arrange of areas such as transport, culture, environment, economy, youth education and employment, vocational training, regional planning and so forth. 4.1.5

US-Mexico Economic Cooperation in Transborder Region

The formal mechanism for policy cooperation in the transborder region between the US and Mexico was established in 1997. The Border Liaison Mechanism was established in 1992 to address border issues, which afterward included officials of local governments. In late 1990s, the consulates in the transborder region between the two countries became a part of the mechanism, and branches were set up on both sides of the border to address issues related to immigration, cross-border crime, public security, water resource management, education, culture, transport and so forth. Apparently, this mechanism not only performs some functions of local governments, but also does even more. In 1997, a formal mechanism for policy cooperation was established. According to a Mexican consul in El Paso, Texas, the cooperation mechanism was a testimony to the pivotal role of the transnational approach in improving and coordinating transborder issues. The cross-border cooperation mechanism has also played a role in other areas such as finance and environmental protection. As former Federal Reserve Chairman Alan Greenspan said, the US and Mexico would benefit significantly from more realistic and functional border relations. He compared the current transborder region between these two countries to Siamese twins with independent thinking, who are two individuals even though they are connected in so many ways to the extent of being inseparable. 4.1.6 4.1.6.1

Bilateral Border Cooperation Respectively Between Yunnan, China and Vietnam, Northern Laos, and Northern Thailand

Economic Consultative Conference Between Yunnan, China and Northern Vietnam A delegation head by Xu Rongkai, then governor of China’s Yunnan province, attended the Economic Cooperation Consultative Conference between Yunnan, China and Hanoi, Lao Cai, Hai Phong, Quang Ninh of Vietnam in September 2004. The Minutes of Meeting signed at the conference marked the establishment of the Economic Consultative Conference mechanism between Yunnan, China and four provinces and

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cities of northern Vietnam. The second meeting of the Conference was held in Mengzi, China, on June 12, 2000, at which both parties had in-depth discussions and consultations and agreed to take the following measures to enhance bilateral trade and investment: 1. The business departments of the five provinces and cities of China and Vietnam shall give advice to their respective central governments on signing the cooperation agreement on the “Two Corridors and One Economic Circle” initiative. The agreement is expected to provide the legal framework and foundation for the construction of the Kunming-Hanoi Economic Corridor and facilitate the bilateral cooperation between provinces and cities in the corridor. 2. A working group for economic and trade cooperation shall be established under the framework of the Economic Consultative Conference. The working group will meet regularly or irregularly at the annual Kunming Import and Export Fair in June and the annual China-Vietnam International Trade Fair held in Hanoi or Lao Cai in December to discuss and solve problems in trade and investment cooperation. 3. Make joined efforts to promote exploitation of mineral resources and agricultural cooperation, especially technological cooperation with respect to paddy seeds and cooperation in growing vegetables and fruits. 4. Work together to promote border trade and improve the level of trade. 4.1.6.2 Cooperation between Yunnan and Northern Laos The governments of Yunnan, China and Laos jointly established the Cooperation Mechanism for the Yunnan (China)-Northern Laos Workgroup in October 2004. Regular and irregular consultations are held to address problems in economic and trade cooperation, improve the cooperation environment and advance important cooperation projects. The Workgroup held its second meeting in Kunming, China, November 17– 18, 2005, where both parties agreed to promote economic and trade development by taking the following actions: 1. Promote the steady development of trade between Yunnan and Laos and constantly enhance the investment from Yunnan to Laos.

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2. Cooperate in resource exploitation, especially in mineral resources survey, geological and mineral mapping, exploration and exploitation of potash salt, bauxite and copper ore. 3. Advance agricultural cooperation, giving priority to the cooperation in the agriculture demonstration zone and rubber cultivation in Laos. 4. Encourage opium replacement. Both parties attach great importance to opium replacement with rubber cultivation and decided that Yunnan State Farms Group Co., Ltd., Yunnan Local Goods Import and Export Co., Ltd., and Yunnan Green Gem Development Co., Ltd. shall cooperate with Laos to replace opium poppy planting with rubber cultivation and promote integrated planting. 4.1.6.3 Yunnan-Northern Thailand Cooperation Working Group The Yunnan-Northern Thailand Cooperation Working Group was established and had its first meeting in Kunming, China, in April 2004. From February 25 to March 6, 2005, the second meeting of the Workgroup was held in Chiang Rai, Thailand, at which both parties agreed to take the following actions in relation to economic and trade cooperation: 1. Promote and facilitate trade: Both parties agreed to do their best to improve trade conditions and facilitate the trade between Thailand (northern region) and Yunnan. The two parties shall work together to abolish trade barriers and facilitate the free movement of goods. 2. Both parties shall encourage firms to participate in trade promotion activities such as the trade fairs and expositions in Yunnan, China and Thailand, and agreed to speed up the establishment of the Thailand (Northern Region)-Yunnan Business Council to facilitate cooperation between firms from Thailand and Yunnan, China. 3. Establish a trade and investment subgroup under the framework of the working group to enhance bilateral economic and trade cooperation and cooperation in other areas and address common concerns without delay. 4. Both parties agreed to consider establishing commodity distribution centers in northern Thailand and Kunming and Jinghong in Yunnan, China. They also agreed to expedite road improvement and construction of ports.

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5. Promote agricultural trade and work actively to facilitate the trade in agricultural goods. 6. Continue with the negotiations on investment in Chiang Rai Industrial Zone.

4.1.7

Belgium-Netherlands-Luxembourg Cross-Border Economic Cooperation (Benelux)

Belgium, the Netherlands and Luxembourg signed the first intergovernmental agreement on cross-border economic cooperation in 1990. The program covered the border areas between these countries. The Benelux Secretariat General in Brussels is the administrative center of Benelux Economic Union, with Committee of Ministers, the Council of Benelux Union, various committees and working groups. It has an extensive network of contact points with many authorities and institutions at the service of cooperation partners. The administration of the Secretariat General is handled by the Directors Committee comprising Secretary General of Dutch nationality and two deputies of Belgian and Luxembourg nationalities. 4.1.8

Spain-Portugal Cross-Border Subregional Economic Cooperation

Cooperation between the local governments of Spain and Portugal started after the Treaty of Valencia entered into force in 2004, which is no longer controlled by their central authorities. The cooperation mainly involves the autonomous community of Galicia in Spain and the northern region of Portugal. The Portuguese-Spanish Committee for Cross-border Cooperation is established to promote and implement the Treaty of Valencia in accordance with legal arrangements related to cross-border cooperation and draw up supervisory rules based on public laws on community work, municipal services, working groups and associations. 4.1.9

Italy-France Cross-Border Cooperation

On November 29, 2007, the European Commission approved the program for cross-border cooperation Italy-France (Alps—ALCOTRA) to receive community assistance from the European Regional Development

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Fund (ERDF) under the European Territorial Cooperation objective in Italy and France. The program involves Val d’Aoste, Piemonte and Liguria in Italy, Rhône-Alpes and Provence-Alpes-Côte d’Azur in France and the Principality of Monaco. Cooperation organizations comprising the European Commission and governments at the state, regional and local levels are established in border areas. The general purpose of the program is to improve the quality of life of the people living in the area concerned and to promote the sustainable development of crossborder economic and territorial systems through cooperation in the social, economic, environmental and cultural fields. 4.1.10

Italy-Greece Cross-Border Cooperation

This program is funded by Interreg II (1994–1999) and Interreg III (2000–2006), encompassing Achaia, Corfu, Lefkada, Kefalonia, Zakinthos, Ioannina and Preveza in Greece, and Bari, Brindisi and Lecce in Italy’s Puglia. This program, including the support from the EU, is conducted and provided within the framework of Interreg programs along the borders between Greece and Italy. There are many other cross-border economic cooperation programs in Europe, including: subregional economic cooperation between Ireland and UK; cross-border subregional economic cooperation between Ireland and Northern Ireland; subregional economic cooperation between Kent, UK, and Calais, France; cross-border subregional economic cooperation between Nord Pasde-Calais, France, and West-Vlaanderen, Belgium; cross-border subregional economic cooperation in the Scheldt River Basin between Belgium and Netherlands; cross-border subregional economic cooperation between Germany and Netherlands; cross-border subregional economic cooperation in the Meuse-Rhine area between Belgium, Netherlands and Germany; cross-border subregional economic cooperation Hainaut-Nord Pasde-Calais-Picardie between Belgium and France;

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cross-border subregional economic cooperation Saar RiverLuxembourg-Rhine between France, Luxembourg and Germany; Rheinland-Pfalz-Mosel cross-border subregional economic cooperation between Germany and France; Rhone subregional economic cooperation between Switzerland and France; Alps cross-border subregional economic cooperation between France and Italy; Chiasso-Trent cross-border subregional economic cooperation between Switzerland and Italy; Spain-France cross-border subregional economic cooperation; Corsica-Liguria subregional economic cooperation between France and Italy; Italy-Austria cross-border subregional economic cooperation; Germany-Czech Republic cross-border subregional economic cooperation; Germany-Portland cross-border subregional economic cooperation; Denmark-Germany subregional economic cooperation; Oresund Strait subregional economic cooperation between Denmark and Switzerland; Sweden-Germany cross-border subregional economic cooperation; Gulf of Bothnia subregional economic cooperation between Norway, Sweden and Finland; Barents Sea subregional economic cooperation between Norway, Sweden, Finland, Iceland and Russia; Uppsala-Turku Baltic Sea Region subregional economic cooperation between Finland and Sweden; Finland-Russia cross-border subregional economic cooperation; Puglia-Ionia Islands-Albania subregional economic cooperation; Greece-Macedonia cross-border subregional economic cooperation. The European Commission encourages the establishment of cross-border organizations to facilitate the implementation and operation of development programs in border areas. Cooperation organizations comprising commissions and federal, regional and local governments are established between border regions. A network of formal and informal organizations including governments (local and central ones), firms and civil

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organizations has been thriving. This gives a significant boost to crossborder subregional economic cooperation and cross-border subregional economic cooperation, and has greatly enhanced the European integration. Interreg I (1990–1993) provided funds for cross-border cooperation. The implementation of Interreg II in 1994 extended Interreg I for five years from 1994 to 1999. Also in 1994, in anticipation of EU’s eastward expansion, the EU introduced and financed the PHARE (Poland and Hungary: Assistance for the Restructuring of the Economy) to encourage cross-border subregional economic cooperation between Central and Eastern European countries and between EU members and Eastern European countries. In 1992, to eliminate the impacts of internal barriers, EU member states signed the Maastricht Treaty, enabling free movement of people and goods between member states of the EU, which is expected to eliminate the dominant barrier effects of borders with formal intergovernmental institutions. The objective of Interreg is to promote cooperation between member countries, regions, local governments and departments of the EU. Its funding condition is matching funding from partners. Many of the projects funded by Interreg are related to technology transfer and establishment of cross-border organizations and networks. Interreg II programs relating to cross-border subregional economic cooperation fall into three categories. First, funding for cross-border network connectivity in border areas with poor infrastructure, mainly roads, railways, harbors and airports in border areas of member states in Southern Europe (such as Spain and Portugal). Second, noting that the organizations and institutions on both sides of the border only focus on networking within the country in the development of networks and partnerships, the program gives priority to funding the establishment of cross-border organizations and coordination bodies, especially encouraging the participation of informal partners, such as local and civil organizations, in cross-border issues. For example, Interreg funds the establishment of informal nongovernmental organizations such as information centers, Secretariat of the Upper Rhine Intergovernmental Commission and the tri-national Engineering training program in the Upper Rhine region. Third, funding for cross-border cooperation where both parties lack cooperation experience and trust on each other, which aims to promote cross-border cultural and tourism projects and exchange of experience.

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UNDP planned to establish three growth triangles in Africa. The first is in the Zambezi River Basin, involving Zambia, Zimbabwe, Botswana, Namibia, ranging from Kariba, Zimbabwe to Livingstone, Zambia and then to Katima Mulilo in Namibia. The second is in the Lake Malawi Basin, comprising the areas of Malawi, Mozambique and Tanzania near Lake Malawi. The third is the Zambia-Malawi-Mozambique Growth Triangle comprising Chipata in Zambia, Lilongwe in Malawi and Tete in Mozambique. The growth triangles in Asia are also making progress in various degrees. That includes the Bay of Bengal region in South Asia, including the subregions consisting of Bangladesh, India, Myanmar, Sri Lanka and Thailand, and of Maldives and Sri Lanka. The growth triangle in southern India, i.e., the Ganges–Brahmaputra-Meghna (GBM) Basin, is also making progress. With the proposal of the Northern Dimension Policy of the EU, Russia has realized the significance of St. Petersburg and Kaliningrad, hence proposing the establishment of growth triangles in the Baltic Sea region, respectively in the Southern Baltic Sea region and in the Gulf of Finland. On October 9, 2001, representatives of Finland, Russia and Estonia signed the agreement on establishing the latter. As evidenced by the above examples, SIEC mainly takes place in the form of cross-border economic cooperation between regions (primarily neighboring or adjacent border areas) of sovereign countries.

4.2

Theoretical Model

With the existing B-B SIEC zones as the objects of research, this chapter expands the tripartite model in Chapter Three to include four regions. Suppose that region B of country a is engaged in SIEC with region B of country r, and r = 1, 2 … N , so the economy is spatially divided into four parts: border area B a of country a that participates in subregional cooperation, inland area C a of country a that does not participate in subregional cooperation, border area B r of country r that participates in subregional cooperation and inland area C r of country r that does not participate in subregional cooperation. r = 1, 2 … N . For convenience, we first examine the case where r = 1 (meaning the border areas of two countries are engaged in economic cooperation). The economy is still assumed to consist of monopolistically competitive manufacturing and perfectly competitive agriculture. Two factors

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of production, agricultural labor (L) and human capital used in manufacturing (K ) are used. Human capital can move between regions of a country, but cannot move across the border. Each country provides K units of human capital, which are endogenously distributed in two regions of each country, so K = K C + K B , K a = K Ca + K Ba , K r = K Cr + K Br . Human capital moves between regions C and regions B according to utility differential. Their shares of human capital are respectively and K B /K = 1 − λ. Similarly, K Ca /K a = λCa , K Ba /K a = 1 − λCa , K Cr /K r = λCr , K Br /K r = 1 − λCr . Trade costs are iceberg costs, including interregional transport costs in each country and cross-border trade costs. T CB stands for domestic interregional transport costs, applicable to domestic interregional trade and investment (TC B = TBC ). Let the domestic interregional transport costs be T CaBa in country a and T CrBr in country r. T BaBr is the costs of cross-border trade and investment in border areas of both countries. It embodies not only division due to tariff and non-tariff barriers, home bias, exchange rates, differences in language and religious belief and so forth, but also transport costs determined by transport conditions. It thus reflects the degree of SIEI. Both countries participating in subregional cooperation comprise two regions, i.e., the border area that participates in the cooperation and the inland area that does not, which constitute either perfect asymmetry or imperfect symmetry. In perfect asymmetry, the non-participating inland area must pass through the border area to establish economic linkages with the partner country. Let T CaCr be the trade costs between the two countries’ inland areas that do not participate in subregional cooperation, so TCaCr = TCa Ba × TBa Br × TCr Br . Let T CaBr be the trade costs between country a’s inland area and country r’s border area, so TCa Br = TCa Ba × TBa Br . Let T CrBa be the trade costs between country r’s inland area and country a’s border area, so TCr Ba = TCr Br × TBa Br . In imperfect asymmetry, the non-participating inland area can bypass the border area to establish economic linkages with partner country r. Let T CaCr be the trade costs between inland areas of both countries, so TCaCr < TCa Ba × TBa Br × TCr Br . Let T CaBr be the trade costs between country a’s inland area and country r’s border area, so TCa Br < TCa Ba × TBa Br . Let T CrBa be the trade costs between country r’s inland area and country a’s border area, so TCr Ba < TCr Br × TBa Br . Suppose m is the coefficient of ratio of agriculture in country a’s region C to manufacturing in country a, and n is the coefficient of ratio

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of agriculture in country a’s region B to manufacturing in country a. The relationship between the relative levels of development of country a’s agriculture and manufacturing of these two regions is expressed as L Ca = m(K Ca + K Ba ), and L Ba = n(K Ca + K Ba ). When domestic agriculture is better developed than manufacturing, m > 1 and n > 1. When domestic manufacturing is better developed than agriculture, 0 < m < 1 and 0 < n < 1. Let i be the coefficient of ratio of agriculture in region C of country r to country r’s manufacturing, and j the coefficient of ratio of agriculture in region B of country r to country r’s manufacturing. The relationship between the relative levels of development of country r’s agriculture and manufacturing is and L Br = j (K Cr + K Br ). When the foreign country’s agriculture is better developed than its manufacturing, and j > 1. When its manufacturing is better developed than agriculture, 0 < i < 1 and 0 < j < 1. Let q be the coefficient of ratio of country a’s manufacturing to country r’s manufacturing, so the relationship between the relative levels of development of both countries’ manufacturing is K Cr + K Br = q(K Ca + K Ba ). When domestic manufacturing is better developed than foreign manufacturing, 0 < q < 1. When domestic manufacturing is less developed, q > 1. L Ca + L Ba = (m + n)(K Ca + K Ba ), L Cr + L Br = (i + j )(K Cr + K Br ), and K Cr + K Br = q(K Ca + K Ba ), so L Cr + L Br = q(i + j )(K Ca + K Ba ), j and L Cr + L Br = qi+q m+n (L Ca + L Ba ). When domestic agriculture is better developed than in partner country r, m +n > q(i + j ). When domestic agriculture is less developed, m +n < q(i + j). Conduct standardization and let K Ca =1, K Cr =1, so industrial agglomeration and dispersion are always expressed as inflow and outflow of human capital from/to regions participating in subregional cooperation of both country a and r. Areas participating in B-B SIEI are largely border areas that lag behind economically. Those with a bigger agricultural sector can provide more primary products and services for the industrial sector, and have industrial support capacity that appeals to external investment in an open economy. Since SIEC zones lag behind economically, important tasks for nearly all SIEC schemes are to foster local small and medium-sized enterprises (SMEs) and attract foreign investment for industrial development in these areas, although foreign investment comes from different countries. Therefore, in the quadruple model, the investment attractiveness of an SIEC

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zone depends on firms’ location choice between the border area that participates in subregional cooperation and the inland area that does not. In the long term, firms enter SIEC zones when their profit expressed as (WCa − W Ba ) becomes negative and leaves these zones when it turns positive. Human capital, on the other hand, enters SIEC zones when utility differential expressed as (VCa − VBa ) becomes negative, and exits when it becomes positive. In long-run equilibrium, the number of manufacture varieties is equal to that of firms in a region, corresponding to the amount of human capital, i.e., K s − Ns . But the number of firms and the amount of human capital can be different in the short term, which is demonstrated as disparities between wage and utility differentials. Agriculture in this model is in perfect competition, which has no factor mobility and provides primary goods and services. The increase in human capital in a region suggests a bigger market. Therefore, whether firms choose to locate in areas that participate in SIEC depends on the market potential, agriculture size, resource endowments (fixed production costs F . The better the resource endowments, the lower the F value) and ease of investment expressed as increased degree of SIEI. The changes in utility differential and the share of mobile factor (i.e., human capital), and 1 − λ, of the border area that participates in SIEC and the inland area that does not demonstrate the impact of SIEI on industrial agglomeration and dispersion forces in participating regions (see Appendix II for model construction).

4.3

Industrial Agglomeration Conditions

The sustain condition for the core-periphery structure is still determined by finding the total derivative near the equilibrium point. When the core-periphery structure comprising country a’s regions B and C is equilibrium, λCa = 1, λ Ba = 0. It is assumed that WCa = 1. Country a and country r are assumed to be symmetrical, so country r is also in a core-periphery structure, where λCr = 1, λ Br = 0. Examine the migration of a small proportion of human capital from country a’s region C to its region B near the equilibrium point, and compare their reward in region B with that of the remaining human capital in region C. Analysis is also conducted to see whether the decreasing T BaBR value, which reflects the reduction of border barriers and increase in degree of SIEI, leads to increasing reward to human capital W Ba in region B. If

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the result is affirmative, the core-periphery structure becomes unsustainable, and industries will disperse from the non-participating region to the participating region, setting off industrial agglomeration in the latter. In long-run equilibrium, the wage in country a’s region B is thus: ⎫ ⎧ 1−σ 1−σ TBa Br (L Cr + K Cr )TBrCr ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 1−σ 1−σ 1−σ 1−σ 1−σ 1−σ ⎪ ⎪ K T T T + K T T + K + K T ⎪ ⎪ Ca Ba Cr Br Ca Ba BrCr Ba Br Cr Br Ba Br Cr Br ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 1−σ ⎪ ⎪ (L Br + K Br )TBa Br ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ + ⎪ ⎪ ⎬ ⎨ 1−σ 1−σ 1−σ 1−σ α K Ca TCa Ba TBa Br + K Ba TBa Br + K Br + K Cr TCr Br W Ba = (4.1) ⎪ σ⎪ (L Ba + K Ba ) ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ + ⎪ ⎪ 1−σ 1−σ 1−σ 1−σ ⎪ ⎪ ⎪ ⎪ K Cr TBrCr TBa Br + K Br TBa ⎪ ⎪ Br + K Ba + K Ca TCa Ba ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 1−σ ⎪ ⎪ + K (L )T ⎪ ⎪ Ca Ca Ca Ba ⎪ ⎪ ⎪ ⎪+ ⎩ 1−σ 1−σ 1−σ 1−σ 1−σ 1−σ ⎭ K Cr TCa Ba TBrCr TBa Br + K Br TCa Ba TBa Br + K Ca + K Ba TCa Ba

When L Ca = L Ba = L Cr = L Br = K Cr = K Ca , since the two countries 1−σ 1−σ = K Ca are perfectly symmetrical, K BrCr Ba , Formula 4.1 is simplified as: ⎡ ⎤ ( ) 1−σ 1−σ T + 1 2T α ⎢ Ca Ba Ba Br 1 ⎥ (4.2) W Ba = ⎣ ( + 1−σ ⎦ )2 σ 1−σ 1−σ TCa Ba TCa T + 1 Ba Ba Br Find the derivative, and dW Ba = dTBa Br 2

|| ( )2 | | 1−σ 1−σ 1−σ (1 − σ )αTCa Ba TBa Br 2 − 2 TCa Ba σ

|(

1−σ TCa Ba

)2

1−σ TBa Br

|2 +1

(4.3)

d W Ba 1−σ Since (TCa Ba ) < 1, dT Ba Br < 0. It shows that strengthened cooperation in border areas, increased SIEI and reduced border barriers lead to increasing wage rates in border areas, satisfying the conditions for industrial agglomeration. Figure 4.1 shows the sustain conditions for the core-periphery structure comprising two regions of country a. As the degree of SIEI increases and border barriers are reduced, the border area that participates in subregional cooperation sees increasing wage rates and growing agglomeration forces for attracting human capital and firms. The changes in wage rates in the process are not consistent. When border barriers are very high,

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reduced border barriers only cause slight changes in region B’s wage rates. When border barriers keep decreasing to an extent, region B’s wage rates show a dramatic surge. Therefore, from a dynamic perspective, if there is a great development gap between the border area and the inland area, we should not expect to change the backwardness of the border area in a short period of time through improving the terms of cross-border trade and reducing transaction costs. Continuous efforts are required to improve the terms of trade and enhance SIEI participation. The superiority of participating in SIEC does not demonstrate in border areas until a sudden change in the rate of change of wage rates in these areas.

Fig. 4.1 Sustain conditions for core-periphery structure comprising two regions of country a

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4.4 Same-Origin Ethnic Groups and Regional Production Networks In border areas, it is common for people of the same ethnicity to live across the border. Their commonalities of language, characters, location and psychological characteristics have positive impacts on SIEI. Border areas are largely underdeveloped and have limited market potential. Industrial support capacity and SMEs are essential to their development. Therefore, the development of SMEs is considered an important area of cooperation in both the highly integrated and developed EU and the less integrated and less developed ASEAN. It is thus a distinct characteristic of B-B SIEI. The need for some special goods and consumer preferences of same-origin ethnic groups lay a foundation for the development of SMEs and conduces to the creation of regional production networks. 4.4.1

Special Goods for Ethnic Minority Groups and Consumer Preferences

Special goods for ethnic minority groups refer to goods necessary for ethnic minority groups in their lives and production activities, which embody their history, tradition and cultural characteristics.1 These goods include clothing, handicrafts, medicine, furniture and the like. Over time, as the market grows and the people’s living standards are improved, the goods required have also changed dramatically. In China, local authorities used to issue lists of necessities for ethnic minorities during the Eighth Five-Year Plan period. In 1997, the National Ethnic Affairs Commission of China gave a definition of special necessities for ethnic minorities and published the Catalog of Special Necessities for Ethnic Minority Groups based on advice from experts in various realms such as ethnology, folklore, commodity science and ethnic trade. The catalog includes more than five hundred varieties of goods in ten major groups, namely knitted fabrics and textiles, clothing, footwear and headgear, everyday utensils, furniture, sport and recreation articles, art and

1 The articles contained in the Catalog of Special Necessities for Ethnic Minority Groups compiled by the Chinese government are different from special goods for ethnic minority groups. The catalog does not include luxuries, but mainly includes essentials for life and production of ethnic minority groups. The government grants preferential policies based on the catalog.

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craft supplies, pharmaceutical products, production tools and tea bricks (compressed tea). It is a comprehensive list of articles that satisfy the special needs in lives and production activities of ethnic minorities in China. After another amendment in 2001, the catalog still contains over five hundred varieties in ten major groups. In China, these goods are only consumed in some areas by some ethnicities. Their production in areas inhabited by ethnic minority groups in SIEC zones has the advantages of proximity to consumers and weak external competition. On the other hand, as these goods satisfy the special needs of specific ethnic groups, they have a relatively small market and no economies of scale. Their manufacturers are not profitable unless the government has special preferential policies. In border areas where sameorigin ethnic groups live across the national border, the competition between manufacturers on both sides of the border further reduces the profit margin. Many border areas in SIEC zones do not have processing or manufacturing industries or are still in traditional agricultural society. These areas are often unable to manufacture such special goods for ethnic minorities and have to rely on manufacturers in the inland area where processing and manufacturing industries are better developed. These manufacturers concentrate in the inland area far from consumers because they need skilled local workers and supporting industrial facilities. As a result, ethnic consumers have to bear high transport costs. Subsidies are provided in varying amounts to compensate for the losses of manufacturers due to lack of economies of scale and high transport costs. For example, China adopts special preferential policies for manufacturers of special goods for ethnic minorities in its eastern coastal regions. The elasticity of substitution of special goods for ethnic minorities is very low, and many of these goods are not substitutable. The ethnic minority groups in border areas have special preferences because of their consumption habits and characteristics and income level. The low value of σ causes a high value of ρ, the Dixit-Stiglitz preferences. According to spatial economics, the sensitivity of regional price index to the number of available manufactures depends on σ , the elasticity of substitution between different varieties of manufactures. The lower the value, the greater the difference between varieties and the greater the decrease in price index caused by increase in product variety. Decrease in price index raises the utilities of consumers and increases consumption demand. Therefore, nurturing SMEs manufacturing special goods

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for ethnic minorities in these areas are the best way to achieve increasing returns to scale as captured in the D-S model. The manufacture of special goods for ethnic minority groups represents an area with the biggest market potential and potential for cooperation in areas inhabited by ethnic minorities in SIEC zones. Regional production networks and division of labor can effectively nurture and strengthen micro market players in these areas, creating conditions for attracting external investment and industrial agglomeration. 4.4.2

Creation of Regional Production Networks

For about two decades, transnational companies have been organizing production on a global or regional scale, leading to the development of intra-industry vertical trade and the extension of global supply chains. More countries and regions are incorporated into the international division of labor, resulting in the emergence of so-called global or regional production networks. The regional production networks comprising the US and Mexico, Germany and Eastern European countries, and East Asian economies are currently the three most remarkable ones (Ando and Kimura, 2003). The concept of regional production network is initially associated with Japanese enterprises. Japanese economist Ozawa claimed that Japan is a facilitator of industrial circulation and a capacity augmenter in East Asia (Ozawa, 2002), but not a market supplier. He argued that export to the rest of the world is the major way to unlock the production capacity in East Asia. Manufacturing enterprises in Japan are closely linked with enterprises in the rest of East Asia, forming Japanese-style networks of enterprises. In the networks, Japanese enterprises provide advanced technologies and components, enterprises of Taiwan, China, the ROK and so on provide intermediate components, and those in the mainland of China and ASEAN countries are responsible for assembly. In this way, Japanese firms have effectively integrated the production capacity in East Asia and become the major driving force for industrial integration of various forms in East Asia. In fact, Japan has been promoting the so-called flying geese pattern in this region since the 1960s. With the emergence of East Asian countries and technological changes, Japanese enterprises have developed a regional production network through direct investment in other Asian countries, official development assistance and intra-company trade, integrating the various factors of production of different countries

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(Hart-Landsberg and Burkett, 1998). A complicated production network has thus emerged, comprising economies and involving numerous value chains, which demonstrates the characteristics of various economies. Urata (2004) divided regional economic integration to two categories respectively driven by market forces and institutional factors. As East Asian countries are sensitive about ceding sovereignty, economic integration in this region has been driven by market forces. Despite the absence of institutional constraints, East Asia has reached a high level of integration. The networks of Japanese enterprises and overseas Chinese enterprises are the major organizational foundation for formation of regional production networks and East Asia’s economic integration.2 Due to historical and cultural factors, Chinese firms and enterprises form business networks according to their clans and hometowns (Naisbitt, 1996), which are mainly based on mutual trust between individuals or firms instead of legal contracts. Such organizational linkage gives Chinese business networks a natural advantage in overcoming political differences and non-tariff barriers. Since the linkages between firms are based on trust, they are not affected by political differences or other differences. It is a tradition of the Chinese community that family responsibilities take precedence over others, including responsibilities for political authorities. They make every effort to minimize the impact of politics on economy. Enterprises from Taiwan and Hong Kong, China, make direct investment in Southeast Asia and the mainland of China, seeking the optimum combination of production factors across the region. As a result, Chinese production networks have gradually become an important manufacturing force. Like the Chinese community, same-origin ethnic minority groups living across the border have a network of social relationship based on the same origin and religious belief, making it easy to form similar regional production networks. The above analysis shows that the formation of regional production networks is actually the dispersion of production and the result of division of labor in industrial cooperation. In B-B SIEC zones, on both sides of the border are underdeveloped border areas which do not appeal to foreign direct investment (FDI). Leveraging the resource complementarity and homogeneity of consumers in these areas and creating 2 Wang Jingwen, “A Study on Regional Production Networks in East Asia,” Doctoral dissertation, Jilin University, 2007.

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regional production networks for division of labor can facilitate industrial development and create conditions for industrial agglomeration in these areas.

4.5 Citizenship-Based Barrier Effect and Separation of Market The tendency to identify with same-origin ethnic groups and citizenshipbased barrier effect are like two edges of a sword. They represent two behaviors of the people living in border areas. National identity and ethnic identity are sometimes different in some border areas. As the sense of belonging to a nation takes root in people’s mind and national borders restrict people’s behavior, people living on both sides of the border, even they belong to the same ethnic group, identify with their respective countries and show strong home bias. Consequently, national borders show a citizenship-based barrier effect. If two countries have a wide development gap, the people of the same ethnic group living across the border show different home bias. If the people on both sides of the border are of different ethnic groups, the citizenship-based barrier effect becomes even stronger due to ethnical differences. B-B SIEC is considerably affected by citizenship-based barrier effect. 4.5.1

Citizenship-Based Barrier Effect of Borders

Besides the effects of physical geographical barriers and institutional barriers, borders also have citizenship-based barrier effect. The people within a national border mostly have home bias, national identity and pride in their country. National identity does not disappear even though the people in neighboring countries share the same language and characters and belong to the same ethnic group. The citizenship-based barrier effect of borders is even stronger when neighboring countries have different languages and characters, and are of different ethnicities. It is the strongest when neighboring countries are in a political or military confrontation, in which case the people on both sides of the border are hostile to each other. The effect abates when neighboring countries are in a friendly relationship, cooperation or economic integration, but does not disappear. This accounts for the almost unanimous support (eighty to ninety percent) of the residents of El Paso, a border town of the US, for Operation Blockade after Mexico signed the free trade agreement with

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the US in September 1993. Operation Blockade was designed to prevent the flow of illegal immigrants from Mexico. Seventy percent of the town’s population is of Mexican extraction, and most of these people went to the US two decades before the operation.3 Due to citizenship-based barrier effect of borders, the goods and investment of a country are at a disadvantage in competition in a foreign market in SIEI. Foreign goods and investment enterprises enjoy competitive advantages, and there is home bias in favor of domestic goods and firms. Such barrier effect is stronger when the impact of historical, political and military confrontations on citizens persists. In integration in Asia, for historical reasons, such barrier effect is stronger than the effect of physical geographical barriers. 4.5.2

Uniformity and Differentiation of Administrative and Market Boundaries

National borders are administrative boundaries of countries. The economic activities of a sovereign country or economy are inevitably constrained by borders. When countries exercise their economic power, national borders become market boundaries, with customs as the major indicator. The administrative boundaries of a closed economy coincide with its market boundaries. In an open economy, especially as the degree of SIEI increases, administrative and market boundaries gradually become different. The existence of areas within national territory but outside customs territory is the epitome of such differentiation. RIEI, whatever form it may take, aims to expand a country’s market boundaries. So does SIEI. The citizenship-based barrier effect of borders reinforces the uniformity of administrative and market boundaries and causes spatial separation of a market which is supposed to be integrated, hence impeding integration. The citizenship-based barrier effect is demonstrated in the microbehaviors of individual or groups of consumers, which sometimes conflict with a country’s macro decisions and opening-up policies. When countries introduce policies to open up its domestic market and attract FDI for long-term strategic goals, they may encounter resistance from some citizens because of the consequent competition against domestic products, 3 Pablo Vila, “Constructing Social Identities in Transnational Contexts: The Case of the Mexico-US Border,” trans. Huang Jisu, International Social Science Journal (Chinese), 1 (2000).

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impact on local industry or fat profits for foreign firms. This phenomenon is most pronounced in nation states. Partner countries can enhance SIEI and expand their own market boundaries through agreements, contracts or coordination between central governments. Nonetheless, due to the citizenship-based barrier effect, citizens may resist foreign products by buying domestic or local products instead of foreign ones. While national treatment is granted to foreign products, there is still invisible discrimination that creates separation of market in practice. Therefore, the citizenship-based barrier effect reduces the market expansion effects of borders. In the model of this chapter and in the following chapters, the citizenship-based barrier effect is captured in iceberg transport costs T BaR (B-C) and T BaBr (B-B) in perfect asymmetry and T CaR and T BaR (B-C) and T CaBr , T BaBr , T BaCr , and T CaCr (B-B) in imperfect symmetry.

4.6

Opening-Up Effects and Entrepot Trade

Since markets are separated by national borders, border areas, regardless of their physical geography, are peripheral areas in the domestic geographical structure of a country. Due to historical factors and expectations, the core-periphery structure is typical of domestic regional economies. For B-B SIEC zones, opening-up usually means more entrepot trade, through which they provide services for trade between better developed inland areas of cooperating countries. In cross-border economic cooperation zones with superior physical geography, the development of trade and service industries becomes the driving force for the formation of peripheral economic growth centers, and international cities tend to emerge in these zones. In cross-border economic cooperation zones with strong effects of physical geographical barriers, trade and service industries are only to be developed at some border ports with relatively good accessibility and their hinterlands, and the opening-up effect is relatively weak. In traditional trade and location theories, national borders comprise tariff and non-tariff barriers to trade. Tariffs and other restraints on international trade are believed to push up transport costs, distort market areas and supply networks, and increase the costs of producers located in border

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areas.4 McCallum (1995) calculated the differences between average logarithms of interregional trade in a country and across the border, which sparked extensive studies of border effects. McCallum found in his research that the trade between Canadian provinces was twenty-two times the trade between Canadian provinces and US states. Helliwell (1998) pointed out that border barriers reduced international trade by about twenty times. The empirical study of Anderson and Wincoop (2001) showed that national borders reduced trade between the US and Canada by forty-four percent, and reduced trade among other industrialized countries by thirty percent; due to borders, the trade between Canadian provinces increased by six times, while the trade between states in the US increased by twenty-five percent, which was attributed to the fact that Canadian economy was smaller than the US.5 Kei (2005) argued that in standard trade models, significant border effects are consistent only with high elasticities of substitution between goods or high national border barriers. Kei’s calibrated model of the endogenous vertical specialization of the US and Canada showed a much smaller border barrier and border effect than previous estimates.6 Wei (1996) concluded that the border effects between OECD countries were about two and a half times, much smaller than between the US and Canada. Olper and Raimondi (2005) assessed the trade in agricultural products between twenty-two OECD countries from 1995 to 2002 with a gravity model, and found that crossing a national border into OECD countries induced a tradereduction effect by a factor of eight.7 Nitsch (2002) examined the border effects in the trade between West Germany and East Germany and found home bias of about factor 2.2, showing that national borders had negative effects on trade; West German shipments to East Germany were 4 Annekatrin Niebuhr, and Silvia Stiller, “Integration Effects in Border Regions—A Survey of Economic Theory and Empirical Studies,” HWWA DISCUSSION PAPER 179 (Hamburg: Hamburgisches Welt-Wirtschafts-Archiv (HWWA), 2002), 6. 5 James E. Anderson, and Eric van Wincoop, “Gravity with Gravitas: A Solution to the Border Puzzle,” NBER WORKING PAPER SERIES, http://www.nber.org/papers/ w8079, 1–6. 6 Kei-MuYi, “Vertical Specialization and the Border Effect Puzzle,” Working Paper No. 05–24, October 2005, www.philadelphiafed.org/econ/wps/index.html, 2. 7 Alessandro Olper, and Valentina Raimondi, “Access to OECD Agricultural Market: A Gravity Border Effect Approach,” Paper prepared for presentation at the 99th seminar of the European Association of Agricultural Economists, The Future of Rural Europe in the Global Agri-Food System, Copenhagen, Denmark, 24–27 August 2005, 1.

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about 120 percent larger than deliveries to an otherwise similar foreign country.8 Requena and Llano (2006) measured the internal border (home bias) and external border (frontier) effects in Spain and found that the average border effects are about twenty-five and five, respectively. They argued that border effects were larger in industries with a high degree of product differentiation, and the internal border effect is twice bigger for trade in intermediate goods than trade in final goods. According to Requena and Llano, the geographic concentration of firms reduces the internal border effect, so endogenous border effects should minimize welfare consequences.9 Helble (2006) used data on regional transport flows in France and Germany to measure the border effects in these two countries. They found that France traded about eight times more and Germany about three times more with itself than with other EU countries.10 All these empirical researches revealed border barriers to trade, even in EU countries where RIEI is at a high level. Cross-border economic cooperation zones convert the border areas of neighboring trading partners into a supplement to domestic market, hence removing border barriers to trade. In this case, border areas function as entrepots. Border areas of cooperating countries, which lag behind their respective inland areas in manufacturing, serve as entrepots for the inland areas. SIEC zones thus face competition in trade and services, not in manufacturing. Competitive advantages in the zone do not come from resource endowments, but from reduction of iceberg transport costs.

4.7

Summary

Many of the existing economic cooperation programs, such as the ChinaKazakhstan cross-border cooperation zone, the Tumen River Growth Triangle, the cross-border cooperation in the Upper Rhine region, the US-Mexico economic cooperation in border areas, the cooperation

8 Volker Nitsch, “Border Effects and Border Regions: Lessons from the German Unification,” HWWA DISCUSSION PAPER 203 (Hamburg: Hamburgisches WeltWirtschafts-Archiv, 2002), 1. 9 Francisco Requena and Carlos Llano, “The Border Effects in Spain: An Industry-Level Analysis.” Paper to be presented in ETSG Annual Conference, Vienna, August 2006. 10 Matthias Helble, “Border Effect Estimates for France and Germany Combining International Trade and Intra-national Transport Flows,” HEI Working Paper No: 13/2006, January 2006, 4.

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between Yunnan, China and northern Laos and a lot of border economic cooperation zones in Europe, demonstrate the typical spatial structure of B-B SIEI. They are all international economic cooperation programs participated by border areas of one or several countries. Therefore, this chapter constructs a quadruple core-periphery model comprising two areas in each of two countries and derives the expression of industrial agglomeration conditions. Numerical simulations show that reduced border barriers and increased SIEI generally favor the agglomeration of domestic factors and industries in regions participating in subregional cooperation. Whether firms choose to locate in areas that participate in SIEC depends on the market potential, agriculture size, resource endowments (fixed production costs F . The better the resource endowments, the lower the F value) and investment and trade facilitation which translate into an increased degree of SIEI of the cooperation zone. SIEC zones comprising two or more border areas are largely peripheral areas of the participating countries. These areas are inhabited by ethnic minority groups, many sharing the same ethnic origin. This has created a market with a common demand for special goods, which contributes to the creation of regional production networks, development of SMEs and economic growth of cooperation zones. National borders cause citizenship-based barrier effect and separate the market which is supposed to be integrated. Increased SIEI and transformation of border effects from barrier effects to opening-up effects will give cooperation zones in peripheral areas advantages in and conditions for developing entrepot trade.

CHAPTER 5

Spatial Structure and Regional Agglomeration of B-C SIEC

Regional industrial agglomeration in B-C SIEC depends on the resource endowments, level of economic development and industrial structure of the partner country. Domestic industrial structure, interregional transport costs and spatial structure also have a significant impact.

5.1 Resource Endowments of the Partner Country and Industrial Agglomeration Advantages in resource endowments are important incentives for firms to invest in SIEC zones. For a national or regional economy, its resource endowment advantages can be either absolute or relative. In the first case, a country or a region is superior to others in terms of the absolute amount of resources. In the second case, it does not have a greater absolute amount of resources, but resources dominate its domestic industrial structure, and resource industries have comparative advantages in the economy. If the partner country has large agriculture and resource industries, strong labor endowments and essential industrial support capacity, it appeals strongly to investment. For country a which participates in subregional cooperation, the spatial structure of its two domestic regions has a significant impact on factor agglomeration.

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_5

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5.1.1

Resource Advantages and Symmetry

If regions B and C are perfectly symmetrical, dispersed distribution of domestic factors of production is still the optimal choice and is the only stable equilibrium point (as shown in Fig. 5.1). In this case, the border area that participates in SIEC does not derive greater advantages from such cooperation, because the inland area has the same advantages and trade costs in accessing the foreign market. Reduced border barriers only increase the slope of VCa − VBa and WCa − W Ba . Since it is equally convenient for both inland and border areas to enter partner country R, reducing border barriers only causes them to attach more importance to the market of the partner country and intensifies domestic interregional competition. Therefore, factor agglomeration can only be achieved by raising utility and wage differentials. Perfect symmetry is theoretically possible, but it is hard to find such an interregional economic structure in practice.

Fig. 5.1 Factor movements in the case of foreign resource advantages and domestic symmetry

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Resource Advantages and Perfect Asymmetry

If regions B and C are perfectly asymmetrical, meaning that region C not participating in subregional cooperation has to pass through region B that participates to enter the market of partner country R, region B enjoys complete location advantages in participating in SIEC and appeals strongly to domestic interregional factor agglomeration. In this case, when international border barriers are lowered, the higher the degree of integration, the more significant the advantages the border area can derive from participating in SIEC. Perfect asymmetry captures the characteristics of border areas of landlocked countries that participate in SIEC. Under these circumstances, the intensity of industrial agglomeration forces is determined by the reduction of domestic interregional transport costs and border effects. Examine the circumstance where m = 1.1, n = 1, o = 5, q = 1: When TBa R = 1.8, dλ∗ /dT Ca Ba > 0, but is not sensitive to the change in T CaBa . The improvement in domestic interregional transport conditions and the reduction of interregional transport costs conduce more to industrial agglomeration in the region with manufacturing advantages that does not participate in subregional cooperation, but the rate of change is rather slow. In spatial economics, when primary resource endowments are evenly distributed between two regions, the reduction of transport costs facilitates the agglomeration of industries in one of these two regions. But when transport costs become very low, industries tend to disperse between two regions. When resource endowments are not evenly distributed between these regions and the inland area has better endowments due to historical factors and circular causation, the reduction of interregional transport costs has different effects on agglomeration forces and dispersion forces in two regions. When domestic transport costs decrease from the level of TCa Ba = 1.6, ∂(VCa − VBa )/∂λ < 0, agglomeration forces are stronger than dispersion forces in the border area participating in subregional cooperation. Demand-wise, ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca Ba > 0, the reduction of domestic interregional transport costs increases the industrial share of the region that does not participate in subregional cooperation. Supply-wise, ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca Ba = 0, and the region that does not participate in subregional cooperation, which is previously more developed, has strong agglomeration forces, but the reduction of

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domestic interregional transport costs does not have any impact on the supply of manufactures in regions B and C. When TCa Ba = 1.6, reduce international border barriers and increase SIEI, ∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ba R > 0. ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R > 0, and industrial agglomeration on the demand side shows that agglomeration forces are stronger than dispersion forces in the border area participating in subregional cooperation. ∂(PBa /PCa )/∂λ < 0, so dλ∗ /dT Ba R < 0, and industrial agglomeration on the supply side shows that agglomeration forces are stronger than dispersion forces in the inland area that does not participate in subregional cooperation. Under the combined effect of both forces, the reduction of international border barriers and border effects contributes to agglomeration in the inland area that does not participate in subregional cooperation (as simulated in Fig. 5.2), although the initial level of economic development of the border area and inland area is an important factor. Perfect asymmetry is an unrealistic assumption for countries with coastal ports, especially in international trade where marine transport is much cheaper than land transport. In the trade between inland Chinese provinces and other GMS countries, for example, goods are mainly exported through the coastal ports in Guangzhou, Shanghai and other places, not through Yunnan or Guangxi. It is therefore more realistic to assume imperfect symmetry between two domestic regions.

Fig. 5.2 Factor movements in the case of foreign resource advantages and domestic perfect asymmetry

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Resource Advantages and Imperfect Symmetry

In imperfect symmetry, when the partner country has greater market potential or resource endowment advantages, the domestic region not participating in subregional cooperation has comparative location advantages if they can enter or invest in the partner country without having to pass through the region that participates in subregional cooperation. The investment attractiveness of the latter is reduced. Examine the circumstance where m = 1.1, n = 1, o = 5, q = 1: When cross-border trade costs of country a’s regions B and C remain at 1.8 and 1.6, i.e., TCa R = 1.8, TBa R = 1.6, the reduction of domestic interregional transport costs results in these economic characteristics: ∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ca Ba = 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca Ba = 0; ∂(PBa /PCa )/∂λ < 0, so dλ∗ /dT Ca Ba = 0. Since the border barriers to the partner country do not change for both regions, such reduction does not change the spatial distribution of industries. When TCa R = 1.8, TCa Ba = 1.7, lower cross-border trade costs for the region participating in subregional cooperation and increased subregional integration result in these economic characteristics: ∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ba R > 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R > 0, but is not sensitive to the change in T BaR ; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0, but is sensitive to the change in T BaR . This shows that reduced border barriers and increased subregional integration conduce to industrial agglomeration in the region that participates in subregional cooperation (as simulated in Fig. 5.3). They also cause a larger scale of industrial relocation from the region not participating in subregional cooperation to the border area that participates in such cooperation, and enhance industrial agglomeration in the border area. The higher the degree of integration, the greater the intensity of industrial agglomeration. In conclusion, when the partner country has greater market potential or resource endowments, whether the region participating in subregional cooperation can derive advantages from SIEI depends on the domestic interregional relationship in foreign trade. The closer the interregional ties, the more benefits that can be obtained from subregional cooperation.

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Fig. 5.3 Factor movements in the case of foreign resource advantages and domestic imperfect symmetry

5.2 Small Market Potential in the Partner Country and Industrial Agglomeration Market potential is the main driver of international economic cooperation, but a common challenge for B-C SIEC zones is small marker potential. If the partner country has small market potential, its market is relatively unimportant, while dispersed distribution of factors between domestic regions becomes more important. If the partner country has low resource endowments, its investment attractiveness is not strong. Nor are agglomeration forces in country a’s SIEC-participating region. 5.2.1

Small Market Potential and Symmetry

When two domestic regions are perfectly symmetrical, if they are initially at the same level of economic development, the only stable equilibrium point is still λ = 0.5. The border area does not show significant advantages in participating in subregional cooperation (see Fig. 5.4). In such a case, reducing border barriers can only change the slope of VCa − VBa and WCa − W Ba and make the curve steeper. Therefore, when the border area does not have advantages, or has a disadvantage, in access to a partner

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Fig. 5.4 Factor movements in the case of small market potential in the partner country and domestic symmetry

country without much market potential, participation in SIEC is not very worthwhile. If two domestic regions are initially at different levels of development, the location advantage of proximity to the partner country has some impact. 5.2.2

Small Market Potential and Imperfect Symmetry

When two domestic regions are imperfectly symmetrical, as the partner country has weak attractiveness to investment and trade, and the border area participating in SIEC does not enjoy absolute advantages in access to the subregional market, factors tend to concentrate in the inland area, and the border area has almost no agglomeration forces. Utility differentials between two domestic regions do not change from negative to positive unless it is raised to a higher level (see Fig. 5.5). If the inland area not participating in subregional cooperation is better developed than the border area, increased SIEI will intensify factor agglomeration in the inland area, which has a negative impact on industrial agglomeration in the border area. Examine the circumstance where m = 1.1, n = 1, o = 0.2, q = 1:

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Fig. 5.5 Factor movements in the case of small market potential in the partner country and domestic imperfect symmetry

When TCa R = 1.8, TBa R = 1.6, the reduction of domestic interregional transport costs results in these economic characteristics: ∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ca Ba < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca Ba < 0; ∂(PBa /PCa )/∂λ < 0, so dλ∗ /dT Ca Ba = 0. It shows that when international border barriers remain unchanged, better transport conditions and lower transport costs between domestic regions have a negative impact on industrial agglomeration in the border area that participates in subregional cooperation, because the inland area is more attractive to investment. When TCa R = 1.8, TCa Ba = 1.5, the reduction of border barriers between the SIEC-participating region and the partner country and the increase in SIEI result in these economic characteristic: ∂(VCa −VBa )/∂λ < 0, so dλ∗ /dT Ba R < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0. Even when border barriers between the non-participating region and the partner country remain unchanged, as domestic interregional transport costs are relatively low, the improvement in cross-border transport conditions in the cooperation zone intensifies the forces that drive factor agglomeration from the border area to the inland area, hence weakening investment attractiveness of the former. When TBa R = 1.6, TCa Ba = 1.5, the reduction of border barriers between the region not participating in subregional cooperation and the

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partner country and improvements in ease of investment result in these economic characteristic: ∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ca R < 0; but ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca R < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca R > 0. In such a case, industries mainly concentrate in the region that does not participate in subregional cooperation, further depriving the region participating in subregional cooperation of investment attractiveness. 5.2.3

Small Market Potential and Perfect Asymmetry

When two domestic regions are perfectly asymmetrical, though the partner country is not attractive to trade and investment, the open environment enhances the resource and industrial complementarity. The region that does not participate in subregional cooperation needs to enter the partner country through the border area participating in cooperation, giving the latter location advantages. The border area thus becomes relatively important and sees increasing industrial agglomeration forces (as shown in Fig. 5.6). When SIEI is increased in such a case, the greater the reduction of border barriers, the more attractive the border zone is to domestic factors in domestic interregional flow and the higher the degree of industrial agglomeration.

Fig. 5.6 Factor movements in the case of small market potential in the partner country and domestic perfect asymmetry

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Examine the circumstance where m = 1.1, n = 1, o = 0.2, q = 1: When TBa R = 1.6, the reduction of domestic interregional transport costs results in the following economic characteristics:∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ca Ba < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca Ba < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca Ba = 0. It shows that the cost reduction in this case increases the industrial share of the region not participating in subregional cooperation. The greater the reduction, the less attractive the border area is to investment. This is because firms on the demand side can make greater profits by clustering in the inland area, while the price index on the supply side does not show significant changes. Therefore, it only benefits the non-participating region if efforts are only made to improve infrastructure such as transport between the region that participates in subregional cooperation and the region that does not without changing border barriers. When TCa Ba = 1.5, reduced border barriers and increased SIEI result in the following economic characteristics:∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ba R < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0. The partner country does not appeal to investment and trade, and the border area participating in subregional cooperation is at a low level of economic development. In this case, for the border area, reduced international border barriers cause fiercer industrial competition from the partner country. Firms hence tend to locate in the inland area where they can better benefit from knowledge spillovers and increasing returns to scale. Industrial agglomeration tends to form in the inland area. For China’s Yunnan and Guangxi that participate in the GMS program, except for border ports which have thus gained strong agglomeration forces, the rest of these two places have not benefited significantly from the cooperation. In part, this is because of the economic gap between China and other GMS countries. Another reason is that the costs of land transport to Laos, Myanmar, Thailand and other GMS countries are higher than maritime transport through Guangzhou and other coastal ports of China (see Chapter 10 for a detailed comparative analysis).

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Level of Industrialization of the Partner Country and Industrial Agglomeration

Many researches of south-south international economic integration attribute the slow progress of south-south international economic cooperation to economic underdevelopment. A common phenomenon in B-C SIEC zones is also economic backwardness and low level of industrialization of partner countries. According to the theory of economic development, some countries are in a pre-industrial agricultural society and are bound to industrialize. This is an important reason why sovereign countries are ready to pursue subregional cooperation with regions of better developed countries even though they are not equivalent sovereignty-wise. Whether the partner country has started industrialization has an impact on SIEC. The above section has shed some light on this point. This section focuses on the impact of developed and specialized manufacturing in the partner country on factor agglomeration and firms’ location choice. 5.3.1

Industrialized Partner Country and Symmetry

If the subregion consists of countries with developed manufacturing, the market of the partner country is very important. When two domestic regions are perfectly symmetrical in cooperation with the partner country, they have the same terms of trade in their access to the foreign market. The dispersed distribution of factors of production is stable (see Fig. 5.7), and reducing border barriers does not cause factor flow between the two regions. When they are initially at the same level of economic development, it is the only stable equilibrium point. Increasing the degree of integration and reducing border effects do not change the value of or the slope of VCa − VBa and WCa − W Ba . Symmetry is not realistic, so we will not elaborate on it. 5.3.2

Industrialized Partner Country and Perfect Asymmetry

Where two domestic regions, i.e., region B that participates in SIEC and region C that does not, are perfectly asymmetrical, region C must pass through region B to enter the foreign market. The foreign market with developed manufacturing is very attractive to domestic firms, and their optimal choice is to set up factories in region B, so region B has strong

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Fig. 5.7 Industrial agglomeration in the case of industrialized partner country and domestic symmetry

Fig. 5.8 Industrial agglomeration in the case of industrialized partner country and domestic perfect asymmetry

forces for agglomeration of factors of production (as shown in Fig. 5.8). In this case, increasing SIEI and reducing border barriers contribute significantly to the economic development of region B. Examine the circumstance where m = 1.2, n = 1, o = 1, q = 5: When TBa R = 1.5, at an appropriate level of transport costs between domestic regions, the competition from the manufacturing sector of the

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partner country is the major force. Country a’s region B that participates in subregional cooperation does not have advantages in industrial agglomeration. Only by reducing domestic interregional transport costs to a very low level so that it is very easy to gain access to the internal market from the region participating in cooperation, there is a likelihood of industrial agglomeration in the border area. In this case, further reduction of the transport costs between domestic regions results in these economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ca Ba < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca Ba = 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca Ba = 0. When TCa Ba = 1.3, reducing border barriers and increasing SIEI result in these economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ba R < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0. At very low levels of domestic interregional transport costs, increasing SIEI conduces to industrial agglomeration in the region that participates in cooperation. The higher the degree of integration, the lower the industrial share needed by the border area participating in subregional cooperation to have agglomeration forces, and the more attractive it is to industrial investment. 5.3.3

Industrialized Partner Country and Imperfect Symmetry

In imperfect symmetry, the region that does not participate in subregional cooperation faces lower barriers to entry to the partner country than in perfect asymmetry. In comparison, manufactured goods from the partner country pose stronger competition in imperfect symmetry. Industrial agglomeration forces in the border area (region B) that participates in SIEC become significantly stronger (see Fig. 5.9). Examine the case where m = 1.5, n = 1.4, o = 1, q = 5: When TCa R = 1.8, TBa R = 1.7, reducing domestic interregional transport costs results in these economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ca Ba < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ca Ba < 0, due to external competition, the spatial distribution of industries is very sensitive to the change in domestic transport costs; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca Ba < 0, the price index is very insensitive to the changing spatial distribution of industries caused by the changes in domestic transport costs. In summary, reducing domestic interregional transport costs facilitates industrial agglomeration in the region that participates in subregional cooperation.

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Fig. 5.9 Industrial agglomeration in the case of industrialized partner country and domestic imperfect symmetry

When TCa R = 1.8, TCa Ba = 1.5, the mere reduction of border barriers between the region that participates in subregional cooperation and the partner country results in these economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ba R < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R < 0, due to external competition, the spatial distribution of industries is very sensitive to the changes in domestic transport costs; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0, the price indexes are very insensitive to the changing spatial distribution of industries caused by the changes in domestic transport costs. In summary, reducing domestic interregional transport costs facilitates industrial agglomeration in the region that participates in subregional cooperation.

5.4 Domestic Industrial Structure and Resource-Seeking Investment In B-C SIEC, the characteristics of the industrial structure of partiallyparticipating countries, i.e., those participate with some of their border areas, also have a significant impact on SIEC. In countries with a high level of industrial specialization, industrial agglomeration forces are strong in the region that participates in subregional cooperation, and the investment in subregional cooperation zones by non-participating region is primarily in search of resources. Conversely, in countries with a low

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level of industrial specialization, the regions that participate in subregional cooperation have weak industrial agglomeration forces, because the industrial competition from the partner country is stronger. If the partner country has a high level of industrialization and specialization, increased SIEI facilitates industrial agglomeration in the region that participates in the cooperation. Otherwise, the competition effect resulting from subregional cooperation is stronger than the cooperation effect, and industries are more inclined to agglomerate in the inland area. The initial level of economic development, spatial structure, iceberg transport costs and border effects of the two domestic regions are all important factors affecting industrial agglomeration. 5.4.1

Industrialized Home Country and Symmetry

When two domestic regions are perfectly symmetrical in cooperation with the foreign country, they have the same terms of trade in accessing the foreign market. The dispersed distribution of factors of production remains stable (see Fig. 5.10), and reducing border barriers does not cause factor flow between the two regions. When they are initially at the same level of economic development, it is the only stable equilibrium point. Increasing the degree of integration and reducing border effects do not change the value of or the slope of and WCa − W Ba . Symmetry is not realistic, so we will not elaborate on it either. 5.4.2

Domestic Industrialization and Perfect Asymmetry

The region that participates in SIEC has strong industrial agglomeration forces if the country is highly industrialized. In perfect asymmetry, region B that participates in SIEC sees increasing industrial agglomeration forces thanks to its absolute location advantages. But such forces are weakened by the relatively low level of initial economic development (see Fig. 5.11). This is demonstrated through simulations with a tripartite model. Examine the circumstance where m = 0.6, n = 0.5, o = q = 1: When TBa R = 1.5, the reduction of high domestic interregional transport costs does not have a significant impact on industrial agglomeration in both regions, and industrial agglomeration forms in the inland area. When domestic interregional transport costs are reduced to a low level, further reduction results in these economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ca Ba < 0; ∂(WCa − W Ba )/∂λ < 0, so

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Fig. 5.10 Factor movements in the case of domestic industrial specialization and symmetry

Fig. 5.11 Factor movements in the case of domestic industrial specialization and perfect asymmetry

dλ∗ /dT Ca Ba < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca Ba = 0. It shows that at a high level of domestic interregional transport costs, the initially better developed inland area has industrial agglomeration forces. In this case,

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such cost reduction cannot change the pattern. Only after its continuous decline can agglomeration forces emerge in the border area. When TCa Ba = 1.3, reducing border barriers and border effects and increasing SIEI result in the following characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ba R < 0; ∂(WCa − W Ba )/∂λ < 0, so dλ∗ /dT Ba R < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0. It shows that when domestic interregional transport costs are very low, increasing SIEI contributes to industrial investment in the border area that participates in subregional cooperation. 5.4.3

Domestic Industrialization and Imperfect Symmetry

Region C that does not participate in SIEC can also directly invest in the partner country or conduct trade with it. In this case, the investment attractiveness of the region participating in subregional cooperation is weaker than in perfect asymmetry (see Fig. 5.12). Examine the circumstance where m = 0.6, n = 0.5, o = q = 1: When TCa R = 1.8, TBa R = 1.6, the reduction of domestic interregional transport costs results in the following economic characteristics: ∂(VCa − VBa )/∂λ < 0, so dλ∗ /dT Ca Ba < 0; ∂(WCa − W Ba )/∂λ is indeterminate; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca Ba < 0. It shows that when

Fig. 5.12 Factor movements in the case of domestic industrial specialization and imperfect symmetry

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the inland area is better developed initially, only by continuously reducing domestic interregional transport costs can the border area attract industrial investment. When domestic interregional transport costs decline to an even lower level, its further reduction increases agglomeration forces in the border area, but the agglomeration is not the product of subregional cooperation. When TCa R = 1.8, TCa Ba = 1.3, reducing the international border barriers for the region participating in subregional cooperation and increasing SIEI result in the following economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ba R < 0; ∂(WCa − W Ba )/∂λ is indeterminate; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ba R < 0. It shows that increased SIEI facilitates the access to the market of the partner country, making the region participating in cooperation more attractive to industrial investment. When TBa R = 1.8, TCa Ba = 1.3, reducing the international border barriers—including tariff and non-tariff barriers—between the region not participating in subregional cooperation and the partner country results in the following economic characteristics: ∂(VCa − VBa )/∂λ > 0, so dλ∗ /dT Ca R > 0; ∂(WCa − W Ba )/∂λ > 0, so dλ∗ /dT Ca R < 0; ∂(PBa /PCa )/∂λ > 0, so dλ∗ /dT Ca R > 0. Since the region that does not participate in subregional cooperation has relative location advantages, the reduction of barriers to entry to the partner country weakens industrial agglomeration forces in the region participating in subregional cooperation. A typical example is the impact of the ASEAN-China FTA on Yunnan, China. Following its launch, many fruits and vegetables from Thailand that entered China through Yunnan by land transport are imported through China’s coastal regions. The industrial agglomeration forces in Yunnan, a participant of subregional cooperation, have thus been weakened. The results of the above dynamic simulations show that domestic industrial structure has a significant impact on the spatial distribution of economic activities. If domestic manufacturing is large, agglomeration forces are stronger in the border area. If domestic manufacturing is smaller than in the partner country, the competitive effect from abroad dominates, and manufacturing prefers agglomeration in the inland area. The larger the domestic manufacturing share and the smaller the foreign manufacturing sector, the stronger the tendency for domestic manufacturing to locate in the border area.

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Resource-Seeking Investment

An important motive for direct investment is to combine capital with other factors of production (especially labor) to build productivity and stimulate economic growth. Dunning (1980), Porter (1990) and some other researchers believed that host country’s market size is an important determinant of FDI. Dunning’s eclectic theory of international production is a well-conceived theory which explains the decisionmaking process of multinational companies in international production. According to the theory, a multinational company only makes FDI when it has ownership advantages, internalization advantages and location advantages. Krugman’s new trade theory claims that in an imperfectly competitive world, trade and investment are driven by external economies of scale stemming from agglomeration effects and internal economies of scale resulting from internal capacity. The external economies of scale depend on the size of the market. However, Xiang (2009) found that the market size of host countries had a significant negative impact on China’s overseas investment. Xiang argued that Chinese companies making foreign investment were not very competitive in developed countries with big markets, so their investment was largely in countries and regions in Asia and Latin America where the markets were smaller.1 More researches on China’s FDI focus on investment motives. The location choice in FDI is determined by motives of firms for cross-border operation. Inspired by different motives or a combination of motives, firms make different location choices with the existing resource endowments in the institutional framework of countries. Dunning divided FDI into four categories, namely market-, resource-, efficiency- and strategic asset-seeking FDI.2 Resource constraints become very strong when a country that participates in SIEC is industrializing. If the partner country has underdeveloped industry and rather limited market potential, SIEC focuses on resource exploitation. These countries benefit from knowledge spillovers and human resources training by attracting direct investment, while the

1 Xiang Benwu, “An Empirical Research on the Features of Host Country and China’s Direct Investment Abroad,” The Journal of Quantitative & Technical Economics, 7 (2009). 2 John H. Dunning, “Toward an Eclectic Theory of International Production: Some Empirical Tests”, Journal of International Business studies, 11 (1980): 9–31.

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home country of investment obtains resources through direct investment. This is especially true for countries in the economic take-off stage, which impose increasing restrictions on resource export. In this case, resource trade is replaced by direct investment, and resource-seeking direct investment has become a typical characteristic of B-C SIEC. Empirical analysis by Hu and Li (2008) and other researchers shows that developed countries are not the destination for China’s marketseeking direct investment. The markets of developed countries in North America, Western Europe and Japan are mature and big, with high levels of market segmentation and consumption and abundant investment opportunities. However, there are also fierce competition and high barriers to entry on these markets, so it is difficult to get a foothold without a product or technology that enables a relative advantage. Market-seeking firms are thus motivated to invest in developing countries with smaller markets and less fierce competition. Chinese investment in these countries is largely motivated by resources, but ignores their potential market demand. Rich mineral resources or potential markets in these countries have promoted China’s direct investment in developing countries.3

5.5

Summary and Implications

For countries partially involved in cooperation, factor movements and industrial agglomeration in B-C SIEI are significantly influenced by market potential, resource advantages and level of industrialization of partner countries. Domestic industrial structure, interregional transport costs and spatial structure also have a major impact on SIEC. Whether industrial cooperation can be enhanced by reducing border barriers between a country’s SIEC-participating region and its partner countries and increasing SIEI depends on the industrial structure of the country and its partner countries. Continued reduction of domestic interregional transport costs is also an important factor. If the partner country has large agriculture and resource industries, strong labor endowments and essential industrial support capacity, its investment attractiveness is very strong. The domestic spatial structure of partially-participating countries has an impact on factor agglomeration: 3 Hu Bo, and Li Ling, “Empirical Research on the Determinants of Chinese Outward Foreign Direct Investment Location Choice,” Journal of International Trade, 12 (2008).

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agglomeration forces emerge in the border area in perfect asymmetry and weaken in imperfect symmetry. This has important policy implications for the participants of cooperation. Countries should realize that resource-seeking FDI outweighs cooperation and coordination for market-oriented foreign trade, and that investment of domestic firms in other countries participating in subregional cooperation outweighs industrial dispersion from its inland area to border area. The region participating in subregional cooperation should encourage agglomeration of import processing industries, which are more profitable than exportoriented ones. Compared with developing its own upstream industries to compete with partner countries, it is more beneficial to use the upstream industries of these countries to complement local industries. If the partner country has small market potential, its market is relatively unimportant, while domestic dispersed distribution of factors between regions becomes more important. In this case, the partner country is not attractive to investment. The region participating in cooperation does not have strong agglomeration forces, the declining trend of which is exacerbated by imperfect symmetry. The policy implications are clear: economic benefits should be considered as a long-term rather than short-term goal of cooperation, and more emphasis should be placed on economic development in the region that participates in cooperation. To this end, it is important to provide the border area participating in cooperation with an institutional supply to improve its infrastructure. The market of the partner country is very important if it has a high degree of industrialization and a developed manufacturing. In domestic perfect asymmetry, the border area has absolute location advantages and strong agglomeration forces. Increasing SIEI conduces to industrial cooperation in border areas. This provides the following policy implications. First, domestic transport conditions between non-participating and participating regions should be improved to strengthen the interregional economic linkages and abolish the separation of market. Compared with SIEI, it is more important to advance domestic regional economic integration. This will not only increase industrial agglomeration forces in the participating region, but also enhance the competitiveness of domestic firms in the inland and border areas. Second, efforts are required to advance the integration of all cooperating countries, reduce border barriers and enhance the stimulating effect of partner countries on industrial development in domestic regions that participate in cooperation. Border areas should make industrial policies to promote industries

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complementary to partner countries. They should also promote trade and logistics to facilitate the inland area’s international market expansion efforts. These industries are more profitable for firms than import processing industries. In a highly specialized country, the region that participates in subregional cooperation has strong industrial agglomeration forces, and the region that does not participate in subregional cooperation makes investment in subregional cooperation zones mainly to seek resources. In countries that are not highly specialized, the region that participates in subregional cooperation has weak industrial agglomeration forces and faces fiercer industrial competition from partner countries. If a country participating in subregional cooperation is highly industrialized and specialized, the increase in SIEI contributes to industrial agglomeration in the participating region. If the country has a low level of industrialization and specialization, participation in subregional cooperation results in a stronger competition effect than a cooperation effect, and industries are more inclined to agglomerate in the inland area. The initial economic development level, spatial structure, iceberg transportation costs and border effects of two domestic regions are important factors affecting industrial agglomeration. This provides the following policy implications. Countries with a high level of industrial specialization should develop resource-based industries in partner countries and the domestic region participating in subregional cooperation. They should invest in parts of industrial chains depending on the level of development and encourage industrial clusters as an important way of promoting SIEI. Countries with a low level of industrial specialization should improve infrastructure and industrial supporting capacity in its region that participates in cooperation to attract investment from partner countries. They should also promote basic and resource-based industries in this region, take advantage of industrial development in partner countries and advance SIEI for long-term economic benefits.

CHAPTER 6

Spatial Structure and Regional Agglomeration of B-B SIEC

The regions participating in B-B SIEC programs are relatively less developed border areas of the countries involved. These programs thus involve a lower level of cooperation than the B-C type and cover fewer areas of cooperation. Border trade and entrepot trade are important forms of international economic cooperation for such programs. Regional industrial agglomeration in B-B SIEC is mainly determined by spatial structure and industrial structure of the countries involved in subregional cooperation.

6.1

Domestic Resource Endowments and Industrial Agglomeration

If a country has relative resource advantages, developed agriculture, abundant labor and a resource-industry-dominated economy (meaning m > 1 and n > 1 in the model), its economy is often at the stage of economic take-off or early industrialization. With manufacturing concentrating in a few core areas, its internal geographical structure shows the characteristics of a central-peripheral pattern, with the border area lagging badly behind the rest of the country. In an open economy, factors are more inclined to agglomerate in the inland area due to external competition, causing more industrial competition than industrial cooperation in the region that participates in B-B SIEC. The intensity of industrial competition in the border area resulting from participation in subregional cooperation © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_6

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depends on the level of development and industrial structure of partner countries. 6.1.1

Better Manufacturing in the Partner Country and Domestic Perfect Asymmetry

In this section, we discuss the case in which the partner country is a manufacturing country (i.e., q > 1) and manufacturing is larger abroad than at home. In this case, participation in SIEC and the reduction of tariff and non-tariff barriers intensify the competition posed by manufactured from the partner country in the region that participates in SIEC. In perfect asymmetry, the satisfying conditions are TCaCr = TCa Ba × TBa Br × TCr Br , TCa Br = TCa Ba × TBa Br , TCr Ba = TCr Br × TBa Br . For a country engaged in trade and investment activities in a partner country, the SIEC-participating region has absolute location advantages. However, if a country’s economy is dominated by agriculture and the partner country has better developed manufacturing, opening-up to the latter means competition from its manufactured goods. Consequently, firms prefer investment in the region that does not participate in SIEC in order to avoid such competition. The border area derives rather limited benefits from participating in SIEC. When other conditions remain unchanged, dλ∗ Ca /dq > 0. The larger the foreign manufacturing sector, the fiercer the competition from the partner country and the less attractive the border area is to investment. When q remains unchanged and domestic interregional transport costs T CaBa are reduced, dλ∗ Ca /dT Ca Ba < 0, showing that such reduction has a deleterious effect on agglomeration in the region that participates in SIEC. The reduction of domestic interregional transport costs does not have any impact on domestic manufacturing location on the supply side, and only has a marginal impact on the demand side. From the perspective of utility differentials, however, lower domestic interregional transport costs enable firms that concentrate in core manufacturing areas to enjoy more convenient transport conditions. Human capital is thus more inclined to move toward the region that does not participate in SIEC, further reducing the investment attractiveness of the SIEC-participating region. At a very low level of domestic interregional transport costs, reducing border barriers and increasing SIEI have some impact on the investment attractiveness of the region that participates in SIEC. It causes a decline

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Table 6.1 Factor movements in the case of better developed manufacturing in the partner country and domestic perfect asymmetry Item

T CaBa T BaBr T CrBr q λ∗ Ca

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Case 1

Case 2

Case 3

Case 4

1.5 1.9 1.5 1.2 0.52 0.55 0.58

1.5 1.9 1.5 1.5 0.53 0.55 0.6

1.3 1.9 1.3 1.2 0.52 0.56 0.74

1.3 1.5 1.3 1.2 0.56 0.56 0.68

Parameter value: σ = 6, α = 0.3, n = 1.6, m = 1.8, i = 1.05, j = 1

in the critical value of the share of manufacturing previously concentrated in the region not participating in SIEC, i.e., dλ∗ Ca /dT Ba Br > 0, though factors still agglomerate in the region not participating in SIEC. Supplywise, as SIEI is increased, manufactures from the subregion lead to lower price indexes of domestic manufactures. Agglomeration in the region with developed manufacturing for external effects of economies of agglomeration and consequently for lower costs results in an increase in the critical value of the share of manufacturing in the region that does not participate in SIEC. On the demand side, increased SIEI does not have any impact on the geographical distribution of manufacturing (Table 6.1). 6.1.2

Better Developed Manufacturing in the Partner Country and Domestic Imperfect Symmetry

If the region that participates in SIEC has only relative location advantages, it creates certain location advantages for the region that does not participate in the cooperation. If domestic agriculture is better developed than manufacturing and the manufacturing sector is better developed abroad than at home, industrial agglomeration forces are stronger in the region that does not participate in SIEC, while the region participating in subregional cooperation becomes less attractive to investment. When domestic interregional transport costs are relatively high, dλ∗ Ca /dq > 0. The wider the gap between manufacturing abroad and at home, the fiercer the competition posed by manufactured goods from the

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partner country, and the stronger the tendency toward factor agglomeration in the region that does not participate in subregional cooperation. For example, when TCa Ba = TCr Br = 1.5, TBaCr = TCa Br = 2, TBa Br = 1.9, TCaCr = 2.2, and the value of q increases from 1.2 to 1.5, the critical value of the share of manufacturing which reflects supply also increases, while demand remains unchanged. This shows that the growing competition from foreign manufactured goods weakens the industrial agglomeration forces in the region that participates in subregional cooperation. When q remains unchanged and domestic transport costs are lowered, dλ∗ Ca /dT Ca Ba < 0, dλ∗ Ca /dT Cr Br = 0. When both fall from 1.5 to 1.3, the critical value of the share of manufacturing of both regions B and C, which reflects supply, does not change. It shows that the reduction of domestic transport costs does not change the level of interregional supply. Demand-wise, the reduction of domestic interregional transport costs results in an increase in the critical value of the share of zero-profit manufacturing expressed as wage differentials. In long-run equilibrium, the critical value of human capital share in the region not participating in SIEC, expressed as zero utility differential, shows a significant increase. This proves that the reduction of domestic interregional transport costs results in a substantial decline in the investment attractiveness of the region that participates in subregional cooperation and has only relative location advantages. In such region, industrial dispersion forces become stronger, while industrial agglomeration forces are significantly weakened. When domestic interregional transport costs are low, the partner country’s manufacturing share increases as the critical value of the manufacturing share reflecting supply decreases, that of manufacturing share reflecting demand increases, and that of human capital share where negative utility differentials turn into positive decreases significantly. This shows that when domestic transport costs are very low, the more developed the manufacturing sector in the partner country, the more it competes with domestic firms (Table 6.2). When domestic transport costs are low, dλ∗ Ca /dT Ba Br < 0, ∗ dλ Ca /dT BaCr < 0, dλ∗ Ca /dT Ca Br < 0, dλ∗ Ca /dT CaCr < 0. Almost all agglomeration forces are found in the region that does not participate in SIEC as a result of the reduction of border barriers and the increase in SIEI. While the elimination of international border barriers facilitates investment in the region participating in subregional cooperation, it also intensifies the competition posed by foreign manufactured

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Table 6.2 Factor movements in the case of better developed manufacturing in the partner country and domestic imperfect symmetry Item

Case 1

Case 2

Case 3

Case 4

T CaBa T CaBr T CaCr T BaBr T CrBa T CrBr q λ∗ Ca

1.5 2 2.2 1.9 2 1.5 1.2 0.51 0.54 0.59

1.5 2 2.2 1.9 2 1.5 1.5 0.51 0.55 0.6

1.3 2 2.1 1.9 2 1.3 1.2 0.51 0.57 0.81

1.3 1.6 1.9 1.5 1.6 1.3 1.2 0.54 0.56 0.94

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Parameter value: σ = 6, α = 0.3, n = 1.6, m = 1.8, i = 1.05, j = 1

goods. A higher level of integration also enables the region that does not participate in subregional cooperation to better leverage its direct access to the market of the partner country. In this case, the critical value of manufacturing share of the region not participating in subregional cooperation which reflects the supply rises significantly, and that of its human capital share at zero utility differential reaches ninety-four percent, resulting in a near-perfect agglomeration. 6.1.3

Less Developed Manufacturing in the Partner Country and Domestic Perfect Asymmetry

In this case, manufacturing is less developed abroad than at home (i.e., q < 1), and domestic agriculture is better developed than manufacturing. Since the partner country has small market potential and weak industrial support capacity, participation in SIEC has a very limited effect on export of domestic agricultural products and holds little attractiveness to industrial investment of manufacturers. The region not participating in subregional cooperation still has strong industrial aggregation forces. Despite the complete location advantages of the border area, industrial agglomeration forces are stronger than dispersion forces in the region that does not participate in subregional cooperation due to small market capacity and limited industrial support capacity of the partner country.

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When other conditions remain unchanged, dλ∗ Ca /dq < 0, and factors of production mainly concentrate in the region that does not participate in SIEC. The wider the gap between manufacturing abroad and at home, the larger the agglomeration of factors in the inland area that does not participate in SIEC, and the stronger the industrial agglomeration forces in the region that does not participate in subregional cooperation. When q is very low (q = 0.5), on the supply side, manufacturing tends to concentrate in the region that does not participate in subregional cooperation; demand-wise, there are two stable short-run equilibrium points and one unstable short-run equilibrium point, all of which appear when λC is greater than fifty percent. For the critical value at zero utility differential, there are also two stable long-run equilibrium points and one unstable long-run equilibrium point, all of which appear when λC is greater than fifty percent. This shows that human capital and manufacturers prefer agglomeration in the region that does not participate in subregional cooperation. When q remains unchanged and domestic interregional transport costs are reduced, dλ∗ Ca /dT Ca Ba < 0, dλ∗ Ca /dT Cr Br < 0, which contributes to industrial agglomeration in the region not participating in SIEC. On the supply side, the reduction of domestic transport costs has no impact on the regional distribution of manufacturing. Demand-wise, it contributes to the agglomeration of manufacturing in region C to some extent. From the perspective of long-run equilibrium, factors of production including human capital are motivated by lower domestic transport costs to agglomerate in region C which is far away from the competition posed by manufactured goods from the partner country. When domestic interregional transport costs are low and border barriers are reduced, dλ∗ Ca /dT Ba Br > 0. Factors of production still agglomerate in the region that does not participate in subregional cooperation, but agglomeration forces in the participating region are significantly stronger. This shows that when the domestic economy is dominated by agriculture and the foreign industrial sector is less developed, since the SIEC-participating region has absolute location advantages, increasing SIEI creates industrial cooperation opportunities for SIEC zones (Table 6.3).

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Table 6.3 Factor movements in the case of less developed manufacturing in the partner country and domestic perfect asymmetry Item

Case 1

Case 2

Case 3

Case 4

T CaBa T BaBr T CrBr q λ∗ Ca

1.5 1.9 1.5 0.5 0.51 0.51 0.51

1.5 1.9 1.5 0.8 0.51 0.53 0.56

1.3 1.9 1.3 0.8 0.51 0.55 0.68

1.3 1.5 1.3 0.8 0.54 0.53 0.53

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

0.59 0.59

0.61 0.64

Parameter value: σ = 6, α = 0.3, n = 1.6, m = 1.8, i = 1.05, j = 1

6.1.4

Less Developed Manufacturing in the Partner Country and Domestic Imperfect Symmetry

In this case, the market of the partner country becomes relatively unimportant, and factors of production continue to concentrate mainly in the region that does not participate in subregional cooperation. The border area that participates in subregional cooperation is not very attractive to investment, and there are insufficient motives for industrial cooperation. If the partner country has small market potential, when domestic interregional transport conditions are improved and transport costs reduced, dλ∗ Ca /dT Ca Ba < 0, dλ∗ Ca /dT Cr Br = 0, industrial agglomeration is intensified in the region that does not participate in SIEC. Supply-wise, the reduction of domestic interregional transport costs does not affect the location of manufacturing. Demand-wise, it enhances the industrial competitiveness and share of manufacturing of the region that does not participate in SIEC. Due to agglomeration effects, the reduction of domestic transport costs causes a significant increase in the attractiveness to factors of production in the region with better developed manufacturing. From the perspective of long-run equilibrium, factor agglomeration is stable in the region that does not participate in subregional cooperation. At low levels of domestic interregional transport costs, when international border barriers are lowered and SIEI is increased, dλ∗ Ca /dT Ba Br = 0, dλ∗ Ca /dT BaCr < 0, dλ∗ Ca /dT Ca Br < 0, dλ∗ Ca /dT CaCr < 0. Supplywise, such efforts facilitate the export of manufactured goods from these regions, which are consequently more attractive to investment from firms.

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Table 6.4 Factor movements in the case of less developed manufacturing in the partner country and domestic imperfect symmetry Item

Case 1

Case 2

Case 3

T CaBa T CaBr T CaCr T BaBr T CrBa T CrBr λ∗ Ca

1.5 2 2.2 1.9 2 1.5 0.51 0.54 0.58

1.3 2 2.1 1.9 2 1.3 0.51 0.56 0.77

1.3 1.6 1.9 1.5 1.6 1.3 0.53 0.55 0.77

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Parameter value: σ = 6, α = 0.3, n = 1.6, m = 1.8, i = 1.05, q = 0.8, j = 1

Demand-wise, the reduction of border barriers raises the market demand from the partner country, so the region participating in subregional cooperation becomes more attractive to investment from firms. With both effects, increasing the degree of integration does not have any impact on agglomeration forces in the region participating in SIEC from the perspective of long-run equilibrium. Factors still agglomerate mainly in the region with better developed manufacturing, and the region that participates in subregional cooperation remains devoid of advantages in attracting investment (Table 6.4).

6.2 Domestic Industrialization and Industrial Agglomeration Economic globalization has shortened the time for latecomers to industrialization, which have an open economy, to achieve industrialization. The ultimate reason is that all factors needed, such as technology, market and raw materials, can be obtained from the global market. As a result, economies that are undergoing industrialization are heavily dependent on the global market, and aspire to have industrial cooperation with other countries. Participation in SIEC can bring considerable benefits for them. In our model of B-B subregional integration, when country a’s manufacturing is better developed than its agriculture (i.e., 0 < m < 1 and 0 < n < 1), participation in SIEC contributes more to its economic development, and industrial and factor agglomeration forces are stronger in the

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region participating in SIEC than in the region that does not. The investment attractiveness of SIEC zones depends on the level of development of partner countries, domestic transport costs and the degree of SIEI. 6.2.1

Better Developed Manufacturing in the Partner Country and Domestic Perfect Asymmetry

If manufacturing is better developed than agriculture in the partner country (i.e., 0 < i < 1 and 0 < j < 1), SIEI results in stronger agglomeration forces than dispersion forces in the border area participating in SIEC. In perfect asymmetry, even with high domestic interregional transport costs and border barriers, since the SIEC-participating border area has absolute location advantages, it faces a market with great potential resulting from the superiority of domestic and foreign manufacturing sectors to their agriculture. The region participating in subregional cooperation has investment attractiveness that outweighs dispersion forces, where there is more industrial cooperation than competition. The higher the level of development of domestic manufacturing, the stronger the agglomeration forces in the region that participates in subregional cooperation (Table 6.5). In this case, when domestic interregional transport costs are reduced, dλ∗ Ca /dT Ca Ba < 0, dλ∗ Ca /dT Cr Br < 0, factor agglomeration as reflected in utility differentials tends to occur in the border area that participates Table 6.5 Factor movements in the case of better developed manufacturing in the partner country and domestic perfect asymmetry Item TCaBa TBaBr TCrBr m n λ∗ Ca

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Case 1

Case 2

Case 3

Case 4

1.5 1.9 1.5 0.55 0.5 0.52 0.53 0.5

1.5 1.9 1.5 0.25 0.2 0.52 0.62 0.5

1.3 1.9 1.3 0.25 0.2 0.52 0.46 0.51

1.3 1.5 1.3 0.25 0.2 0.55 0.66 0.56

Parameter value: σ = 6, α = 0.3, i = 0.55, q = 1, j = 0.5

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in subregional cooperation. At low levels of domestic interregional transport costs, when international border barriers are reduced and SIEI is increased, dλ∗ Ca /dT Ba Br < 0, factor agglomeration as reflected in utility differentials also tends to occur in the border area that participates in subregional cooperation. 6.2.2

Better Developed Manufacturing in the Partner Country and Domestic Imperfect Symmetry

In imperfect symmetry, as the inland area that does not participate in subregional cooperation also has relative advantages in accessing the market of the partner country, its agglomeration forces significantly increase. The border area that participates in subregional cooperation, however, experiences a significant decline in its investment attractiveness due to competition posed by products from the partner country. In this case, the higher the level of development of domestic manufacturing, the greater the advantage of the region not participating in subregional cooperation, and the less attractive the SIEC zone is to investment. When domestic interregional transport costs are reduced, dλ∗ Ca /dT Ca Ba < 0, dλ∗ Ca /dT Cr Br > 0. It has no impact on the regional distribution of the supply of manufactured goods. Demand-wise, the reduction of domestic interregional transport costs causes stronger agglomeration forces in the inland area that does not participate in subregional cooperation. With low internal border barriers and high international border barriers, agglomeration forces in the border area that participates in subregional cooperation become weaker (Table 6.6). At low levels of domestic interregional transport costs, when international border barriers are reduced and SIEI is increased, dλ∗ Ca /dT Ba Br < 0, dλ∗ Ca /dT BaCr < 0, dλ∗ Ca /dT Ca Br > 0, dλ∗ Ca /dT CaCr > 0. The improvement in SIEI significantly increases the investment attractiveness of SIEC zones. The effects of a higher degree of integration are stronger than the negative effects of competition from manufactured goods of the partner country.

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Table 6.6 Factor movements in the case of better developed manufacturing in the partner country and domestic imperfect symmetry Item

Case 1

Case 2

Case 3

Case 4

T CaBa T CaBr T CaCr T BaBr T CrBa T CrBr

1.5 2 2.1 1.9 2 1.5 0.55 0.5 0.51 0.54 0.48

1.3 2 2.1 1.9 2 1.5 0.25 0.2 0.51 0.87 0.49

1.3 2 2.1 1.9 2 1.3 0.25 0.2 0.51 0.42 0.50

1.3 1.6 1.8 1.4 1.6 1.3 0.25 0.2 0.53 0.63 0.56

m n λ∗

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Ca

Parameter value: σ = 6, α = 0.3, i = 0.55, q = 1, j = 0.5

6.2.3

Better Developed Agriculture in the Partner Country and Domestic Perfect Asymmetry

When domestic manufacturing is better developed than agriculture and foreign agriculture is better developed than manufacturing (i.e., i > 1 and j > 1), country a’s non-participating region has to pass through the border area that participates in SIEC to enter the partner country. Agglomeration forces are stronger than dispersion forces in the border area that participates in SIEC, and investment dispersion forces are stronger than agglomeration forces in the inland area that does not participate in SIEC. When internal and international border barriers are high, factors agglomerate in the inland area; the development of domestic manufacturing does not affect the supply. For example, when m declines from 0.55 to 0.25, and n from 0.5 to 0.2, supply does not change. But the demand side shows a change of stronger agglomeration forces in the inland area. Utility differentials are not affected. Since the subregional market becomes very important in this case, when domestic interregional transport costs are reduced, dλ∗ Ca /dT Ca Ba < 0, dλ∗ Ca /dT Cr Br = 0, agglomeration forces in the border area become even stronger. But this does not affect the regional distribution of supply. Demand-wise, the monotonically downward curve becomes monotonically upward, and the

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Table 6.7 Factor movements in the case of better developed agriculture in the partner country and domestic perfect asymmetry Item

T CaBa TB aBr T CrBr m n λ∗ Ca

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Case 1

Case 2

Case 3

1.5 1.9 1.5 0.25 0.2 0.52 0.45 0.52

1.3 1.9 1.3 0.25 0.2 0.52 0.61 0.53

1.3 1.5 1.3 0.25 0.2 0.55 – 0.62

Parameter value: σ = 6, α = 0.3, i = 1.5, q = 1, j = 1.4

region that does not participate in cooperation needs a greater manufacturing share to form agglomeration forces to affect the border area involved in cooperation (Table 6.7). At low levels of domestic transport costs, when international border barriers are reduced and SIEI is increased, dλ∗ Ca /dT Ba Br < 0. On the supply side, agglomeration forces in the inland area that does not participate in SIEC are further reduced, while the region that participates in cooperation becomes more attractive to investment. Demand-wise, the latter has complete industrial agglomeration forces. As the manufacturing share of the supply side decreases and wage differentials that affect demand become negative, the border area has complete agglomeration forces. Factors, the movements of which are manifested as utility differentials, further concentrate in the border area that participates in subregional cooperation. 6.2.4

Better Developed Agriculture in the Partner Country and Domestic Imperfect Symmetry

When manufacturing is better developed than agriculture at home and agriculture is better developed than manufacturing abroad, since the inland area that does not participate in SIEC has relative advantages of directly entering the partner country for trade and investment, it has stronger agglomeration forces than in perfect asymmetry. On the supply side, the level of development of domestic manufacturing does not affect the distribution of manufacturing. Demand-wise, a high level

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of development of domestic manufacturing facilitates agglomeration in the inland area that does not participate in SIEC. The critical value of human capital share reflected in utility differentials also shows strong agglomeration forces in the border area. When domestic manufacturing is better developed than agriculture and domestic interregional transport costs are reduced, dλ∗ Ca /dT Ca Ba = 0, dλ∗ Ca /dT Cr Br = 0. This shows that the reduction of domestic interregional transport costs does not change the regional distribution of supply. Demand-wise, lower domestic interregional transport costs contribute to agglomeration forces in the inland area that does not participate in SIEC, but has no significant impact on factor movements. At low levels of domestic interregional transport costs, when international border barriers are reduced and SIEI is increased, dλ∗ Ca /dT Ba Br < 0, dλ∗ Ca /dT BaCr < 0, dλ∗ Ca /dT Ca Br > 0, dλ∗ Ca /dT CaCr > 0. This shows that when domestic manufacturing is better developed than agriculture and the partner country has more advantage in agriculture, participation in SIEC and a higher degree of integration make SIEC zones more attractive to investment from firms (Table 6.8).

Table 6.8 Factor movements in the case of better developed agriculture in the partner country and domestic imperfect symmetry Item

Case 1

Case 2

Case 3

T CaBa T CaBr T CaCr T BaBr T CrBa T CrBr λ∗ Ca

1.5 2.0 2.2 1.9 2 1.5 0.51 0.64 0.50

1.3 2.0 2.1 1.9 2 1.5 0.51 0.46 0.50

1.3 1.6 1.8 1.4 1.6 1.3 0.54 0.76 0.58

αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Parameter value: σ = 6, α = 0.3, i = 1.5, q = 1, j = 1.4, m = 0.25, n = 0.2

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6.3 Foreign Industrial Structure and Industrial Agglomeration When a country with a low degree of industrial specialization is divided into only two sectors, i.e., industry and agriculture, there is insufficient agricultural surplus to support industrial development. Their willingness to participate in subregional cooperation depends entirely on the development gap between them and partner countries and the industrial structure of the latter. 6.3.1

Better Developed Foreign Manufacturing and Domestic Perfect Asymmetry

In this case, the manufacturing sector is better developed in the partner country than at home (i.e., q > 1). Its border area participating in SIEC is very attractive to firms. In perfect asymmetry, the border area participating in SIEC has complete location advantages. More complementary industries are attracted to subregional cooperation zones by the better developed manufacturing sector of the partner country. Therefore, participation in SIEC can attract a lot of firms to SIEC zones. In addition, the higher the level of development of the foreign manufacturing sector, the stronger the agglomeration forces in cooperation zones, i.e., dλ∗ Ca /dq > 0. When q = 1.2, numerical simulations show that when the share of human capital in the non-participating region exceeds twenty-four percent, the utility differential turns from positive to negative, human capital starts to move to the region participating in subregional cooperation and firms are attracted to the participating region. When the share of manufacturing in the non-participating region exceeds forty-two percent, the positive returns of firms, WCa − W Ba , become negative, and firms accelerate their relocation to the region that participates in subregional cooperation. When q = 1.8, the positive utility differential turns negative when the share of human capital exceeds sixteen percent, and the positive returns of firms turn negative when the share of manufacturing exceeds thirtynine percent, and firms are motivated to make investment in the region that participates in SIEC. The reduction of domestic iceberg costs has the same effects as expanding foreign market. dλ∗ Ca /dT Ca Ba > 0, dλ∗ Ca /dT Cr Br < 0. When iceberg transport costs between the participating region B and

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Table 6.9 Factor movements in the case of better developed manufacturing in the partner country and domestic perfect asymmetry TCaBa

TBaBr

1.5 1.5 1.3 1.3 1.3 1.3

1.8 1.8 1.8 1.8 1.5 1.5

TCrBr

1.5 1.5 1.3 1.3 1.3 1.3

q

1.2 1.8 1.2 1.8 1.2 1.8

λ∗ Ca α ln(PBa /PCa ) = 0

WCa − W Ba = 0

VCa − V Ba = 0

0.53 0.54 0.53 0.54 0.56 0.60

0.57 0.60 0.60 0.64 0.57 0.65

0.75 0.83 0.36 0.36 0.53 0.54

Parameter value: σ = 6, α = 0.3, n = 1, m = 1.2, i = 1.2, j = 1

the non-participating region C fall from 1.5 to 1.3, manufacturers relocate from region C to the border area at a lower level of share due to the impact of SIEI. But the reduction of domestic interregional iceberg transport costs intensifies the competition posed by foreign manufactured goods in the domestic market, resulting in opposite trends in the change in human capital utility and firms’ profits (Table 6.9). The promotion of SIEI and the reduction of international border barriers (T BaBr ) increase agglomeration forces in the region participating in SIEC, dλ∗ Ca /dT Ba Br < 0. Countries with low domestic transport costs and a high external manufacturing share can unlock greater development potential through participating in SIEC. When the investment facilitation index of subregional cooperation zones falls from 1.8 to 1.5, the share of manufacturing of the non-participating region is down from thirtyfive percent to thirty-three percent, and the motives for investment in the region participating in SIEC become stronger. 6.3.2

Better Developed Manufacturing Sector in the Partner Country and Domestic Imperfect Symmetry

Since the non-participating region has direct access to the market of the partner country and does not have to pass through the border area participating in subregional cooperation, the SIEC zone becomes less attractive to manufacturers. The greater the share of manufacturing in the partner country, the greater the market potential. The region participating in subregional

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cooperation still has agglomeration forces to attract industrial investment. However, since the non-participating region can directly enter the market of the partner country without passing through the participating region, there is intense competition between them, hence dλ∗ Ca /dq < 0. Meanwhile, competition from foreign manufactured goods becomes fiercer. Overall subregional cooperation zones benefit from the situation, but the region participating in subregional cooperation becomes less attractive to industrial investment after the foreign manufacturing sector becomes stronger. When other conditions remain unchanged and q increases from 1.2 to 1.8, the share of manufacturing expressed as the price index differential of supply in the non-participating region turning from negative to positive increases from forty-nine percent to fifty percent, while the share of manufacturing expressed as turning from positive to negative increases from forty-two percent to forty-four percent. The utility differential, however, shows an abrupt change after the foreign share of manufacturing increases. It shows that when the non-participating region can access the foreign market without having to pass through the participating region, the competition from foreign manufactured goods reduces the incentives for human capital to move to the region participating in subregional cooperation, because firms are inclined to invest in the inland area to avoid competition with foreign manufactured goods. In this case, when domestic interregional iceberg transport costs are reduced, dλ∗ Ca /dT Ca Ba > 0, dλ∗ Ca /dT Cr Br > 0. It enhances the investment attractiveness of the SIEC zone in the short term, but does not change the price differentials between manufactured goods. When iceberg transport costs of regions B and C (T CaBa for domestic transport and T CaCr for cross-border transport) drop from 1.5 to 1.3, the share of manufacturing of the region not participating in SIEC declines from forty-two percent to thirty-six percent, which apparently conduces to industrial agglomeration in the region that participates in cooperation. At low levels of iceberg transport costs in two domestic regions, as the foreign manufacturing share increases, while overall firms tend to agglomerate in the SIEC zone, the forces driving dispersion to the region not participating in SIEC are also growing. At a low level of domestic transport costs, i.e., TCa Ba = TCaCr = 1.3, when q rises from 1.2 to 1.8, the manufacturing share of the SIEC zone, at which the price index differential in manufacturing turns from positive to negative, increases from forty-nine percent to fifty percent, and the manufacturing share at which firms’ profits turn from positive to negative increases from thirty-six

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percent to forty percent. This shows that while overall the SIEC zone has agglomeration forces, the dispersion forces caused by competition from foreign manufacturing are also growing. When SIEI is increased and international border barriers are reduced in this case, dλ∗ Ca /dT Ba Br < 0, dλ∗ Ca /dT BaCr < 0, dλ∗ Ca /dT Ca Br > 0, dλ∗ Ca /dT CaCr > 0. For example, when T BaBr drops from 1.7 to 1.4, meaning that foreign manufactured goods face lower barriers to entry, the partner country’s advantage in manufacturing share turns into a competitive advantage. In general, firms are inclined to invest in the SIEC zone, the manufacturing share at which firms’ profits turn from positive to negative increases from thirty-six percent to forty-four percent, indicating a growing tendency for investment in the region not participating in SIEC (Table 6.10). Where it is easy to make investment in the SIEC zone, the larger the manufacturing share of the partner country, the stronger the agglomeration forces in the zone. For example, when q increases from 1.2 to 1.8, the region participating in SIEC experiences a rise in the manufacturing share from fifty-six percent to sixty-one percent, and in the human capital share from fifty-seven percent to sixty percent. Table 6.10 Factor movements in the case of better developed manufacturing in the partner country and domestic imperfect symmetry Item

T CaBa T CaBr T CaCr T BaBr T CrBa T CrBr q λ∗ Ca αln(PBa /PCa ) = 0 WCa − W Ba = 0 VCa − V Ba = 0

Case 1

Case 2

Case 3

Case 4

Case 5

Case 6

1.5 1.6 1.8 1.7 1.6 1.5 1.2 0.50 0.43 0.02

1.3 1.6 1.8 1.7 1.6 1.5 1.8 0.51 0.45 0.61a

1.3 1.6 1.8 1.7 1.6 1.3 1.2 0.50 0.37 0.59

1.3 1.6 1.8 1.7 1.6 1.3 1.8 0.51 0.41 0.55

1.3 1.6 1.8 1.4 1.6 1.3 1.2 0.43 0.45 0.43

1.3 1.6 1.8 1.4 1.6 1.3 1.8 0.40 0.40 0.40

a In this case, there is an unstable equilibrium where the utility differential turns from negative to

positive Parameter value: σ = 6, α = 0.3, n = 1, m = 1.2, i = 1.2, j = 1

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Therefore, if manufacturing is better developed in the partner country than at home, the SIEC zone has very strong industrial agglomeration forces, and there is more industrial cooperation than competition. In this case, increasing SIEI, reducing international border barriers and facilitating investment help attract firms’ investment in the SIEC zone. The reduction of domestic interregional iceberg transport costs produces the same effect. It is of great significance whether the non-participating region has to pass through the region participating in SIEC to establish linkages with the partner country. If the answer is yes, SIEC becomes very important, investment in the region participating in SIEC is the optimal choice, and there is more industrial cooperation than competition in the subregion. Otherwise, participation in SIEC brings about strong industrial competition, which undermines the investment attractiveness of the SIEC zone to firms. 6.3.3

Better Developed Agriculture in the Partner Country and Domestic Perfect Asymmetry

When partner country/countries R has greater labor endowments (i.e., i > j, m > n), it has more agricultural surplus and is able to provide incoming firms with more primary goods and services and labor, thus reducing their variable cost. Therefore, it really appeals to industries. Examine the case where i = 1.8, j = 1.6, q = 0.88. The well-developed agriculture in the partner country provides solid supporting facilities and services for the development of manufacturing, so the idea of investing in manufacturing in the SIEC zone appeals to firms. When T CaBa = T CrBr = 1.5, T BaBr = 1.9, in the short term, the supply of manufactured goods is optimal when the share of manufacturing of the region not participating in subregional cooperation is forty-nine percent; when the share exceeds forty-five percent, the region not participating in subregional cooperation holds no investment attractiveness to firms, driving firms into the SIEC zone. In the long term, human capital starts to move to the region participating in subregional cooperation when the human capital share of the non-participating region exceeds thirty-two percent. Such movement of human capital precedes the investment of firms in the SIEC zone. This shows that the better developed agriculture in the partner country helps attract investment, and that the absolute location advantages of the region participating in SIEC intensify the agglomeration forces.

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In this case, lower domestic interregional transport costs do not necessarily benefit the region participating in SIEC. It is even harmful in the short term. When the above parameters and coefficients remain unchanged and T CaBa = T CrBr falls from 1.5 to 1.3, the improvement in domestic transport conditions makes it easier for the region not participating in subregional cooperation to enter the cooperation zone. On the supply side, the share of manufacturing of the non-participating region falls slightly. On the demand side, the critical value of the participating region’s share of manufacturing drops from forty-nine percent to fortytwo percent. From the perspective of a long-run equilibrium, however, such improvement contributes more to industrial agglomeration in the non-participating region, and human capital does not move toward the participating region until the critical value of human capital share of the non-participating region exceeds sixty-five percent. It shows that improvement in domestic transport conditions does not always benefit the region participating in subregional cooperation. The effect is determined by external transport costs. At high levels of external transport costs, the region participating in subregional cooperation is not attractive to investment. Only by increasing SIEI, reducing international border barriers and tariffs and facilitating investment, will more firms be attracted to invest in these regions. For example, when T BaBr drops from 1.9 to 1.7, the critical value of human capital share of the region participating in subregional cooperation rises from thirty-five percent to forty-six percent. When T BaBr further drops to 1.5, the said critical value rises to sixtysix percent. In this case, participating in SIEC significantly improves the domestic geographical distribution of economic activities and the industrial division of labor. 6.3.4

Better Developed Agriculture in the Partner Country and Domestic Imperfect Symmetry

Agglomeration forces play a dominant role in the region that does not participate in SIEC. The border area participating in subregional cooperation has limited investment attractiveness. The decisive factor is the change in internal and external transport costs. When T CaCr = 1.9, T CaBr = T BaCr = 1.7, T CaBa = T CrBr = 1.5, T BaBr = 1.8, agglomeration forces are stronger than dispersion forces. Since the iceberg costs of directly accessing the partner country for the non-participating region are lower than passing through the region participating in subregional

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cooperation, i.e., T CaCr < T CaBa < T BaBr < T CrBr , the optimal choice for manufacturers is to agglomerate in the inland area. The purpose of investment in the subregion is to merely take advantage of its resource endowments and the limited market potential of the SIEC zone. In this case, the reduction of domestic interregional transport costs causes relocation of industries to the region participating in subregional cooperation. When other conditions remain the same and T CaBa = T CrBr decreases from 1.5 to 1.3, the superiority of agglomeration forces to dispersion forces is reversed, and dispersion forces become stronger than agglomeration forces. But most of the human capital still concentrates in the inland area, and the positive utility differential does not turn negative until the critical value of human capital share exceeds sixty-five percent. At low levels of domestic interregional transport costs, keep the trade costs of passing through the border area participating in subregional cooperation at a high level, and reduce the international border barriers for the non-participating region to direct entry to the partner country. That means, T CaCr falls from 1.9 to 1.7, T CaBr = T BaCr falls from 1.7 to 1.6 and T BaBr remains 1.8. Despite the dominant role of dispersion forces, the critical value of human capital share of the non-participating region still reaches a high level of seventy-one percent, and the utility differential does not turn from positive to negative until the said critical value exceeds seventy-one percent. In this case, when the international border barriers in the SIEC zone are reduced, meaning that T BaBr decreases from 1.8 to 1.5, the critical value of human capital share in region C falls from seventy-one percent to fifty-three percent, while that in the region participating in SIEC increases from twenty-nine percent to forty-seven percent. Increasing SIEI attracts investment from firms to the SIEC zone. Therefore, if agriculture is better developed in the partner country than at home, the reduction of domestic transport costs has a significant impact on agglomeration and dispersion forces in the region participating in SIEC. At high levels of domestic transport costs, the dominant trend is agglomeration in the non-participating region. Industrial growth in the participating region is very slow due to limited investment attractiveness. After domestic transport costs are reduced, dispersion forces play a dominant role, and the region participating in cooperation sees growing investment attractiveness, but agglomeration in the inland area

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remains the optimal choice. In this case, only by reducing external transport costs, increasing SIEI and enhancing the investment attractiveness of the region participating in SIEC can investment in the SIEC zone become the optimal choice for firms.

6.4

Summary and Implications

B-B SIEC takes place between border areas of participating countries that lag behind the rest of their countries. These programs involve a lower level of cooperation than the B-C type and cover fewer areas of cooperation. Border trade and entrepot trade are important forms of international economic cooperation for such programs. Regional industrial agglomeration in B-B SIEC is mainly determined by the spatial structure and industrial structure of the countries involved (Table 6.11). Table 6.11 Agglomeration forces in cooperation zones under different conditions Level of industrialization

Spatial structure

Agglomeration forces in cooperation zone

Domestic

Foreign

Two domestic regions

Region with factor agglomeration

Reducing domestic interregional transport costs

Increasing the degree of subregional integration

Low

High

Perfect asymmetry Imperfect symmetry Perfect asymmetry Imperfect symmetry Perfect asymmetry Imperfect symmetry Perfect asymmetry Imperfect symmetry

C

Decline

Rise

C

Decline

C

Decline

Significant decline Rise

C

Decline

Unchanged

B

Rise

Rise

B

Unchanged

Rise

B

Rise

Rise

B

Unchanged

Rise

Low

High

High

Low

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If a country has strong resource endowments, external competition causes factors to agglomerate in the inland area, and there is more industrial competition than cooperation in the cooperation zone. The intensity of industrial competition depends on the development level and industrial structure of the partner country. For an industrialized country, especially if its manufacturing is better developed than agriculture, no matter the partner country is an agricultural country or an industrial one, the promotion of SIEI enhances the industrial agglomeration in its border area participating in cooperation. Therefore, it shows a strong willingness to participate in subregional cooperation. For countries that are at the primary stage of industrialization or that have an agriculture-dominated economy, SIEC causes more competition than cooperation from other countries, so it does not appeal to them. There are not sufficient incentives for such countries to participate in subregional cooperation. The above dynamic analysis shows slow progress in integration in BB SIEC between two countries with a wide development gap due to the disparity in benefits and motives. Better-developed countries have stronger motives for cooperation than their less developed partners. Benefit-wise, better developed countries reap more short-term benefits, while less developed countries derive more long-term benefits. Therefore, in order to promote industrial agglomeration and advance SIEI, countries with a higher level of development need to provide less developed countries with a greater market and lower access, bear a greater share of cooperation costs, improve the terms of trade in cooperation zones and reduce the costs of industrial agglomeration. Two countries with narrow development gap involved in B-B SIEC are similar in terms of their motives for cooperation and the benefits gained. For them, an important way to advance SIEI is to improve mutual openness and coordination in response to the partner’s comparative advantages in certain industries. Economies undergoing industrialization are heavily dependent on the global market, and aspire to have industrial cooperation with other countries. They can derive considerable benefits from participating in SIEC. Industrial and factor agglomeration forces are stronger in the region participating in subregional cooperation than in the non-participating region. The investment attractiveness of subregional cooperation zones depends on the development level of partner countries, domestic transport costs and the degree of SIEI. The higher the development level of

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partner countries, the stronger the factor agglomeration forces in cooperation zones. Factor agglomeration forces in cooperation zones decline when domestic transport costs are reduced and significantly increase when SIEI is increased and border barriers are reduced. The above dynamic analysis provides the following implications: In B-B SIEC involving countries with a wide development gap, for better developed countries, increasing SIEI comes before improving domestic interregional transport conditions, while the opposite is true for less developed countries. The disparity in policy priority calls for coordination and consultation between the participating countries of SIEC. In the case of a narrow development gap between the participating countries of B-B SIEC, for all participants, the promotion of SIEI by reducing border effects and cross-border trade costs should come before reducing domestic interregional transport costs. If a country participating in SIEC has a low level of industrial specialization, the regional industrial agglomeration in the cooperation zone depends on the industrial structure of its partner country. If manufacturing is better developed than agriculture in the partner country, regional industrial agglomeration forces in the cooperation zone are very strong, which are intensified by the domestic spatial structure of perfect asymmetry. If its agriculture is better developed than manufacturing, the cooperation zone also attracts industries thanks to considerable agricultural surplus. The domestic spatial structure of perfect asymmetry also enhances such attractiveness. The above dynamic analysis shows that an important prerequisite for increasing industrial agglomeration forces in the border area is strengthened perfect asymmetry. No matter the goal is to boost the economy of the region participating in cooperation or to access the market of partner countries, a greater supply of institutions is required in the border area that participates in cooperation. To promote B-B SIEI, countries should grant their border areas more power over international economic activities, and improve exit channels, ports and infrastructure in border cities to ensure profitability in border areas. They should also reduce trade and logistics costs to expand export and entrepot trade.

CHAPTER 7

Empirical Confirmation of B-C SIEC: Industrial Cooperation Between Yunnan and Guangxi of China and the Rest of the GMS

The GMS is currently the most active mechanism for international regional economic cooperation in East Asia. Since the launch of the GMS program in 1992, the efforts of member countries have replaced external driving forces in the cooperation mechanism. Cooperation has also reached a higher level of pragmatic approach. Government leaders meet regularly to sign cooperation documents, which are then implemented by relevant departments of member countries. The participating region of China has expanded to include Guangxi Zhuang Autonomous Region in addition to Yunnan province. The project-based implementation of the GMS program demonstrates the fundamental difference between SIEI and RIEI and best illustrates the basic characteristics of SIEI mentioned in Chapter 2. The GMS program encompassing Yunnan and Guangxi of China, Thailand, Laos, Myanmar, Cambodia and Vietnam is an example of B-C SIEI as defined in this study. Therefore, this chapter verifies the theories and conclusions about B-C SIEI proposed in this study with a case study of the GMS.

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_7

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7.1

Development Disparities Within the GMS and Regional Industrial Agglomeration

We have concluded that the difference in economic stage and level of development between participating countries has a significant impact on SIEI. If the partner country is highly industrialized and has a long industrial chain of its dominant industry and a high share of intermediates in input, high trade costs are needed to sustain industrial agglomeration (core-periphery pattern), and there is a strong tendency for industrial cooperation in the SIEC zone. The lower the share of intermediate inputs, the lower the trade costs needed to sustain industrial agglomeration (core-periphery pattern), and the weaker the tendency for industrial cooperation in the SIEC zone. The following section verifies the above conclusion. Within the GMS, Thailand is the most developed with a GDP per capita of 5690.51 USD (current USD) in 2011. Guangxi and Yunnan of China come second and third, the GDP per capita of which reached 2986.78 USD and 2326.91 USD in 2010. Vietnam’s GDP per capita was 1327.49 USD in 2011. The GDP per capita of Myanmar, Laos and Cambodia in 2011 was less than 1,200 USD, respectively 839.48 USD, 1112.23 USD and 981.15 USD,1 making them the least developed within the GMS. The secondary sector accounts for a comparatively large share of the GDP in Thailand, China’s Yunnan and Guangxi and Vietnam (see Table 7.1), suggesting a comparatively high level of industrialization. The share of the secondary sector is small in Laos and Cambodia, and much smaller in Myanmar. With the secondary sector accounting for less than ten percent of its GDP, Myanmar is a small agricultural country. Simulations show that the condition of trade costs for industrial agglomeration is better in Thailand, Vietnam and Yunnan and Guangxi of China, where the secondary sector dominates, than in Laos and Myanmar, where the primary sector dominates, and in Cambodia, where the tertiary sector dominates. According to data from the input–output table of Yunnan, China in 2007, the share of intermediate inputs, a, in the province is 0.57 (see Table 7.2). When a = 0.57, industrial agglomeration does not form before T, trade costs, is lower than 3.8. Based on the share of intermediate inputs of Yunnan’s secondary sector and the national share of intermediate inputs, a = 0.68, calculated according to 1 Data source: EPS. Based on data from the IMF.

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Table 7.1 Industrial structure of GMS members GMS member

Share of primary sector (%) 2006

Thailand Vietnam Laos Cambodia Myanmar Yunnan, China Guangxi, China

10.70 20.36 42.01 30.10 57.23 18.71 21.40

Share of secondary sector (%)

2010

2006

15.30 17.50

44.62 41.56 32.46 26.22 9.69 42.74 38.90

Share of tertiary sector (%)

2010

2006

2010

44.60 47.10

44.68 38.08 25.53 43.68 33.07 38.54 39.70

40.00 35.40

Data source World Bank

China’s input–output table in 2007, industrial agglomeration starts to form when T falls below twenty-one. Based on the share of intermediate inputs of China’s secondary sector, a = 0.77, calculated according to China’s input–output table in 2007, industrial agglomeration starts to form when T is less than 1,830,000. It shows that the share of intermediate inputs which reflects the stage of economic development has a significant impact on trade costs conditions for industrial agglomeration. Countries with a higher level of development or industrialization have much better conditions for industrial agglomeration than less industrialized countries. Therefore, in the GMS program, industrial agglomeration tends to form in Thailand, Vietnam and China’s Yunnan and Guangxi. Even with a low degree of integration and high border barriers, these places have strong forces for industrial cooperation. In Myanmar, Laos and Cambodia, on the other hand, industrial agglomeration will not occur without a high degree of SIEI and extremely convenient transport infrastructure (to significantly reduce cross-border trade costs). The trade value between China’s Yunnan and Guangxi and the rest of the GMS also demonstrates the significant impact of the disparity in the stage of economic development. The trade value between these two Chinese provinces and Thailand is much higher than their trade with Laos and Cambodia respectively, although they do not border Thailand. Within the GMS, Vietnam has the highest trade value with Yunnan and Guangxi, because its economy is comparatively better developed and the country borders the two Chinese provinces. Myanmar, although underdeveloped,

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Table 7.2 Share of intermediate inputs of China and Yunnan province in particular Share of intermediate inputs

Primary sector

Secondary sector

Tertiary sector

Total

0.41 0.37

0.77 0.68

0.47 0.44

0.68 0.57

China Yunnan province

Data source Calculation based on input–output tables of China and Yunnan, China in 2007

Table 7.3 Trade value between Yunnan and Guangxi of China and the rest of the GMS Year

Thailand

Vietnam

Myanmar

Cambodia

Laos

2008 2007 2006 2005 2004 2003 2002

4985 3745 2575 2203 2062 1362 977

22,804 24,482 14,462 8366 7106 5178 3893

7504 5033 3927 4107 3497 2989 2478

201 286 53 66 44 33 37

1112 791 643 367 402 187 156

Data source www.drcnet.com.cn Unit Million USD

has a much higher trade value with Yunnan and Guangxi than Laos and Cambodia, and also than Thailand, which is better developed. This is due to the fact that it borders Yunnan and Guangxi, its domestic geographical and spatial structure, and especially the same-origin ethnic groups living across the border between China and Myanmar. Since Myanmar shares a long border with Yunnan, China, more than ninety-five percent of the trade value in the fourth column of Table 7.3 is between Yunnan and Myanmar. In the decade from the launch of the GMS program to 2002, the general framework for economic cooperation under the GMS program was established at the proposal of the ADB, and cooperation was limited to a few areas. In 1993, for example, the cooperation framework included six areas, namely transport, energy, environment and natural resource administration, human resource development, trade and investment and

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tourism. The cooperation was gradually expanded to include communications at the fifth Ministerial Conference in 1995, anti-drug efforts at the eighth Ministerial Conference in 1998, and agriculture at the tenth Ministerial Conference in 2001. The first GMS Summit of Leaders at Phnom Penh, Cambodia in 2002 marks the start of comprehensive and deep cooperation under the GMS program. It endorsed the First GMS Strategic Framework (2002– 2012), and decided that member countries should take turns hosting the summit every three years. The summit in 2002 also proposed five strategic areas for cooperation under the GMS program, namely strengthening infrastructure linkages through a multisectoral approach, facilitating cross-border trade and investment, enhancing private sector participation, developing human resources, and protecting the environment and promoting the sustainable use of shared natural resources. Starting from 2002, GMS priority programs have been grouped into eleven flagship programs for management, including North–South Economic Corridor, East–West Economic Corridor, Southern Economic Corridor, Telecommunications Backbone, regional power interconnection and trading arrangement, facilitating cross-border trade and investment, enhancing private sector participation, developing human resources, strategic environment framework, flood control and tourism development.2 At the second GMS Summit of Leaders at Kunming, China in 2005, multiple cooperation agreements were signed on facilitating passenger and freight transport, animal epidemics prevention and control, information superhighway and power trade, and cooperation initiatives including the GMS Strategic Framework for Action on Trade Facilitation and Investment (SFA-TFI) and the Biodiversity Conservation Corridors Initiative were approved. The third GMS Summit of Leaders at Vientiane, Laos in 2008 further deepened economic cooperation, and decided to expand the market through greater connectivity, enhance competitiveness, improve social services and improve environmental protection efforts and management of shared natural resources. It issued the Joint Summit Declaration and endorsed the Vientiane Plan of Action for GMS Development (2008– 2012).

2 Yann Duval, “Economic Cooperation and Regional Integration in the Greater Mekong Subregion (GMS),” UNESCAP Trade and Investment Division, Staff Working Paper 02/ 08, 18 September 2008.

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In short, the leader cooperation mechanism established in 2002 has facilitated cross-border trade and investment and pushed the GMS program forward. The border barriers between China’s Yunnan and Guangxi and Vietnam, Laos, and Myanmar have been declining. Trade costs are also falling. Consequently, cooperation under the GMS program has been expanding to more areas and higher levels.

7.2 Industrial Linkages Between GMS Members and Regional Agglomeration Based on a simulation using a model of industrial clusters, Krugman argued that industrial agglomeration cannot sustain when inter-industry linkages between countries are stronger than intra-industry linkages, because firms can obtain the most important locational benefits from its linkages with firms in other industries, and countries tend to develop a diverse and mixed economy. If intra-industry linkages between countries are stronger than inter-industry linkages, the possibility of regional industrial agglomeration depends on trade costs. When trade costs are very high, two industries are both located in two countries. But when trade costs become lower, spatial agglomeration becomes possible and then inevitable. Following Krugman’s theory, this section uses the approach proposed by Grubel and Lloyd (1975) to measure the IIT index between China’s Yunnan and Guangxi and the rest of the GMS from 2002 to 2008 to verify the conclusions of Chapter 5. 7.2.1

Yunnan and Guangxi of China and the Rest of the GMS

Of the trade between China’s Yunnan and Guangxi and the rest of the GMS, the IIT index was high in Sections I–V and Section XX. In particular, the IIT index of Section II (vegetable products) and Section XX (miscellaneous manufactured articles) was more than fifty percent; Section I (live animals and animal products), Section III (animal or vegetable fats and oils, prepared edible fats, animal or vegetable waxes) and Section V (mineral products) also registered IIT index of more than fifty percent in some years (see Table 7.4). These sections are primary products, in relation to which the inter-industry linkages between Yunnan and Guangxi and other GMS countries are stronger than intra-industry linkages, hence strong agglomeration forces and great potential for cooperation. Under the GMS program, cooperation focuses on resource-based

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industries such as agriculture, tourism, mineral resource development and so forth. The GMS cooperation has been most fruitful in areas such as food cultivation, cash crop cultivation, mineral resources exploration and exploitation. On the other hand, the IIT index was low in the trade of products and manufactures of secondary processing industries, including Section IV (prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes), Section VI (products of the chemical or allied industries), Section VII (plastics and articles thereof, rubber and articles thereof), Section IX (wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials), Section X (pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof), Section XI (textiles and textile articles), Section XII (footwear, headgear, umbrellas, sun umbrellas and others, prepared feathers and articles made there with, artificial flowers, articles of human hair), Section XIII (articles of mineral materials; ceramic products, glass and glassware), Section XV (base metals and articles thereof), Section XVI (electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof), Section XVII (vehicles, aircraft, vessels and associated transport equipment) and Section XVIII (optical and medical instruments and apparatus, clocks and watches, musical instruments) (see Table 1 in Appendix IV). Regional agglomeration is theoretically impossible. In practice, there are only a few cooperation projects in secondary processing and manufacturing industries, and Chinese manufacturers from the inland area and Yunnan and Guangxi show little interest in investment in the rest of the GMS. According to a survey of Chinese enterprises,3 the lack of social capital due to harsh investment environment, especially the inadequacy of legal system, poor enforcement of rules and severe government rent-seeking, counteracts the effects of increased integration and reduced border barriers. This explains the limited cooperation in secondary processing and manufacturing industries.

3 The firms surveyed included Kunsteel Group, China Yun Copper Group, Yunnan Tin Group, Yuntianhua Group and Kunming Machine Tool.

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Table 7.4 Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and the rest of the GMS G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section V: Mineral products Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin Section XX: Miscellaneous manufactured articles Section XXI: Works of art, collectors’ pieces and antiques

68.85 99.75 56.22 38.79 47.81 84.05 50.83 86.61 86.34 97.73 94.60 67.21 87.79 90.50 30.71 20.05 56.43 28.98 33.37 33.88 56.81

63.82 53.43 33.88 34.44 29.44 43.27 57.82 58.34 29.86 19.90 42.12 7.14 42.01 26.12

52.40

5.45

1.84

1.73

1.76

7.34

3.68

81.64 97.86 55.89 79.23 83.35 51.69 79.87 71.29 26.58

0.00

0.13

0.12 34.40

0.00

Data source Calculation based on data from www.drcnet.com.cn

7.2.2

Yunnan and Guangxi of China and Myanmar

Under the GMS program, the IIT index between Yunnan and Guangxi of China and Myanmar was high in Section II (vegetable products) and Section VII (plastics and articles thereof, rubber and articles thereof) (see Table 7.5 and Table 2 in Appendix IV). IIT accounted for more than fifty percent of the trade in these two sections in most of the years in question, while inter-industry trade dominated the trade in other sections. Therefore, in China’s participation in the GMS program, the industrial cooperation between Yunnan and Guangxi and Myanmar focuses on vegetable products, plastics and articles thereof, and rubber and articles thereof. In particular, both sides have large-scale cooperation in rubber tree cultivation. However, there is not much cooperation in other sections.

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Table 7.5 Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Myanmar G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 2008 (%) (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section V: Mineral products Section VII: Plastics and articles thereof; rubber and articles thereof

66.24 14.30 13.04 14.58 13.95 96.33 42.76 96.46 75.52 98.64 53.25 67.86 30.50 9.75 2.88 0.00 0.00 0.00 58.51 34.20 #

48.43 43.98 43.39 40.04 70.75 56.57 46.43 83.03 50.38 44.00 78.22 55.21 62.07 30.59

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on data from www.drcnet.com.cn

Table 7.6 Section of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Cambodia G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section II: Vegetable products

#

#

0.00

75.76

91.99

0.00

0.15

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on data from www.drcnet.com.cn

7.2.3

Yunnan and Guangxi of China and Cambodia

In the trade between Yunnan and Guangxi of China and Cambodia under the GMS program, the IIT index was more than fifty percent in Section II (vegetable products) in 2005 and 2006. However, other sections had low IIT indexes and even no trade at all (see Table 7.6 and Table 3 in Appendix IV). It shows that Yunnan and Guangxi have little industrial cooperation with Cambodia under the GMS program.

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Table 7.7 Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Laos G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section II: Vegetable products 28.69 60.64 60.13 33.84 16.91 4.61 6.07 Section V: Mineral products 26.58 35.48 55.43 82.31 94.35 36.36 49.41 Section VII: Plastics and articles 20.05 31.96 41.30 20.79 11.29 19.72 24.09 thereof; rubber and articles thereof Data source Calculation based on data from www.drcnet.com.cn

7.2.4

Yunnan and Guangxi of China and Laos

In trade between Yunnan and Guangxi of China and Laos under the GMS program, the IIT index was more than fifty percent in Section II (vegetable products) in 2005 and 2006 and Section V (mineral products) from 2004 to 2006 (see Table 7.7 and Table 4 in Appendix IV). Other sections had low IIT indexes. It shows that in the GMS program, the industrial cooperation between Yunnan and Guangxi of China and Laos focuses on planting and mining, and the cooperation in rubber tree cultivation has been growing rapidly in recent years, but there is little cooperation in other industries. 7.2.5

Yunnan and Guangxi of China and Thailand

In the GMS program, trade between Yunnan and Guangxi of China and Thailand has the most sections of goods with IIT index more than fifty percent. Since Thailand is the best developed in the subregion, secondary processing and manufacturing industries also show a high degree of IIT. The IIT index of Section V (mineral products) remained above fifty percent from 2002 to 2008, showing that IIT dominates the trade in the mining industry. The IIT index of Section II (vegetable products), Section I (live animals and animal products), Section IX (wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials), Section IV (prepared foodstuffs, beverages, spirits and vinegar, tobacco and manufactured tobacco substitutes), Section XV (base metal and articles thereof) and Section XX (miscellaneous manufactured articles) was more than fifty percent in some years (see Table 7.8 and Table 5 in Appendix IV), showing that IIT dominates the trade in these goods and

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Table 7.8 Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Thailand G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 2008 (%) (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood; wood charcoal; cork; manufactures of plaiting materials Section XI: Textiles and textile articles Section XIV: Jewelry, precious metal and articles thereof; imitation jewelry; coin Section XV: Base metal and articles thereof Section XX: Miscellaneous manufactured articles

77.06 54.68 61.70 61.58 26.13 29.97 44.93 89.30 86.48 45.87 45.37 63.71 44.15 81.72 69.44 0.00 8.17 0.00 0.00 0.01 42.14

8.20

3.21 76.41

6.25 99.92 83.64 0.31

70.44 67.36 88.42 69.75 99.81 56.32 60.93 36.01 0.29 59.25 32.20 4.12 10.90 5.01

30.93

0.73

1.16 62.48 97.98 26.90 50.64

86.48 45.58 41.08 27.25 31.49 16.48 73.31 52.49

5.45

1.84

1.64

1.61

7.34 #

53.84

7.12

4.69

0.72 99.99 95.01 0.48

5.69

2.78

0.52 26.05 69.80 58.14 20.78

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on data from www.drcnet.com.cn

that they are important areas of industrial cooperation. Other sections of goods show low IIT index and limited industrial cooperation. As the GMS program is advanced, industrial cooperation in relation to these goods will also increase. 7.2.6

Yunnan and Guangxi of China and Vietnam

Under the GMS program, the IIT index between Yunnan and Guangxi of China and Vietnam was more than fifty percent from 2002 to 2008 only in Section II (vegetable products). Section I (live animals and animal

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products) and Section XI (textiles and textile articles) also registered an IIT index greater than fifty percent in most of the years concerned. The IIT index of Section V (mineral products), Section IX (wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials) and Section XX (miscellaneous manufactured articles) also exceeded fifty percent in some of the years concerned (see Table 7.9 and Table 6 in Appendix IV). These sections of goods are dominated by IIT and have considerable industrial cooperation. The IIT index of other goods is rather low, and there is little industrial cooperation in relation to these goods. The above comparative analysis shows that in trade between Yunnan and Guangxi of China and the rest of the GMS, the goods with IIT index above fifty percent are mainly primary products such as animal products, vegetable products, mineral products, products of upstream industries and consumer staples including textiles. This is because of the low level of development of these countries. The industries concentrating in the GMS are mainly primary industries, and it is difficult for industrial clusters to emerge in manufacturing.

Table 7.9 Sections of goods with IIT index above fifty percent between Yunnan and Guangxi of China and Vietnam G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section I: Live animal; animal products Section II: Vegetable products Section V: Mineral products Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood; wood charcoal; cork; manufactures of plaiting materials Section XI: Textiles and textile articles Section XX: Miscellaneous manufactured articles

15.60 52.32 69.96 50.28 65.28 80.17 44.93 86.06 87.66 98.16 95.74 68.81 96.21 81.72 69.19 51.86 27.54 30.12 23.99 42.04 60.93 13.99 3.49 1.23 4.86 4.48 53.62 5.01

22.50 67.49 44.03 61.35 47.88 24.52 50.64

44.39 49.60 53.39 84.42 81.29 93.43 73.31 40.67 35.41 36.96 54.61 63.50 20.40 20.78

Data source Calculation based on data from www.drcnet.com.cn

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IIT Between China and Other GMS Countries

This section uses statistics on trade between China and other GMS countries in ninety-nine chapters of goods in the UN Comtrade to measure the IIT index between Yunnan and Guangxi of China and other GMS countries respectively. The IIT indexes are compared to verify the pattern of factor movements and regional industrial agglomeration in perfect asymmetry and imperfect symmetry in B-C SIEI. 7.3.1

Top Twelve Industries in Terms of IIT

From 1992 to 2009, twelve chapters of goods witnessed the most years (more than fourteen years) with an IIT index greater than fifty percent between China and other GMS countries. They are 08 (edible fruit and nuts, peel of citrus fruit and melons), 09 (coffee, tea, mate and spices), 12 (oil seeds and oleaginous fruit, miscellaneous grains, seeds and fruit), 27 (mineral fuels, mineral oils and products of their distillation, bituminous substances and so forth), 29 (organic chemicals), 41 (raw hides and skins (other than furskins) and leather), 42 (articles of leather, traveling goods, handbags and similar containers, articles of animal gut), 57 (carpets and other textile floor coverings), 70 (glass and glassware), 74 (copper and articles thereof), 84 (nuclear reactors, boilers, machinery and mechanical appliances, parts thereof) and 85 (electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof). Statistics show that there is a high demand for these goods in China and other GMS countries, which explains why most of the cooperation between China and other GMS countries is found in relation to these industries (Table 7.10). 7.3.2

Weak Agglomeration Forces in China’s Border Area Due to Domestic Imperfect Symmetry

A comparison of Table 7.4, Table 8 in Appendix IV and Table 7.10 shows that the trade between China and other GMS countries on the one hand and the trade between Yunnan and Guangxi and other GMS countries on the other differ in the industries with a high degree of IIT, except for 08 (edible fruit and nuts, peel of citrus fruit or melons), 09 (coffee, tea, mate and spices) and 12 (oil seeds and oleaginous fruit, miscellaneous grains, seeds and fruit) in Section II (vegetable products).

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Table 7.10 Top twelve chapters of goods in terms of IIT between China and other GMS countries Code

08 (%)

09 (%)

12 (%)

27 (%)

29 (%)

41 (%)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

18.26 39.99 29.65 61.57 81.08 63.4 80.49 90.84 53.23 31.24 51.04 66.39 65.42 68.53 64.21 54.53 70.78 67.57

30 67.22 49.57 76.53 51.38 39.85 86.47 76.98 94.35 66.76 81.27 90.21 86.03 95.97 71.09 69.76 77.6 97.64

76.14 84.51 82.96 62.55 63.65 94.22 87.04 96.67 72.41 85.46 47.45 55.92 57.49 42.46 34.63 53.71 86.63 56.75

77.33 82.11 88.95 74.62 64.57 64.83 83.39 57.43 51.79 44.09 59.9 69.47 49.46 60.57 62.34 58.89 52.33 77.35

11 11.02 15.67 64.69 97.61 87.57 67.03 96.58 97.69 89.12 92.96 75.74 80.06 79.86 55.75 64.52 94.75 88.86

76.85 94.36 62.13 77.76 89.9 96.95 85.64 56.7 56.36 78.19 81.16 73.69 85.71 90.99 81.6 49.64 21.69 18.43

Code 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

42 (%) 73.83 52.85 69.35 69.56 81.67 29.76 94.64 64.74 96.92 95.58 90.8 45.85 92.65 93.95 92.17 97.39

57 (%) 12.01 62.24 65.83 87.72 42.5 42.32 55.22 94.23 37.49 93.1 63.24 92.48 88.59 90.16 68.07 87.6

70 (%) 25.8 78.93 93.23 60.01 49.67 68.05 95.33 94.72 96.72 98.06 80.57 74.34 93.26 65.86 68.91 69.46

74 (%) 90.43 55.98 46.79 74.86 59.76 78.22 96.85 83.12 52.81 45.15 58.52 70.03 61.18 90.25 77.4 98.62

84 (%)

85 (%)

32.66 41.25 33.35 43.61 77.81 95.1 76.46 81.65 90.87 98.82 93.57 84.78 80.92 81.08 81.99 79.98

25.64 40.17 44.26 40.12 60.48 81.64 79.8 97.66 77.48 88.6 89.93 75.16 74.12 72.84 80.33 82.89

(continued)

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Table 7.10 (continued) Code

42 (%)

2008 2009

57 (%)

74.58 63.62

94.36 68.51

70 (%) 86.1 85.32

74 (%) 51.13 68.02

84 (%) 82.32 84.4

85 (%) 90.69 94.52

Data source Calculation based on data from UN Comtrade

This is primarily caused by imperfect symmetry in China. In the country, the regions that do not participate in the GMS program, especially the developed coastal region, can enter other GMS countries via maritime transport, without passing through Yunnan or Guangxi. Maritime transport costs are much lower than land transport, so industrial manufactures from China mainly enter other GMS countries through maritime transport. It is also common for Chinese manufacturers from the coastal region to invest directly in other GMS countries. Given imperfect symmetry in China, Yunnan and Guangxi have weak regional industrial agglomeration forces when participating in the GMS program. 7.3.3

Thirteen Industries with a High Degree of IIT

Of the ninety-nine chapters of goods, thirteen chapters registered an IIT index greater than fifty percent between China and other GMS countries in nine to fourteen years. They are 07 (edible vegetables and certain roots and tubers), 34 (washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth), 35 (albuminoidal substances, modified starches, glues, enzymes), 48 (paper and paperboard, articles of paper pulp, of paper or paperboard), 53 (other vegetable textile fibers, paper yarn and woven fabrics of paper yarn), 54 (man-made filaments), 55 (man-made staple fibers), 56 (Wadding, felt and nonwovens, twine, cordage, ropes and cables and articles thereof), 71 (jewelry, precious metal and articles thereof, imitation jewelry, coin), 79 (zinc and articles thereof), 90 (optical, photographic and medical instruments and apparatus, parts and accessories), 91 (Clocks and watches and parts thereof) and 97 (works of art, collectors’ pieces and antiques). During the eighteen years since 1992, these industries had an IIT index of more than fifty percent in more than nine years. These goods are mainly resource-based products in which other GMS countries have resource advantages and

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China has an advantage in manufacturing and processing. Other GMS countries have market demand but cannot process or manufacture such goods. There is more industrial cooperation than competition between China and other GMS countries, and these industries have considerable potential for cooperation. Of these industries, Yunnan and Guangxi, the region in China involved in the GMS program, have a high degree of IIT with other GMS countries only in 07 (edible vegetables and certain roots and tubers) of vegetable products and 71 (jewelry, precious metal and articles thereof, imitation jewelry, coin). Other high IIT indexes are found in the trade between China’s non-participating region and other GMS countries. It is apparent that in imperfect symmetry, the border area derives rather limited benefits from participating in SIEI. Of the ninety-nine chapters of goods, only the above twenty-five chapters had a high degree of IIT, and the IIT indexes of the remaining chapters were rather low. Among the chapters with an IIT index greater than fifty percent, fourteen chapters remained on the list in five to eight years, fourteen chapters in three to four years and eleven chapters in one to two years. The IIT index of thirty-five chapters of goods never exceeded fifty percent from 1992 to 2009 (Table 7.11). 7.3.4

Industries with a Low Degree of IIT

Of the trade between China and other GMS countries since 1992, there are twenty-eight chapters of goods with a low degree of IIT. These are mainly products with small demand or export controls and those in relation to which the cooperating parties are not complementary. From 1992 to 2009, there were fourteen chapters of goods with IIT index greater than fifty percent in five to eight years. They are 03 (Fish and crustaceans, mollusks and other aquatic invertebrates), 05 (animal originated products, not elsewhere specified or included), 11 (products of the milling industry, malt, starches, wheat gluten), 13 (lac, gums, resins and other vegetable saps and extracts), 15 (animal or vegetable fats and oils), 19 (Preparations of cereals, flour, starch or milk, pastrycooks’ products), 20 (preparations of vegetables, fruit, nuts or other parts of plants), 21 (miscellaneous edible preparations), 23 (residues and waste from food industries, prepared animal fodder), 33 (essential oils and resinoids, perfumery, cosmetic or toilet preparations), 51 (wool, fine or coarse animal hair, horsehair yarn and woven fabric), 64 (footwear, gaiters and the like, parts of such articles), 72 (iron and steel) and 95 (toys, games and sports requisites,

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Table 7.11 Thirteen chapters of goods with a high degree of IIT between China and other GMS countries Code

07 (%)

34 (%)

35 (%)

48 (%)

53 (%)

54 (%)

55 (%)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

39.84 69.33 28 67.95 50.22 63.49 66.01 90.8 82.72 20.84 47.57 47.96 40.54 44.17 34.93 35.66 77.07 65

8.76 28.8 14.1 29.8 25.6 24.8 33.3 62.4 70.8 98.8 90.1 91.8 82.1 78.3 67.9 60.9 71.9 76.8

45.44 27.81 25.09 19.05 11.07 6.08 20.37 28.7 42.24 57.37 52.09 54.13 52.45 69.14 93.26 97.45 75.05 87

68.57 96.9 99.35 70.69 97.83 67.42 36.66 23.66 39.68 43.65 51.65 59.84 69.37 94.58 81.02 64.11 62.34 42.05

0.15 4.12 24.95 33.8 48.53 67.36 56.66 34.76 38.31 83.29 84.88 93.36 94.32 85.05 75.84 71.67 66.07 63.34

73.18 95.07 51.57 70.09 46.47 90.66 92.35 99.31 93.84 75.74 62.97 56.48 56.62 50.78 47.94 44.72 41.6 46.76

93.89 61.8 71.18 70.5 71.62 56.24 48 41.46 56.79 56.74 65.21 71.27 68.6 59.21 42.28 28.01 19.67 22.5

Code

56 (%)

71 (%)

79 (%)

90 (%)

91 (%)

97 (%)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

29.72 36.51 55.66 42.48 32 21.3 60.57 80.86 70.32 76.62 73.55 64.01 93.26 89.11 61.65 47.33

34.98 18.38 37.17 38.03 36.34 41.23 59.4 30.44 45.96 80.76 99.61 72.55 58.39 53.87 58.58 68.68

6.04 1.91 12.91 20.18 1.37 15.57 70.99 78.43 45.75 78.19 93.77 81.36 81.63 96.72 34.23 60.4

19.5 18.09 13.17 16.7 64.68 89 94.28 99.81 80.72 78.25 81.38 97.44 93.67 87.54 91.39 92.71

76.06 53.31 41.51 39.39 77.83 57.11 27.14 5.75 59.98 93.54 81.62 72.17 62.41 72.46 83.36 58.94

39.53 64.41 18.86 38.41 58.46 65.92 94.29 54.27 16.09 49.58 80.08 22.64 26.69 15.88 39.88 71.2

(continued)

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Table 7.11 (continued) Code

56 (%)

71 (%)

79 (%)

90 (%)

91 (%)

97 (%)

2008 2009

43.16 34.92

67.88 75.72

87.74 72.94

56.91 47.06

46.33 60.87

85.48 64.8

Data Source Calculation based on data from UN Comtrade

parts and accessories thereof). These goods fall into different categories, but most of them are consumer goods. Due to the overall low level of economic development and household consumption in the GMS, there is not much demand for such goods, hence limited potential for cooperation in these industries. The IIT index of fourteen chapters of goods was more than fifty percent in only three to four years from 1992 to 2009. They are 02 (meat and edible meat offal), 04 (dairy produce, birds’ eggs, natural honey, edible products of animal origin, not elsewhere specified or included), 06 (trees and other plants, live, bulbs, roots and the like, cut flowers and ornamental foliage), 10 (cereals), 17 (sugars and sugar confectionery), 18 (cocoa and cocoa preparations), 25 (salt, sulfur, earths, stone, plastering materials, lime and cement), 26 (ores, slag and ash), 45 (cork and articles of cork), 49 (printed books, newspapers, pictures and other products of the printing industry, manuscripts, typescripts and plans), 52 (cotton), 75 (nickel and articles thereof), 76 (aluminum and articles thereof) and 94 (furniture, bedding and others, lamps and lighting fittings, prefabricated buildings). These are consumer goods that enhance quality of life and resource-based products. The low degree of IIT in these goods is in part caused by the low level of household consumption in the GMS and the consequent low market demand. Another reason is the lack of resource advantages in resource-based products (Table 7.12). Due to economic backwardness of the GMS and the wide development gap between China and other GMS countries, the IIT index of forty-six chapters of goods between them was less than fifty percent. These are mostly manufactured goods for consumption in production. The overall underdevelopment of manufacturing in the GMS means a low market demand for many production materials. Consequently, there is limited potential for cooperation between China and other GMS countries in these industries (Table 7.13).

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Table 7.12 Chapters of goods with a low degree of IIT between China and other GMS countries Code

G&L index above fifty percent for 5–8 years

Code

G& L index above fifty percent for 3–4 years

03

Fish and crustaceans, mollusks and other aquatic invertebrates Products of animal origin, not elsewhere specified or included

02

Meat and edible meat offal

04

Products of the milling industry; malt, starches, wheat gluten Lac; gums, resins and other vegetable saps and extracts Animal or vegetable fats and oils and their cleavage products; Preparations of cereals, flour, starch or milk; pastrycooks’ products Preparations of vegetables, fruit, nuts or other parts of plants Miscellaneous edible preparations Food industries, residues and wastes thereof; prepared animal fodder

06

10

Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included Trees and other plants, live; bulbs, roots and the like; cut flowers and ornamental foliage Cereals

17

Sugars and sugar confectionery

18

Cocoa and cocoa preparations

25

Salt; sulfur; earths, stone; plastering materials, lime and cement Ores, slag and ash

Essential oils and resinoids; perfumery, cosmetic or toilet preparations Wool, fine or coarse animal hair; horsehair yarn and woven fabric iron and steel Footwear; gaiters and the like; parts of such articles Toys, games and sports requisites; parts and accessories thereof

45

Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans Cork and articles of cork

52

Cotton

75 76

Nickel and articles thereof Aluminum and articles thereof

94

Furniture, bedding and others; lamps and lighting fittings; prefabricated buildings

05

11

13 15

19

20

21 23

33

51

72 64 95

26 49

Data source Calculation based on data from UN Comtrade

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Table 7.13 Chapters of goods with the lowest IIT index between China and other GMS countries Code

G&L index above fifty percent for 1–2 years

Code

G&L index above fifty percent for 1–2 years

16

Meat, fish or crustaceans, mollusks or other aquatic invertebrates; preparations thereof Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations Plastics and articles thereof Furskins and artificial fur; manufactures thereof Manufactures of plaiting materials; basket ware and wickerwork Impregnated, coated, covered or laminated fabric textiles; textile articles of a kind suitable for industrial use

65

Headgear and parts thereof

68

Articles of mineral products

73 80

Articles of iron or steel Tin and articles thereof

88

Aircraft, spacecraft and parts thereof

36

39 43 46 59

Code

G&L index below fifty percent from 1992 to 2009

Code

G&L index below fifty percent from 1992 to 2009

14

Vegetable plaiting materials; vegetable products not elsewhere specified or included Beverages, spirits and vinegar

62

Articles of apparel and clothing accessories, not knitted or crocheted Other made up textile articles; sets; worn clothing and worn textile articles Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops, and parts thereof Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Ceramic products Lead and articles thereof Other base metals; cermets; articles thereof Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Miscellaneous articles of base metal

22

63

24

Tobacco and manufactured tobacco 66 substitutes

28

Inorganic chemicals; compounds of precious metals and so forth

67

30 31 32

Pharmaceutical products Fertilizers Tanning or dyeing extracts; paints, varnishes; inks and so forth Photographic or cinematographic goods

69 78 81

Miscellaneous chemical products

83

37

38

82

(continued)

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Table 7.13 (continued) Code

G&L index below fifty percent from 1992 to 2009

Code

G&L index below fifty percent from 1992 to 2009

40

Rubber and articles thereof

86

44

Wood and articles of wood; wood charcoal

87

47

Pulp of wood or other fibrous cellulosic material; waste and scrap of paper or paperboard Silk

89

Railway or tramway locomotives; railway or tramway track fixtures; traffic signaling equipment of all kinds Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Ships, boats and floating structures

Special woven fabrics, tufted textile fabrics, embroidery and so forth Knitted or crocheted fabrics

93

Kitted or crocheted articles of apparel and clothing accessories

99

50 58 60 61

92

96

Musical instruments; parts and accessories of such articles Arms and ammunition; parts and accessories thereof Miscellaneous manufactured articles Unclassified goods

Data source Calculation based on data from UN Comtrade

The above data analysis demonstrates the significant impact of intraindustry linkages between countries participating in subregional cooperation on industrial cooperation. The stronger the industrial linkages, the greater the potential for industrial cooperation. The opposite is also true.

7.4 Impact of Integration on IIT Between China and Other GMS Countries The GMS program was launched in 1992. The 2002 GMS Summit of Leaders at Phnom Penh, capital of Cambodia and the subsequent mechanism of Summit of Leaders every three years hosted by a member country ushered in a new phase of the program. The subsequent cooperation mechanism has obviously enhanced economic integration. In particular, cross-border trade and investment facilitation remains high on the agenda of every Summit of Leaders and Ministerial Conference. As a result, border barriers within the GMS are significantly reduced, the trade between China and other GMS countries increases rapidly, and trade,

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investment and industrial cooperation expand to more areas. In the trade between China and other GMS countries from 1992 to 2001, there were twelve chapters of goods with an IIT index greater than fifty percent in more than seven years. They are 09 (coffee, tea, mate and spices), 12 (oil seeds and oleaginous fruit; miscellaneous grains, seeds and fruit), 20 (preparations of vegetables, fruit, nuts or other parts of plants), 27 (mineral fuels, mineral oils and products of their distillation; bituminous substances, and so forth), 29 (organic chemicals), 41 (raw hides and skins (other than furskins) and leather), 42 (articles of leather; travel goods; handbags and similar containers; articles of animal gut), 51 (wool, fine or coarse animal hair; horsehair yarn and woven fabric), 54 (man-made filaments), 55 (man-made staple fibers), 70 (glass and glassware) and 74 (copper and articles thereof). Most of these goods are resource-based products which are abundant in GMS countries and a few are manufactures in great demand. Since 2002, as cooperation expanded to more areas, the number of goods chapters with an IIT index greater than fifty percent between China and other GMS countries in more than seven years from 2002 to 2009 increased to twenty (see Table 7.14). Some of these commodities are resource-based goods in which China and other GMS countries are complementary, such as 08 (edible fruit and nuts, peel of citrus fruit and melons), and some are essentials for daily life, such as 33 (essential oils and resinoids, perfumery, cosmetic or toilet preparations), 34 (washing preparations, lubricating preparations, artificial waxes, modeling paste, and so forth), 57 (carpets and other textile floor coverings) and 64 (footwear, gaiters and the like, parts of such articles). More importantly, SIEI had a significant impact, and cooperation expanded to more areas, namely manufactures such as 48 (paper and paperboard; articles of paper pulp, of paper or paperboard), 79 (zinc and articles thereof), 84 (nuclear reactors, boilers, machinery and mechanical appliances, parts thereof), 85 (electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof) and 90 (optical, photographic, medical instruments and apparatus; parts and accessories). Comparing the trade by country, Thailand, Vietnam and Myanmar are the major trading partners of China in the GMS. Thailand and Vietnam outperformed Myanmar, Laos and Cambodia in the volume of trade with China, the categories of goods traded and IIT (see Table 9 in Appendix IV) because they are more developed. Myanmar is the least developed in the GMS, but there is a high degree of integration between Myanmar

Edible fruit and nuts; peel of citrus fruit and melons Coffee, tea, mate and spices Mineral fuels, mineral oils and products of their distillation; bituminous substances, and so forth Organic chemicals Essential oils and resinoids; perfumery, cosmetic or toilet preparations Washing preparations, lubricating preparations, artificial waxes, modeling paste and so forth Albuminoidal substances; modified starches; glues; enzymes Articles of leather; saddlery and harness; bags and cases; articles of animal gut Paper and paperboard; articles of paper pulp, of paper or paperboard Other vegetable textile fibers, paper yarn and woven fabrics of paper yarn Carpets and other textile floor coverings Footwear; gaiters and the like; parts of such articles Glass and glassware

08 09 27

57 64 70

53

48

35 42

34

29 33

G&L index

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

(continued)

63.24 92.48 88.59 90.16 68.07 87.60 94.36 68.51 41.89 58.14 71.14 89.39 92.05 94.49 95.88 89.92 80.57 74.34 93.26 65.86 68.91 69.46 86.10 85.32

84.88 93.36 94.32 85.05 75.84 71.67 66.07 63.34

51.65 59.84 69.37 94.58 81.02 64.11 62.34 42.05

52.09 54.13 52.45 69.14 93.26 97.45 75.05 87.00 90.80 45.85 92.65 93.95 92.17 97.39 74.58 63.62

90.09 91.76 82.14 78.27 67.91 60.85 71.93 76.79

92.96 75.74 80.06 79.86 55.75 64.52 94.75 88.86 24.82 61.65 77.01 79.20 80.20 87.48 72.25 71.88

51.04 66.39 65.42 68.53 64.21 54.53 70.78 67.57 81.27 90.21 86.03 95.97 71.09 69.76 77.60 97.64 59.90 69.47 49.46 60.57 62.34 58.89 52.33 77.35

2002 (%)

Top twenty chapters of goods in terms of IIT between China and other GMS countries

Code

Table 7.14

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Jewelry, precious metal and articles thereof; imitation jewelry; coin Copper and articles thereof Zinc and articles thereof Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Electrical machinery and equipment and parts thereof; audio and video equipment and parts thereof Optical, photographic, medical instruments and apparatus; parts and accessories Clocks and watches and parts thereof

71

Data source Calculation based on data from UN Comtrade

91

90

85

74 79 84

G&L index

(continued)

Code

Table 7.14 2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

81.62 72.17 62.41 72.46 83.36 58.94 46.33 60.87

81.38 97.44 93.67 87.54 91.39 92.71 56.91 47.06

89.93 75.16 74.12 72.84 80.33 82.89 90.69 94.52

58.52 70.03 61.18 90.25 77.40 98.62 51.13 68.02 93.77 81.36 81.63 96.72 34.23 60.40 87.74 72.94 93.57 84.78 80.92 81.08 81.99 79.98 82.32 84.40

99.61 72.55 58.39 53.87 58.58 68.68 67.88 75.72

2002 (%)

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and China thanks to its geo-relationship with China, so a great variety of goods are traded in a large scale of border trade between these two countries. Agriculture is the dominant industry in Myanmar, so its trade with China focuses on agricultural goods and some essential products for daily life. Nonetheless, of the ninety-nine chapters of goods in the UN Comtrade, the trade between Myanmar and China is mainly in goods of Chapters 01–45, with low IIT indexes, while there is little trade in goods of Chapters 45–99. Cambodia and Laos are even less developed, with smaller population and market capacity. This shows that at a specific level of industrialization, a higher degree of integration and lower international border barriers facilitate the cross-border movement of factors and goods and enhances industrial cooperation.

7.5

Summary and Implications

Based on the analysis of the GMS program in which Yunnan and Guangxi of China participate, this chapter verifies the impact of development gap between participating countries of B-C SIEI, domestic spatial structure, industrial linkages and degree of integration on regional industrial agglomeration and consequently on industrial cooperation. In the GMS, Thailand is the best developed, followed by China’s Yunnan and Guangxi and Vietnam. The development gap between China and Thailand is narrower than that between China and Myanmar, Laos or Cambodia, so there is a great volume of trade and extensive cooperation between Thailand and China. The cooperation between China and Myanmar, Laos and Cambodia, which have not started industrialization, is limited to a few areas such as agriculture, infrastructure construction and mineral resource development. Based on import and export of goods in Chapters 01–99, we calculated the IIT indexes between China and other GMS countries. The results show a high degree of IIT in only a few chapters of goods. Due to great disparity between GMS members in development levels, there is no obvious pattern in the industries with a high degree of IIT. In comparison, there are more goods with a high IIT index in China’s trade with Thailand and Vietnam, meaning greater potential for cooperation. As for the trade between China and Myanmar, there is a large volume of crossborder trade between these countries thanks to good geo-relationship, but most of the goods traded are agricultural goods, consumer staples

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and resource-based products. The IIT index between China and Laos and Cambodia is very low, suggesting rather limited potential for cooperation. A comparison of the IIT between China and other GMS countries and the IIT between Yunnan and Guangxi and other GMS countries shows that Yunnan and Guangxi only dominate the trade in vegetable products, even though there are several industries with a high IIT index. These two places do not enjoy exclusive advantages in the cooperation in many consumer staples, production materials and industrial manufactures with a high degree of IIT. This proves that the regions in China that do not participate in the GMS program can access the market of other GMS countries without passing through Yunnan and Guangxi, which means a structure of imperfect symmetry. In this case, Yunnan and Guangxi have weak industrial agglomeration forces, and the scope of industrial cooperation is significantly affected. A comparison of the IIT indexes between China and other GMS countries around the year 2002 shows that the GMS Summit of Leaders starting from 2002 enhances integration. The goods with high IIT indexes (greater than fifty percent) in major years increased from twelve chapters to twenty chapters. The IIT trade between China and Thailand and Vietnam, the better developed GMS countries except China, increased rapidly. All these show that the pledge of the GMS Summit of Leaders and the annual Ministerial Conference to reduce border effects by promoting cross-border trade and facilitating investment and their actions and measures have increased both scope and scale of industrial cooperation in the subregional cooperation. The strong geo-relationship in the border area between China and Myanmar results in a high degree of integration in the area. Consequently, though the scope of cooperation between China and Myanmar is rather limited because Myanmar is the least developed GMS country with an agriculture-dominated economy, industrial cooperation between the two countries has also increased. The above theoretical analysis and empirical evidence provide the following policy implications for China in relation to its participation in the GMS program: 1. Compared with China and Thailand, Vietnam, Myanmar, Laos and Cambodia have resource advantages but small market potential. Advancing SIEI with these countries has only a marginal impact on regional industrial agglomeration in the cooperation-participating region. Agglomeration forces and cooperation opportunities are

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mainly found in resource-based and basic industries. Therefore, to enhance the effects of SIEI, China should encourage domestic enterprises to go global and make outbound investment, especially in resource exploitation, in view of the economic development levels and opening-up policies of these countries. 2. Yunnan and Guangxi do not enjoy absolute location advantages over the rest of China in accessing the GMS, because other places of China have the advantage of access via maritime transport. Considering the imperfect symmetry in China and the fact that Yunnan and Guangxi lag behind in economic development, what’s more important is to improve the transport between China’s inland area and Yunnan and Guangxi. The top priority remains the continuous improvement in transport infrastructure. 3. In the GMS, Yunnan, China has the location advantage of bordering Myanmar and Laos, resulting in perfect asymmetry between Yunnan and China’s inland area and increasing factor agglomeration forces in Yunnan in opening-up the border area, especially to Laos and Myanmar. While improving the transport between Yunnan and the rest of China, China should also accelerate the economic integration with other GMS countries. This will not only facilitate factor agglomeration in Yunnan, but also contribute to the opening-up of the rest of China. 4. Despite the overall low level of development, the GMS is experiencing rapid development. From 2005 to 2011, the GDP per capita increased by 101.4 percent in Thailand, 115.8 percent in Cambodia, 139.9 percent in Laos, 287.9 percent in Myanmar, 123.2 percent in Vietnam and 208.2 percent in China.4 Such rapid growth will soon bring the GMS to a higher level of development, enhance its market potential and cause other changes in its characteristics, transforming agricultural countries into industrial ones. In that case, a higher degree of SIEI will strengthen the advantage of Yunnan and Guangxi, which participate in the subregional cooperation, in attracting industries from the inland area and enhancing industrial agglomeration forces. Strengthening negotiations, consultations and coordination of trade and investment facilitation with other GMS countries should remain a priority in policy formulation.

4 Data source: EPS. Based on data from the IMF.

CHAPTER 8

Empirical Confirmation of B-B SIEC: Industrial Cooperation Between Yunnan, China and Northern Laos

The cooperation between Yunnan, China and nine provinces of northern Laos1 is a typical example of B-B SIEC. Since the governments of Yunnan province and Laos established the Cooperation Mechanism for the Yunnan (China)-northern Laos Workgroup in October 2004, both sides have had cooperation in areas such as mineral resource survey, geological and mineral mapping, exploration and exploitation of potash salt, bauxite and copper ore, development of agricultural, power and transport infrastructure, opium poppy replacement with rubber trees and integrated planting. The bilateral economic and trade cooperation and Yunnan’s investment in Laos have both been growing. In 2006, Yunnan province of China and the National Economic Research Institute (NERI) of Laos prepared the “Industrial Development Plans for Nine Provinces of Northern Laos,” an aid project of China in Laos. The government of Laos proposed, among other things, the establishment of special economic zones in northern Laos. By doing so, it hoped to better stimulate the economy of its nine northern provinces with China’s economic development, improve economic openness and development and enhance the economic integration of Yunnan, China and northern Laos. This chapter analyzes the status quo and characteristics of the economic cooperation between Yunnan, China and northern 1 The nine provinces are Phongsaly, Houaphanh, Xieng Khouang, Vientiane, Luang Prabang, Sayabouly, Bokeo, Luang Namtha and Oudomxay.

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_8

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Laos to verify the theories and conclusions about B-B SIEI proposed in this study.

8.1 Economic Development and Industrial Dispersion in Yunnan, China and Northern Laos 8.1.1

Major Arguments and Conclusions

The change in core-periphery sustain curves at different levels shows that at a given level of technical efficiency, the larger the share of manufactures in consumption, the higher the economic development level, the greater the market demand for manufactures, and the stronger the appeal to investment from firms. This is also true for SIEC zones. It is easy for countries at a high level of economic development to have cooperation in manufacturing, while less developed countries have difficulties in this regard. In the case of cooperation between Yunnan, China and northern Laos, the economy of Yunnan province is better developed than that of northern Laos. The share of manufactures in household consumption is much higher in Yunnan province than in northern Laos. Consequently, in the cooperation zone comprising Yunnan, China and northern Laos, industries will concentrate mainly in Yunnan, China in a pure market economy, with no driving force for dispersion to northern Laos. Efforts from the governments of both sides are required to promote cooperation in some areas. 8.1.2

Verification

The nine provinces in northern Laos are the least developed region of the country. Their economy is less developed than the national average level in Laos and much less developed than Yunnan, China. Many of them still practice slash-and-burn agriculture, and the economy of all these provinces is dominated by agriculture. In 2006, agriculture accounted for 58.25 percent of the GDP of the nine provinces of northern Laos (see Table 8.1), and the secondary sector consisted mainly of the handicraft industry which accounted for a very small share of GDP. There were only some foreign-invested industrial enterprises in Vientiane, Xieng Khouang and Phongsaly. In 2006, the share of industry and handicrafts in the GDP of the nine provinces of northern Laos was 20.31 percent, and the GDP per capita in this region was 425 USD. In the same year, the GDP per

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capita of Yunnan, China reached 1,125.22 USD, 700 USD more than the figure in northern Laos. Investigations and surveys reveal serious poverty in Laos’ northern provinces. According to the poverty line established by the Lao government, there were 116,068 impoverished households and 1930 impoverished villages in this region in 2006. This is 21.78 percent and 33.94 percent of the national total respectively. Some counties and villages suffered from severe poverty. In Oudomxay province, for example, 97.30 percent and 95.24 percent of the villages of Nga and Pakbeng lived in poverty. In northern Laos, the income of rural residents is very low and only enough to meet basic needs, so their consumption expenditure on manufactured goods is very low. Urban residents in this region have some demand for manufactured goods, but the expenditure in this regard accounts for a very small share of their income. According to interviews, it is estimated that food consumption constituted more than ninety percent of household consumption in northern Laos in 2006, while the share of industrial manufactures was only 8.5 percent. Accordingly, in this study, northern Laos is assumed to be 0.085. For Yunnan, China, according to the statistical yearbook of the province, the share of manufactured goods in its rural and urban household consumption expenditure reached 53.82 percent, so of Yunnan, China is assumed to be 0.538. While other conditions remain unchanged, the core-periphery sustain curve at the said level is shown in Fig. 8.1, and it is impossible for industries to disperse to northern Laos. Theoretically, agglomeration can only emerge when border barriers are abolished (when T ≈ 1). While China has granted Laos zero-tariff treatment, the border barrier effects persist and will not disappear. Therefore, in a pure market system, it is unlikely that industrial agglomeration will take place in northern Laos and that manufacturing will disperse to this region. On the contrary, the increasing economic integration between Yunnan, China and northern Laos will cause industrial relocation from northern Laos to Yunnan, and industrial agglomeration will form in Yunnan when the border barrier falls below 1.7. In summary, the great disparity between Yunnan, China and northern Laos in consumption structure determines the regional industrial agglomeration mainly in Yunnan. Currently, the investment in northern Laos from Yunnan firms focuses mainly on mineral exploration and exploitation, food and cash crop (such as sugar cane and rubber trees) cultivation. These industries provide necessary raw materials for Yunnan’s industrial development. Investment

1.63 0.93

1.54 0.62 1.69

1.70 1.64 1.59

2.25 13.59 23.68

26.69 14.61 40.92

28.47 33.87 22.74

41.82 240.04 574.62

10,000 km2

10,000

16.61 14.52

Area

Population

147 1,022 3,155

54 146 89

171 53 194

120 47

Million USD

GDP

8.40 10.00 8.30

7.86 7.20 7.40

12.70 6.79 25.90

6.10 7.50

%

Growth rate

Economy of northern Laos in 2006

355 425 580

194 452 400

380 399 475

283 313

USD

GDP per capita

54.67 58.25 31.1

64.10 60.10 55.00

59.20 55.60 46.00

56.00 73.60

%

Share of agriculture

35.74 20.31 27.80

12.23 12.40 33.00

23.70 10.93 18.00

24.50 12.30

Share of industrial and handicraft sectors %

9.54 21.42 35.60

23.60 27.50 12.00

17.10 33.50 36.00

19.40 14.10

%

Share of services sector

6.93 7.01 3.50

5.27 6.00 4.5

6.40 5.90 19.00

3.10 6.00

%

Growth in agriculture

6.95 13.64 21.50

15.34 10.50 10.02

19.10 8.50 31.00

8.40 13.50

Growth in industrial and handicraft sectors %

Note 1. Data source: Development plans 2006–2007 of provinces in northern Laos 2. The data of 2006 of Xieng Khouang province is not available. Its data in the table is calculated based on the growth rate in 2007

Phongsaly Luang Namtha Oudomxay Bokeo Luang Prabang Houaphanh Sayabouly Xieng Khouang Vientiane Sum Laos

Table 8.1

4.92 12.00 5.30

11.52 7.80 10.00

16.70 6.50 27.80

11.77 11.00

%

Growth in services sector

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Fig. 8.1 Industrial agglomeration conditions in Yunnan, China and northern Laos

is made in basic industries such as water and power resources development in which northern Laos has resource advantages and encourages investment. However, manufacturing firms from Yunnan, China rarely invest in northern Laos.

8.2 Resource Endowments and Industrial Agglomeration in Yunnan, China and Northern Laos 8.2.1

Mineral Resources and Cooperation in Mining

Northern Laos is abundant in minerals. The known minerals in this region, which fall into eleven categories and thirty-five types (see Table 8.2), are stored at 386 mineral deposits or occurrences (Tables 8.3 and 8.4). Northern Laos is competitive in the exploitation of iron, copper, lead, zinc, tin, gold, coal, potash salt, rock salt, limestone, clay and sapphire and has great potential in this regard. Iron ores in northern Laos are mainly found in Xieng Khouang, Vientiane and Houaphanh. Phou Nhouan of Xieng Khouang province and Pha Lek of Vientiane province have large reserves of iron ore that can be mined on a large scale. The eastern region of Houaphanh province has favorable conditions for iron ore mineralization and some prospecting

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Table 8.2 Minerals in northern Laos Type of mineral

Mineral

Metallic mineral

Ferrous metal Non-ferrous metal

Precious metal Rare metal Radioactive mineral Non-metallic mineral

Metallurgical auxiliary material Energy mineral Chemical raw material Building material

Gemstone and jade Underground hot water

Iron, manganese, chromium Copper, lead, zinc, nickel, tungsten, tin, molybdenum, antimony, mercury Gold Beryllium Uranium, thorium, monazite Magnesite Coal Potash salt, rock salt, barite, pyrite Asbestos, gypsum, graphite, clay, kaolin, limestone, marble, talc Sapphire, beryl, garnet Hot spring

Data source Development plans 2006–2007 of provinces in northern Laos

Table 8.3 Number and share of mineral deposits / occurrences in northern Laos Item

Unit

Deposit

Occurrence

Mineralization

Heavy place, geochemical anomalies

Sum

Number Share

%

45 11.66

146 37.82

144 37.31

51 13.21

386 100.00

Data source Development plans 2006–2007 of provinces in Northern Laos

Table 8.4 Mineral deposits in northern Laos Item

Unit

Number Share in the total

%

Large-scale deposit

Medium-scale deposit

Small-scale deposit

Sum

6 13.33

3 6.67

36 80.00

45 100.00

Data source Development plans 2006–2007 of provinces in northern Laos

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potential. Copper ores are mainly distributed in Xieng Khouang, Vientiane, Oudomxay, Phongsaly and Luang Namtha. The small-scale copper ore in Pha Yinshui, Luang Namtha has started operation, and the copper ore in Muang Namor of Oudomxay, the northern region of Xieng Khouang province and the western region of Phongsaly province have good prospecting potential. Lead and zinc ores are mainly found in Vientiane, Xieng Khouang, Luang Namtha and Houaphanh. B. Nateuy of Luang Namtha and the northern part of Xieng Khouang are important lead and zinc metallogenic belts. Tin ores are mainly distributed in Houaphanh and Xieng Khouang. Gold ores are mainly found in Vientiane, Luang Prabang and Xieng Khouang. Potash (rock) salt ores are mainly found in the Vientiane Basin. Coal ores are mainly distributed in Sayabouly, Phongsaly, Luang Namtha and Vientiane. Sapphire ores concentrate in Houai Xay, capital of Bokeo province and a worldfamous source of high-quality sapphire. Geological exploration has been conducted in the ore district in Houai Xay, which reveals good prospecting conditions. Limestone is widespread in northern Laos in great reserves. Most of the clay is found in Xieng Khouang province. Despite the abundance of mineral resources in northern Laos, there have been few geological and mineral surveys and little mineral exploitation in this region, and the mining industry is in its infancy. Only a few minerals have been exploited with a low output. So far, there are fiftyfive businesses in mineral exploration and exploitation in northern Laos, including eighteen local ones and thirty-seven foreign-invested ones. The minerals explored and exploited are mainly iron, copper, lead, zinc, tin, gold, coal, potash and rock salt, gypsum, clay, marl and sapphire (see Table 3 in Appendix IV). There are only twelve mines that can be, or have the potential to be mined on a large scale (see Table 2 in Appendix IV), accounting for 21.82 percent of the total. The annual output of copper ore, zinc, gold, raw coal and gemstones in northern Laos has reached 10,800 tons, 6240 tons, 3000 kilograms, 250,000 tons and 192 kilograms respectively in recent years. Although northern Laos has a favorable foundation of mineral resources for the development of metallurgical, building materials and chemical industries, this region has been a laggard in these industries due to poor energy, transport and communications infrastructure. Firms in these industries are small and make slow progress with a small range of products. In 2006, there were eight large metallurgical enterprises (see

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Table 4 in Appendix IV) in Luang Prabang, Xieng Khouang, Luang Namtha, Houaphanh and Vientiane. These include three iron and steel firms, one copper smelting firm, two zinc smelting firm, one tin smelting firm and one copper and gold smelting firm. Only one of them is a Lao company, while the other seven are all joint ventures. The building materials industry in northern Laos mainly produces cement, steel for construction and bricks and tiles. There are also companies offering lime, cement parts, zinc tiles and stones, and small-scale exploitation of limestone, gypsum and clay. There are dozens of small brick and lime factories in each of the northern provinces in Laos. The factories producing bricks and tiles, lime and stones in northern Laos are small and sparsely distributed, and their products are sold in the local market to satisfy the local demand. In 2006, there were three cement factories in northern Laos, whose products were sold domestically. The cement self-sufficiency rate of Laos is approximately forty percent. The Lao government intends to establish a cement factory in Muang Namor of Oudomxay with foreign investment, with an annual production capacity of 80,000 tons. Lao-GK Steel Co., Ltd. in Namtha of Luang Namtha province uses iron and steel raw materials from China for production of steel. With a total investment of 580,000 USD, this company can produce 1200 tons of steel each year. The chemical industry in northern Laos is still in its infancy, comprising primarily the potash salt industry. The plastics and pharmaceutical industries are small and mainly produce primary products. Minerals such as coal, rock salt, limestone and pyrites have been exploited to various degrees (see Table 4 in Appendix IV), providing a foundation for the development of the coal and chlor-alkali chemical industries and the sulfuric acid industry. The mining industry is one of the most important industries in Yunnan, China. After a long period of development, this province of China has big technical and human resource advantages in mining, beneficiation and smelting, and has a high demand for mineral resources from northern Laos. Most of the large and competitive mining enterprises from Yunnan, China are involved in mineral exploration in northern Laos and seeking concessions to mine mineral resources in this region. A crossborder mining industry chain encompassing Yunnan, China and northern Laos is taking shape. Industrial competition in this region takes place in the mineral smelting industry. Northern Laos is rich in mineral resources. In terms of industrial agglomeration conditions, Yunnan, China has technical advantages in mineral smelting, creating industrial agglomeration

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forces that drive the import of ores from northern Laos to Yunnan for smelting. However, in order to develop its own industry, the Lao government has restricted ore export in recent years. It explicitly encourages investment in mineral mining and smelting in northern Laos where there is an abundance of mineral resources, resulting in a clear pattern of industrial competition. 8.2.2

Agricultural Resources and Agricultural Cooperation

Located in the northern part of the Indochinese Peninsula, northern Laos has favorable conditions for the growth of plants, including a hot and humid climate, abundant rainfall and fertile soil. The mild climate and biodiversity in this region favor the development of large-scale and sustainable plant and livestock production, and provide a solid resource foundation for the development of the agro-processing industries. Of the five million hectares of arable land in Laos, only 1.1 million hectares are used for planting. Eighty-five percent is used to grow food crops such as rice, maize, beans and potatoes, and fifteen percent is used for cash crops such as vegetables, fruits, coffee and tobacco. Forests in Laos total 11.2 million hectares, accounting for forty-seven percent of the country’s land area, of which nearly thirty-seven percent is primary forest and more than fifty percent is fellable mixed forest, with a timber stock of about 400 million cubic meters. Laos has 1.5 million hectares of grasslands, of which one million hectares are in use. Forests and other woodlands to be developed constitute forty-one percent of the country’s land area, permanent and temporary arable agricultural lands account for eight percent, grasslands and pastureland account for four percent, and the remainder constitutes two percent of the country’s land area. Laos is the only ASEAN country that has an abundant supply of land and a small population. The entire country has the potential for agricultural, forestry and animal husbandry development. The nine northern provinces of Laos cover an area of about 135,900 square kilometers, of which 597,300 hectares, or 4.40 percent of the total, are arable land, 690,000 hectares, 5.08 percent of the total, are high-quality natural grasslands and 5,416,000 hectares, forty percent of the total, are forests. Overall, the soil in this region is fertile and favorable for farming, fit for food and cash crop cultivation, livestock and poultry breeding, human habitation and various economic activities. Man-made teak and rubber tree forests, and plantations of oranges,

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bananas, tea, coffee, coconuts, palms and sugar palms are mainly located along the Mekong River, Namtha River and Nam Ou River. In recent years, considerable progress has been made in cash crop cultivation, and tea, coffee and tropical fruits are now produced on a large scale. The average area of rubber tree forests in Luang Namtha, Oudomxay and Bokeo reaches 33,000 hectares, making rubber tree cultivation the fastestgrowing sector. Laos has an abundance of forest resources. Its forest products and related products are important resources for the food and handicraft industries in northern Laos and a major source of export for foreign exchange reserves. Laos is a least developed country. However, considering its population, the country’s agriculture, forestry, animal husbandry and fishery are disproportionate to its abundant resources, and have great potential for development. The economy of northern Laos is dominated by agriculture, and around ninety percent of the population are employed in agriculture. In 2006, the agricultural value added of northern Laos was approximately 595 million USD, accounting for 58.25 percent of this region’s GDP. This figure is much higher than the national average of 43.50 percent. In Luang Namtha, the agricultural value added accounted for 73.60 percent of the province’s GDP. The figure was 46.00 percent in Luang Prabang, which was the lowest. Starting from 1998, with support from the UN and other countries, the central government of Laos has been practicing opium poppy replacement in northern Laos. From 1998 to 2007, opium poppy cultivation was reduced by ninety-four percent, and currently, there are only about 1,500 hectares of sporadic cultivation. Alternative development has been effective. Poppy substitution has gradually moved toward industrialization and consequently to a higher level of alternative development. It has become an important area of international cooperation in northern Laos, with positive effects on promoting agricultural development and reducing poverty. In recent years, driven by the central government’s agricultural development policy, agriculture in northern Laos has developed rapidly: the cultivation area of food and cash crops has increased, deforestation for agricultural production and slash-and-burn agriculture are decreasing, animal husbandry is growing and agricultural water conservation projects have been launched. However, by and large, the agricultural products of northern Laos have a small share of commodities and a low technical content. With an underdeveloped market and small capital investment,

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this region is still in a stage of subsistence agriculture that is heavily dependent on the weather. The Lao government especially encourages foreign investment in agriculture. Northern Laos has abundant land, a pleasant climate and a high demand for agricultural products due to its stage of development. Yunnan, China, on the other hand, suffers from inadequate land resources and an insufficient supply of food, rubber and other agricultural products. Therefore, northern Laos is very attractive to agricultural development firms in Yunnan as an investment destination. Yunnan, China and northern Laos have many agricultural cooperation projects in areas such as food cultivation, rubber tree cultivation, sugar cane cultivation, crop variety promotion, Chinese herbal medicine cultivation, quality tree cultivation, promotion of quality livestock breeds and training of agricultural technicians. Cooperation between China and Laos in the agricultural sector will be enhanced as both countries continue to facilitate the cross-border movement of people, goods and vehicles. 8.2.3

Power Resources and Cooperation in the Power Sector

Laos has a great number of rivers and dense river networks. The mainstream of the Mekong River and its tributaries traverse Laos from north to south. The main stream has a huge reserve of hydropower. Experts believe that the theoretical reserve of hydropower in Laos is between 25,000 and 35,000 MW, and that the exploitable capacity is between 20,000 and 30,000 MW, allowing for the construction of large and ultralarge hydropower stations. For historical reasons, most of the hydropower potential in Laos remains untapped. Statistics show that the hydropower that has been preliminarily exploited on tributaries of the Mekong River and other rivers in Laos totals 11,214 MW, of which 4432 MW are in northern Laos, accounting for approximately 39.5 percent of the exploitable capacity of the tributaries across the country. Water resources are especially rich in Vientiane, Luang Prabang, Xieng Khouang and Phongsaly. Currently, there are six major hydropower stations in Laos, the installed capacity of which totals 258.7 MW, accounting for 5.8 percent of the technically exploitable capacity. Only a small portion of the resources have been exploited. Another important energy resource of Laos is coal. Large coal reserves have been found in many places across the country. Industrial coal in Laos is mainly lignite and anthracite, the total reserve of which is approximately

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640 million tons. It is mainly found in the northern and western parts of Laos, and the reserve in northern Laos is about 610 million tons. Lignite reserves in Laos total about 576 million tons, accounting for more than ninety percent of the industrial coal reserves of the country. Lignite is mainly distributed in Hongsa Basin, Vieng Phoukha Basin, Khangphaniang Basin and Mong Phane Basin. Hongsa Basin in Sayabouly, which borders Thailand, is an important source of coal in Laos, with lignite reserves of about 510 million tons, accounting for approximately eighty percent of the country’s total reserves of industrial coal. Laos is now considering building a large coal-fired power plant in Hongsa with an installed capacity of 1800 MW, and intends to supply electricity to Thailand. The Vieng Phoukha Basin in western Luang Namtha, with lignite reserves of approximately 12,727,000 tons, plans to build a coal-fired power plant with an installed capacity of five megawatts in the near future. As of the end of 2006, the total installed capacity in Laos reached 720 MW, of which 673 MW was hydropower, accounting for 97.5 percent of the total. Laos does not have a national grid, and the highest voltage in its power grid is 115 kV. Of the twenty-two 115/22 kV substations and four switching stations across Laos, nine substations and two switching stations are located in northern Laos, including one substation respectively in Sayabouly, Luang Prabang and Xieng Khouang, six substations in Vientiane, and one switching station respectively in Vientiane and Luang Prabang. The installed capacity of various power generators in northern Laos totals 260.753 MW, accounting for 37.8 percent of the national total. That includes 259.887 MW of hydropower generators, and approximately 0.866 MW of diesel and solar generators which operate only in emergency situations. In terms of installed capacity, major power plants in northern Laos include Nam Ngum 1 (155 MW), Nam Lik 1 (60 MW) and Nam Mang 3 (40 MW) in Vientiane, Nam Theun (1 MW) in Luang Prabang, Nam Kor (1.5 MW) in Oudomxay and Nam Ngay hydropower plant (1.2 MW) in Phongsaly. The construction of Nam Ngum 2 hydropower plant in Vientiane province started in 2006 with an installed capacity of 615 MW. It is expected to start operation in 2011, and the power generated will be exported to Thailand. It has signed a power purchase agreement (PPA) with the Electricity Generating Authority of Thailand (EGAT). Laos is one of the Asian countries with the lowest electricity consumption. In 2000, electricity consumption in this country was 123 kWh per capita, and only twenty percent of rural households and thirty-four

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percent of urban households have access to electricity. In 2006, the share of households with access to electricity in Laos increased to fiftysix percent, and the national electricity consumption was 2428 GWh (including distribution losses), with a peak load of around 455 MW. Electrical loads concentrated in the central region around Vientiane, the capital, and the loads in the northern and southern regions were small. In northern Laos, electricity consumption in 2006 was 333 GWh, or seventeen percent of the national total. Access to electricity in northern Laos was below the national level. Sixty-eight out of the seventy-three counties in this region had access to electricity, accounting for 93.15 percent of the total. There were 167,742 households in 2442 villages, or 41.22 percent of the households and 46.03 percent of the villages, that have access to electricity. Northern Laos lags behind the national average in access to electricity, and does not have stable power supply. The efforts to improve power supply mainly consist of building new power generators and increasing power supply in provincial capitals and cities and towns close to the power grid with necessary conditions and sufficient budgets to meet the increasing demand for electricity. In border areas and some areas where it is necessary, the demand for electricity is satisfied by importing electricity. The government also encourages foreign investment in power generation by granting licenses while ensuring government participation, and the electricity generated is sold to neighboring countries for foreign exchange reserves. The advantage of hydropower resources in northern Laos and the characteristics of Laos’ power grid create the conditions for foreign investment in the country’s power industry. The power industry is one of the most important industries for Yunnan, China, and the province enjoys technical and human resource advantages in construction and management of power plants and power grid. Yunnan, China and northern Laos have been pursuing cooperation in the power industry, including the Nam Ngum 1 hydropower project which has started operation and power plants on other rivers in northern Laos that are under construction. Yunnan Power Grid has been doing some preparatory work in northern Laos. With the economic and social development in Laos, the demand for electricity in the country is also surging, which means great potential for cooperation between Yunnan, China and northern Laos in the power industry.

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8.3 Same-Origin Ethnic Groups and Regional Industrial Agglomeration in Yunnan, China and Northern Laos Of the forty-nine ethnic groups in Laos, the Lao Loum are the dominant ethnic group. Like the Dai people in Xishuangbanna, Simao and other places in Yunnan, China, they are a sub-group of the Thai people (the dominant ethnic group in Thailand). The Lao Loum and the Dai people in Yunnan, China have similar languages, culture and customs and believe in Theravada Buddhism. The Thai people are believed to have moved to Thailand from southern China in the eleventh and twelfth centuries. The ancient remains discovered by archaeologists in Ban Chiang in northeastern Thailand prove that the Thai culture originated during the Bronze Age about 5000 years ago. The Lao Loum of Laos, the Shan of Myanmar, the Thai of Thailand and the Dai of China all live in the Mekong River (known as the Lancang River in China) basin, and they are collectively known as the Dai-Thai people. They are all descended from Baiyue ethnic groups in the Yangtze River basin in ancient China, and have common food, housing, clothing and other customs and agricultural production such as rice farming. Their geographic proximity and similar cultural background are very favorable for economic development and cultural communication in this region. The same ethnic background and longstanding cultural ties provide Yunnan, China with unique conditions for developing friendly relations and economic and trade cooperation with Southeast Asian countries.2 The Dai-Thai people in northern Laos and Yunnan, China share similar dietary habits which are very different from those of other ethnic groups, so they require special foods, cutlery and cooking utensils. They also need special articles for religious and festival events and special fabrics and handicrafts such as clothing and accessories. These goods are not specifically classified in the current trade classification, so their trade statistics and characteristics are not available. Interviews revealed frequent religious activities involving both the Lao Loum in Laos and the Dai people in Xishuangbanna of Yunnan, China, during which such special goods are traded along with people-to-people exchanges. Both sides meet their respective need with goods from the other party through border trade. 2 Yang Shouchuan, ed. Unique Culture of Yunnan (Beijing: Social Sciences Academic Press, 2006).

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The Chinese side mainly provides manufactured goods, while northern Laos mainly provides handicrafts, showing to some extent the regional division of labor and industrial agglomeration. The dominant industry of the industrial sector in northern Laos is handicrafts, including handknit articles, articles of bamboo and rattan and wooden carvings. About 38,400 people in northern Laos, or 1.60 percent of the population in this region, are engaged in handicraft production; about 0.82 million people are engaged in handloom weaving, accounting for 0.34 percent of the population in this region. The handicrafts in northern Laos, which are primarily made to satisfy the needs of the local people, gradually show characteristics of tourism-oriented products as tourism is booming. Currently, large-scale handicraft enterprises in northern Laos concentrate in cities with thriving tourism such as Vientiane and Luang Prabang. The production of handicrafts and special goods for Dai-Thai people has shown some characteristics of regional production networks.

8.4 Spatial Structure and Regional Industrial Agglomeration in Yunnan, China and Northern Laos Yunnan, China and northern Laos are typically landlocked areas. To enter the international economic cooperation zone comprising these two regions, the rest of China needs to pass through Mohan and other land ports of entry in Yunnan, resulting in a spatial structure of perfect asymmetry defined in this study between Yunnan and the rest of China. Northern Laos does not have manufacturing in the strict sense, so it imports daily necessities from China, mostly from the Luosiwan Wholesale Market in Kunming of Yunnan, China. Consumer staples in this market mainly come from China’s coastal provinces such as Jiangsu and Zhejiang. As for the structure of trade between China and Laos, manufactured goods account for a large share of China’s export to Laos. In the trade between China and Laos in 2007, for example, the top categories of goods in terms of export value and their respective export values are 84 (nuclear reactors, boilers, machinery and mechanical appliances and parts thereof), 40.9238 million USD; 87 (vehicles other than railway or tramway rolling stock and parts and accessories thereof), 32.3094

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million USD; 85 (electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof), 24.1226 million USD; 90 (optical, photographic, medical instruments and apparatus, parts and accessories), 15.6175 million USD; 88 (aircraft, spacecraft and parts thereof), 14.5401 million USD; 72 (iron and steel), 6.7779 million USD; 73 (articles of iron and steel), 4.0086 million USD; and 31 (fertilizers), 1.7238 million USD. Meanwhile, China mainly imports raw materials from Laos, resulting in clear factor agglomeration in Yunnan, China. In 2007, the categories of goods with more than one million US dollars in import value and their respective import values are: 44 (wood and articles of wood, wood charcoal) (primarily wood in the rough and roughly processed wooden sticks, see Table 8.5), 32.9586 million USD; 74 (copper and articles thereof), 17.7199 million USD; 40 (rubber and articles thereof, or, specifically, natural rubber and balata in 4001), 13.0289 million USD; 26 (ores, slag and ash), 8.0441 million USD; 12 (oil seeds and oleaginous fruits, miscellaneous grains, seeds and fruit), 3.4988 million USD; 10 (cereals), 3.4880 USD; 33 (essential oils and resinoids, perfumery, cosmetic or toiletry preparations, or, specifically, essential oils, resinoids, extracted oleoresin in 3301), 2.6624 million USD; 01 (live animals, or, specifically, live animals not elsewhere classified in 0106), 1.275 million USD; and 94 (furniture, bedding and so forth, lamps, prefabricated buildings), 1.0304 million USD, including 194,280 USD in seats and parts thereof in 9403 and 833,530 USD in furniture and parts thereof not elsewhere specified in 9403. As the cooperation between Yunnan, China and northern Laos deepens, the foreign investment policies and investment environment in Laos are improved, and Laos restricts tree felling and export of mineral resources, northern Laos will become increasingly attractive to wood processing and mineral enterprises of Yunnan, China in terms of investment, creating considerable potential for industrial cooperation. There is a wide development gap between Yunnan, China and northern Laos. Manufacturing in Yunnan is comparatively developed, but it is underdeveloped in northern Laos. Therefore, northern Laos does not appeal to equipment manufacturers in location choice. But it is attractive to manufacturers of consumer staples because of the demand for such goods in northern Laos and Yunnan’s absolute location advantage in accessing this region.

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Table 8.5 Top goods imported from Laos to China in terms of import value in 2007 Code

Goods

44 4401 4402 4403 4404

Wood and articles of wood; wood charcoal 32,958,608.00 Fuel wood; wood in chops or particles 2329.00 Wood charcoal 5590.00 Wood in the rough 23,337,133.00 Split poles; piles, pickets and stakes of wood; 1925.00 wooden sticks Wood wool; wood flour Railway or tramway sleepers of wood Wood sawn or chipped lengthwise, sliced or peeled 9,538,751.00 Sheets for veneering or for plywood Wood continuously shaped along any of its edges, 38,874.00 ends or faces Particle board and similar board of wood Fiberboard of wood and other ligneous materials Plywood, veneered panels Densified wood Wooden frames for paintings, photographs, mirrors 225.00 or similar objects Packing cases, boxes, crates, drums and similar packings of wood Casks, barrels and other coopers’ products of wood Tools and similar objects of wood; broom and brush bodies and so forth Builders’ joinery and carpentry of wood Tableware and kitchenware of wood 6931.00 Jewelry fittings and ornaments of wood and so 26,850.00 forth Other articles of wood

4405 4406 4407 4408 4409 4410 4411 4412 4413 4414 4415 4416 4417 4418 4419 4420 4421

Import value (USD)

Data source UN Comtrade

8.5

Summary and Implications

This chapter analyzes the characteristics of regional industrial agglomeration and possibility of and obstacles to industrial clustering in the cooperation mechanism between Yunnan, China and northern Laos, a B-B SIEC program. The aim is to verify the characteristics of regional industrial agglomeration in B-B SIEI.

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There is a wide development gap between Yunnan, China and northern Laos. The latter is an agrarian society which practices slash-and-burn agriculture and has a low level of household consumption. Household consumption in northern Laos consists mainly of food consumption, while the share of manufactured goods is extremely low. Therefore, there is no foundation for the development of manufacturing. The manufacturing cooperation between Yunnan, China and northern Laos can only take the form of one-way trade, so it is unlikely that Yunnan’s manufacturing will spread to northern Laos. The results of field investigations and the structure of trade between China and Laos also reveal such a pattern in industrial cooperation. Northern Laos has abundant land resources and favorable conditions for crop cultivation. This region has rich mineral resources, but exploration efforts have not been able to meet the corresponding needs. Its forest, animal husbandry and power resources are also plentiful. Due to such resource endowments, the industrial cooperation between Yunnan, China and northern Laos focuses on plant production such as food and rubber tree cultivation, mineral resources exploration and exploitation, wood processing and power industry. These industries are spreading from Yunnan, China to northern Laos through outbound investment, creating great potential for cooperation. The rubber industry, especially rubber tree cultivation, has been the focus of cooperation between China and Laos (particularly, northern Laos) since 2005. Rubber tapping starts when rubber trees are five to seven years old, so rubber processing will remain an important area of cooperation between the two parties. Northern Laos does not have the human resources and other conditions necessary for the development of the processing industry. Yunnan, China has competitive advantages in rubber processing. Therefore, an issue that calls for urgent action in formulation of industrial and trade policies is to restructure the rubber processing industry considering the import of natural rubber from northern Laos. Both the Dai people in Xishuangbanna and other places of Yunnan, China and the Lao Loum, the dominant ethnic group in northern Laos, are descended from the Dai-Thai people, and share similar cultural traits in food, housing, clothing and religious beliefs. They have a stable demand for some special goods, most of which are exchanged in border trade. Of these goods, handicrafts are produced in northern Laos and manufactured goods are produced in Yunnan, China. This contributes

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to the formation of a production network in this region, providing the market conditions and industrial foundation for the development of SMEs. As Yunnan, China and the northern provinces of Laos are landlocked areas, the rest of China must enter Laos through land ports in Yunnan. This creates a typical spatial structure of perfect asymmetry in which Yunnan province has absolute location advantages. Consequently, despite the extremely underdeveloped economy of northern Laos, Yunnan, China and Laos are highly complementary thanks to their respective development stage. Yunnan, China has developed advantages in industrial agglomeration of consumer staples needed in northern Laos. As the cooperation between both sides is deepened and the Lao economy continues to develop, it is likely that these industries will spread to northern Laos.

CHAPTER 9

Establishment of SIEC Zones Involving China’s Northwestern and Northeastern Border Areas

In China’s efforts to open up its northwestern and northeastern border areas, the country faces an international environment and foreign markets that are utterly different from those it faces in opening up its southwestern border area. In these areas, the barrier effects of borders are compounded by intricate international, religious and ethnic relations. The efforts to build SIEC zones respectively encompassing China’s northwestern border area and Central Asian countries and encompassing its northeastern border area and Northeast Asian countries should focus on expanding foreign markets, while also paying attention to regional industrial clusters.

9.1

Stage of Development and Economic Structure of Xinjiang, China and Four Central Asian Countries

The economic cooperation between China and Central Asian countries originated from the Shanghai Cooperation Organization (SCO) which initially had cooperation on traditional and non-traditional security threats. As the successor to the Shanghai Five, namely China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan, the SCO aims to jointly oppose and combat international terrorism, ethnic separatism and religious extremism. Uzbekistan became a member of the Shanghai Five as an equal participant at the sixth meeting of the heads of state of © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_9

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in February 2001. After that, the heads of state of these six countries met and signed the Declaration on the Establishment of the Shanghai Cooperation Organization. In the trend toward a multipolar world and economic globalization, the SCO members adopt a pragmatic and win– win approach, and become increasingly complementary in economic development. Currently, the SCO attaches more importance to economic and trade cooperation than to political cooperation. For China, the Xinjiang Uygur Autonomous Region is an important gateway to Central, West and South Asia and Eastern and Western Europe. The famous ancient Silk Road and the New Eurasian Land Bridge traverse Xinjiang, giving it unique location advantages in foreign trade and cross-border regional economic cooperation. These unique location advantages and ports in Xinjiang provide the necessary conditions for Xinjiang’s participation in SIEC. With RIEI organizations such as the SCO, there is currently no statelevel effort to promote B-C SIEC between northwest China and Central Asian countries. However, researchers have discussed the possibility of an SIEC zone encompassing Xinjiang, China and Central Asian countries, such as Dong (2005), Li (2007) and Gao (2006). Assuming the existence of a B-C SIEC zone comprising Xinjiang in China and four Central Asian countries, i.e., Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan, this section analyzes the IIT and conditions for regional industrial agglomeration of Xinjiang in the zone. The four Central Asian countries vary significantly in economic development. Kazakhstan is better developed than the other three. In 2006, its GDP per capita reached 2166.32 USD (constant 2000 USD). That is 8.7 times the figure (246.93 USD) of Tajikistan, the least developed of the four countries, 6.6 times the figure (326.17 USD) of Kyrgyzstan and three times the figure (723.92 USD) of Uzbekistan. A wide development gap exists between the four Central Asian countries. By GDP per capita, Kazakhstan can be considered a developed country. Tajikistan and Kyrgyzstan, on the other hand, are among the poorest, with GDP per capita lower than that of some least developed countries in Southeast Asia, such as Myanmar, Laos, Cambodia and so forth. Xinjiang lags behind the national average of China in economic development. In 2006, its GDP per capita was 107 USD lower than the national GDP. Within the cooperation zone, the economy of Xinjiang, China is inferior to that of Kazakhstan, but better than that of Kyrgyzstan, Tajikistan and Uzbekistan. In 2006, the GDP per capita in Xinjiang,

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China was 675.9 USD lower than the figure in Kazakhstan, but it was 4.6 times the figure in Kyrgyzstan, six times the figure in Tajikistan and twice the figure in Uzbekistan (see Table 9.1). Therefore, measured by the level of development, within the cooperation zone, Xinjiang, China has the greatest potential for industrial cooperation with Kazakhstan and a smaller potential with Uzbekistan, while the potential for industrial cooperation between the province and Kyrgyzstan or Tajikistan is the smallest. An examination of the industrial structure of Xinjiang, China and the four Central Asian countries also reveal different stages of development. Kazakhstan’s economy is at the stage of late industrialization, which is dominated by services. Industry accounts for a large share of its economy, while agriculture only constitutes a small share. Xinjiang, China is at an intermediate level of industrialization, and industry, services and agriculture contribute to its GDP in descending order. In Kyrgyzstan, Tajikistan and Uzbekistan, though the economy is dominated by the services sector, agriculture still accounts for a big share, respectively 32.9 percent, 24.79 percent and 26.14 percent, and industry accounts for a small share, namely 20.1 percent, 27.44 percent and 27.40 percent. Meanwhile, as the four Central Asian countries are established after departing from the Soviet Union, the industrial development plans of the Soviet Union still have a significant impact on their industrial structure. For example, Tajikistan has the lowest GDP per capita in these four countries, but the share of manufacturing in its GDP reaches 19.33 percent, much higher than in the other three countries and similar to the level in Russia (see Table 9.2). Therefore, despite the overall limited potential for industrial cooperation, there are still opportunities for cooperation in the manufacturing sector.

9.2 IIT Between Xinjiang, China and Four Central Asian Countries In the industrial cooperation between Xinjiang, China and the four Central Asian countries, regional industrial agglomeration tends to form in industries with a high IIT index, such as products of the chemical or allied industries, wood and articles thereof, wood charcoal, cork, manufactures of plaiting materials, leather, furskins and articles thereof, bags and cases, articles of animal gut, vegetable products, base metal and articles thereof, jewelry, precious metal and articles thereof, imitation jewelry and coins. Intra-industry trade dominates the trade in other goods. Since 2003, the space for industrial cooperation between Xinjiang, China and

804.16 865.835

2005 2006

1451.41 1597.77

China

Unit USD Data source UN Comtrade; Xinjiang Statistical Yearbook

Average GDP per capita of four Central Asian countries 1977.74 2166.32

Kazakhstan 320.68 326.17

Kyrgyzstan 233.93 246.93

Tajikistan

GDP per capita in the Central Asian SIEC zone (constant 2000 USD)

Year

Table 9.1

684.29 723.92

Uzbekistan

1349.29 1490.42

Xinjiang, China

2443.96 2619.60

Russia

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Table 9.2 Industrial structure of countries and regions in the Central Asian SIEC zone 2006 Four Central Asian countries (average) China Kazakhstan Kyrgyzstan Tajikistan Uzbekistan Xinjiang, China Russia

Agriculture (%)

Industry (%)

Services (%)

Manufacturing (%)

22.45

29.26

48.29

13.85

11.71 5.88 32.99 24.79 26.14 17.3 4.88

48.37 42.1 20.1 27.44 27.4 47.9 39.35

39.91 52.02 46.91 47.77 46.46 34.8 55.76

12.44 12.88 19.33 10.76 19.4

Data source UN Comtrade; Xinjiang Statistical Yearbook

the four Central Asian countries has shrunk in some industries. From 2003 to 2008, the IIT index declined from 68.03 percent to 1.15 percent in the trade in pulp of wood and so forth, waste paper, paper, paperboard and articles thereof, from 63.43 percent to nineteen percent in the trade in live animals, animal products dropped, and from 72.1 percent to 36.82 percent in the trade in vegetable products. Meanwhile, some other industries have seen increasing potential for cooperation. That includes wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials, the IIT index of which rose from 18.59 percent in 2003 to 96.42 percent in 2008, base metals and articles thereof, the IIT index of which increased from 10.1 percent in 2003 to 82.73 percent in 2007. Such rise reflects an increasing demand for these goods in China and the four Central Asian countries and the growing potential for industrial cooperation between them (Table 9.3). Of the four Central Asian countries, Kazakhstan is Xinjiang’s largest trading partner. The import and export value reached 11.622 billion USD in 2008. Nonetheless, there were only a few industries with a high IIT index, including Section I (live animals, animal products), Section II (vegetable products), Section VI (products of the chemical or allied industries), Section VIII (leather, furskins and articles thereof, bags and cases, articles of animal gut) and Section XV (base metals and articles thereof). Since 2003, the IIT indexes of Section II (vegetable products) and Section VI (products of the chemical or allied industries) have been

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Table 9.3 IIT index between Xinjiang, China and four Central Asian countries G&L index Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section

I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI XVII XVIII XX XXI XXII

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

63.43 72.10 0.00 5.76 19.14 60.63 45.61 47.46 18.59 68.03 6.68 0.00 0.00 0.07 10.10 1.66 16.11 0.05 0.08 # #

75.29 94.09 98.26 7.83 29.21 37.15 36.24 43.94 31.14 36.38 6.42 0.00 0.00 # 13.96 1.18 4.21 0.07 0.00 # #

87.91 51.05 0.00 1.78 19.07 37.43 11.19 92.36 85.77 14.19 2.14 0.00 0.00 0.00 32.75 1.57 0.05 0.29 0.00 0.00 #

35.26 62.13 0.00 2.12 7.27 60.75 5.98 99.03 68.46 1.74 6.45 0.04 0.00 14.31 74.47 8.20 0.19 0.02 0.00 0.00 0.00

30.77 44.84 35.33 0.50 7.23 97.56 8.61 60.75 54.97 0.00 1.06 0.07 0.00 77.86 82.73 4.38 0.39 27.13 0.00 0.00 #

19.00 36.82 0.70 0.17 4.12 66.86 10.23 31.02 96.42 1.15 0.31 0.06 0.00 43.67 48.78 0.18 0.46 0.31 0.00 0.00 #

Data source Calculation based on trade statistics from www.drcnet.com.cn Note # denotes no import and export

declining, while that of Section XV (base metals and articles thereof) has been rising rapidly. Regional industrial agglomeration tends to form in these industries, making them important areas for industrial cooperation. Of these industries, Section XV (base metals and articles thereof) has the greatest potential for cooperation. In 2007, the value of these goods exported from Xinjiang, China to Kazakhstan amounted to 302 million USD, and the value of their imports from Kazakhstan to Xinjiang, China totaled 304 million USD. In 2008, the figure was respectively 443 million USD and 202 million USD. There is also great cooperation potential in Section VIII (leather, furskins and articles thereof, bags and cases, articles of animal gut). In 2007 and 2008, the value of these goods exported from Xinjiang, China to Kazakhstan reached fifty-six million USD and 155 million USD, and the value of their imports from Kazakhstan to

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Xinjiang, China amounted to twenty-seven million USD and thirty-two million USD. The highest degree of IIT between Xinjiang, China and Kazakhstan is found in the trade in mineral products of Section V, which comprises mainly import from Kazakhstan. In 2008, Xinjiang, China imported 4.456 billion USD worth of mineral products from Kazakhstan, accounting for 94.5 percent of its imports and 38.3 percent of the value of trade with Kazakhstan. This reflects China’s increasing demand for mineral products in industrialization. Meanwhile, the IIT index of mineral products dropped from 12.4 percent in 2003 to 3.9 percent in 2008, indicating limited potential for regional agglomeration in mining (Table 9.4). There is a large volume of trade between Xinjiang, China and Kyrgyzstan. In 2008, the value of imports and exports between them totaled 7.914 billion USD. The highest degree of IIT is found in their trade in Section XI (textiles and textile articles). The value of these goods exported from Xinjiang, China to Kyrgyzstan reached 5.155 billion USD, accounting for 65.9 percent of Xinjiang’s exports and 65.1 percent of its trade with Kyrgyzstan. Industrial cooperation in these goods mainly takes the form of bilateral trade, and it is difficult for these industries to spread in the cooperation zone. In comparison, the IIT indexes of Section V (mineral products), Section XV (base metals and articles thereof), Section VI (products of the chemical or allied industries) and Section VIII (leather, furskins and articles thereof, bags and cases, articles of animal gut) are high, so it is easier to conduct cooperation in the cooperation zone in these industries (Table 9.5). Table 9.4 Sections of goods with a high IIT index between Xinjiang, China and Kazakhstan G&L index

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section Section Section Section Section

7.66 59.76 61.16 48.23 9.07

26.20 98.80 33.35 41.12 12.48

70.86 40.44 35.69 99.89 28.73

51.59 47.47 54.81 93.94 56.60

73.33 17.15 58.22 64.25 99.76

6.23 10.30 29.22 34.71 62.55

I II VI VIII XV

Data source Calculation based on trade statistics from www.drcnet.com.cn

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Table 9.5 Sections of goods with a high IIT index between Xinjiang, China and Kyrgyzstan G&L index

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section Section Section Section

97.60 38.81 33.37 45.69

69.81 50.77 50.58 36.77

73.37 19.67 75.14 76.58

21.70 31.88 95.80 73.71

78.14 18.60 60.29 53.36

96.12 17.78 30.59 32.89

V VI VIII XV

Data source Calculation based on trade statistics from www.drcnet.com.cn

Table 9.6 Sections of goods with a high IIT index between Xinjiang, China and Tajikistan G&L index

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section V Section VIII Section XV

0.86 0.00 20.18

88.81 0.00 50.92

73.39 56.44 62.04

0.00 75.81 21.36

0.01 15.87 6.11

4.99 18.85 5.60

Data source Calculation based on trade statistics from www.drcnet.com.cn

The scale of trade between Xinjiang, China and Tajikistan is rather small. In 2008, the value of imports and exports between these two parties was 1.16 billion USD, 99.5 percent of which was export from Xinjiang. The largest volume of export was contributed by Section XI (textiles and textile articles), the export value of which totaled 660 million USD, accounting for 56.9 percent of Xinjiang’s total export. Few industries have potential for industrial cooperation between the two parties and regional agglomeration. Overall, the IIT index between Xinjiang, China and Tajikistan is not high. The IIT indexes of Section V (mineral products), Section VIII (leather, furskins and articles thereof, bags and cases, articles of animal gut) and Section XV (base metals and articles thereof) are relatively high, implying some potential for cooperation (Table 9.6). The scale of trade between Xinjiang, China and Uzbekistan is also very small. In 2008, the import and export value between both parties was 250 million USD, 84.5 percent of which was export from Xinjiang. The export value of goods in Section XI (textiles and textile articles) and Section XV (base metals and articles thereof) respectively totaled forty-five

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million USD, accounting for 21.3 percent of the total. As Uzbekistan is better developed than Tajikistan and Kyrgyzstan, Xinjiang and Uzbekistan can have industrial cooperation in more areas, such as Section II (vegetable products), Section VI (products of the chemical or allied industries) and Section VII (plastics and articles thereof, rubber and articles thereof), although overall it is difficult (Table 9.7). In terms of spatial structure, as the four Central Asian countries are all landlocked, China’s inland area must pass through Xinjiang, which borders Kazakhstan, Kyrgyzstan and Tajikistan, to enter these countries. This gives Xinjiang an absolute location advantage in China’s internal spatial structure. Xinjiang and the rest of China constitute perfect asymmetry. Xinjiang dominates China’s trade with the four Central Asian countries, especially with the three bordering countries. In 2008, the export from Xinjiang accounted for 70.32 percent of China’s export to Kazakhstan, and the import to Xinjiang was sixty-one percent of China’s import from Kazakhstan. In the same year, Xinjiang accounted for 84.82 percent of China’s export to Kyrgyzstan and 82.56 percent of the country’s import from Kyrgyzstan; and 78.28 percent of China’s export to Tajikistan (see Table 9.8). Apparently, Xinjiang, China enjoys exclusive location advantages in participating in the Central Asian SIEC. Advancing SIEI will help Xinjiang attract investment from China’s inland area, create a favorable environment for regional industrial agglomeration and leverage foreign markets to cultivate industries with advantages.

Table 9.7 Sections of goods with a high IIT index between Xinjiang, China and Uzbekistan G&L index

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section Section Section Section Section

7.09 23.92 77.14 72.71 11.93

5.93 94.47 68.71 4.84 67.70

10.87 81.95 77.21 98.83 1.15

3.56 86.58 20.00 27.18 0.00

22.44 27.35 6.03 10.26 10.85

16.79 9.06 3.53 3.49 0.00

II VI VII XI XV

Data source Calculation based on trade statistics from www.drcnet.com.cn

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Table 9.8 Contribution of Xinjiang, China in the trade between China and four Central Asian countries

Xinjiang, China China Share of Xinjiang in total

Kazakhstan

Kyrgyzstan

Tajikistan

Uzbekistan

Export (%)

Import (%)

Export (%)

Import (%)

Export (%)

Import (%)

Export (%)

Import (%)

69.08 98.25 70.32

47.14 77.28 61.00

78.14 92.12 84.82

1.00 1.21 82.56

11.58 14.80 78.28

0.06 0.20 29.38

2.11 12.78 16.52

0.39 3.29 11.74

Data source Calculation based on trade statistics from www.drcnet.com.cn and China Statistical Yearbook

9.3

IIT Between China and Four Central Asian Countries

The economic linkages between China and the four Central Asian countries have strengthened. The trade in goods, including both export and import, between China and these countries has been on the rise. The value of exports from China to the four Central Asian countries increased at an annual growth rate of 31.1 percent from 287 million USD in 1992 to 21.794 billion USD in 2008, and dropped to 15.754 billion USD in 2009 (see Fig. 9.1). The value of China’s imports from the four Central Asian countries increased at an annual growth rate of 27.3 percent from 172 million USD in 1992 to 8.198 billion USD in 2008, and dropped to 6.838 billion USD in 2009.1 Import and export between China and Kazakhstan dominates the trade between China and the four countries. Since 1992, the share of China’s export to Kazakhstan in its export to these four countries has remained above fifty percent in most years, which approached eighty percent in 2003 and fell below fifty percent after 2008 (see Table 9.9). China’s import from Kazakhstan accounts for a larger share of the total, which was more than eighty percent in most years and reached 94.26 percent in 2008. Among Central Asian countries, Kazakhstan shares the longest border with China. Enhanced economic cooperation between China and

1 Data source: UN Comtrade.

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Fig. 9.1 Trade value between China and four Central Asian countries

Kazakhstan is therefore a foundation for SIEI of China’s northwestern border area and Central Asia. The structure of trade between China and the four Central Asian countries shows strong complementarity but weak industrial linkages. In 2008, for example, the top ten chapters of goods by value of exports from China to the four countries are Chapter 61, knitted or crocheted articles of apparel and clothing accessories, (5.965 billion USD); Chapter 62, Articles of apparel and clothing accessories, not knitted or crocheted (2.653 billion USD); Chapter 64, footwear, gaiters and the like, parts of such articles (2.307 billion USD); Chapter 73, articles of iron and steel (1.403 billion USD); Chapter 84, nuclear reactors, boilers, machinery and mechanical appliances and parts thereof (1.277 billion USD); Chapter 63, other made up textile articles, sets, worn clothing and worn textile articles (1.019 billion USD); Chapter 85, electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof (886 million USD); Chapter 39, plastics and articles of plastics (613 million USD); Chapter 42, articles of leather, traveling goods, handbags and similar containers, articles of animal gut (546 million USD); Chapter 87, vehicles other than railway or tramway rolling-stock, and parts and accessories thereof (534 million USD) (see Table 11 in Appendix IV for details). The top ten chapters of goods by value of China’s import from the four Central Asian countries are Chapter 27, mineral fuels, mineral

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Table 9.9 Trade between China and four Central Asian countries and the share of Kazakhstan Year

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Export

Import

Four Central Asian countries (million USD)

Kazakhstan (million USD)

Share of Kazakhstan (%)

Four Central Asian countries (million USD)

Kazakhstan (million USD)

Share of Kazakhstan (%)

287 257 189 245 210 238 445 627 755 459 856 1982 2928 5138 7575 12,390 21,794 15,754

227 172 107 75 95 95 205 494 599 327 600 1571 2212 3897 4750 7446 9825 7748

79.20 66.67 56.61 30.77 45.43 39.79 45.99 78.86 79.28 71.25 70.08 79.27 75.53 75.85 62.71 60.10 45.08 49.18

172 346 347 519 557 619 497 695 1048 1016 1440 2007 2814 3479 4304 6919 8198 6838

141 263 197 316 365 433 431 644 958 961 1351 1720 2286 2909 3607 6432 7728 6256

81.96 75.95 56.74 60.76 65.46 69.87 86.67 92.71 91.43 94.56 93.82 85.68 81.24 83.62 83.81 92.96 94.26 91.48

Data source UN Comtrade

oils and products of their distillation, bituminous substances and so forth (4.389 billion USD); Chapter 74, copper and articles of copper (1.225 billion USD); Chapter 72, steel and iron (928 million USD); Chapter 26, ores, slag and ash (848 million USD); Chapter 52, cotton (275 million USD); Chapter 25, salt, sulfur, earths and stone, lime and cement and so forth (150 million USD); Chapter 28, inorganic chemicals, compounds of precious metals and so forth (132 million USD); Chapter 79, zinc and articles of zinc (116 million USD); Chapter 41, raw hides and skins (other than furskins) and leather (ten million USD); and Chapter 14, vegetable plaiting materials, vegetable products not elsewhere specified or included

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(twenty million USD). It is evident that China mainly exports manufactured goods such as clothing and equipment and imports raw materials and other basic products, showing very weak industrial linkages. Due to weak industrial linkages, the IIT index between China and the four Central Asian countries is not high. From 1992 to 2009, inorganic chemicals and compounds of precious metals and so forth in Chapter 28 had the most records (twelve out of eighteen years) of greater-than-fiftypercent IIT index, followed by other animal products in Chapter 05 (eleven years), oil seeds and oleaginous fruits, miscellaneous seeds and fruit in Chapter 12, other base metals, cermets and articles thereof in Chapter 81 (eight years), salt, sulfur, earths and stone, lime and cement and so forth in Chapter 25 (seven years), and Fish and crustaceans, mollusks and other aquatic invertebrates in Chapter 03 (five years). These six industries are loosely connected (see Table 9.10), making it difficult for them to share human capital, industrial capital and technologies or benefit from knowledge spillovers. Some other industries have a low degree of IIT (see Table 9.11). In many years after 2007, there was neither import nor export in these industries, suggesting slim prospects of regional industrial agglomeration. In the trade between China and the four Central Asian countries, sixty-four of the ninety-nine chapters of goods have almost no IIT (see Table 12 in Appendix IV). Since China’s trade with Kazakhstan dominates its trade with the four Central Asian countries, the industries with a high IIT index between China and these four countries coincide with those between China and Kazakhstan. These include fish and crustaceans, mollusks and other aquatic invertebrates in Chapter 03, oil seeds and oleaginous fruits, miscellaneous seeds and fruit in Chapter 12, salt, sulfur, earths and stone, lime and cement and so forth in Chapter 25, cotton in Chapter 52 and aluminum and articles thereof in Chapter 76 (see Table 9.12). Nonetheless, not many industries have a high IIT index in the trade between China and Kazakhstan. With much more inter-industry trade than IIT, the goods and industries of the two countries are very complementary. Following China’s industrial restructuring, some industries which used to have a high degree of IIT between China and Kazakhstan have not seen bilateral trade in recent years. There used to be a large volume of trade between China and Kazakhstan in vehicles other than railway or tramway rolling-stock, and parts and accessories thereof in Chapter 87. As China’s vehicle and equipment manufacturing capability is improved, its import

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Table 9.10 Top six chapters of goods in terms of IIT index between China and four Central Asian countries Code

28 (%)

05 (%)

12 (%)

81 (%)

25 (%)

03 (%)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

16.49 34.22 69.53 69.67 94.85 51.09 83.02 83.21 94.65 98.28 82.23 61.44 37.41 28.46 22.52 57.76 64.51 24.13

0.00 53.03 6.81 70.30 13.99 87.07 39.86 90.41 16.73 25.61 44.53 91.50 78.74 83.92 78.76 98.33 86.89 79.78

0.00 0.00 0.00 10.73 74.92 23.56 81.64 62.04 79.79 4.42 70.08 15.96 15.22 93.13 42.01 33.36 67.00 88.09

# # 0.00 32.07 56.08 53.71 39.21 12.29 2.98 41.23 84.90 86.64 68.63 53.03 28.94 31.98 80.58 60.40

2.99 0.00 24.18 0.00 0.00 0.46 58.24 72.03 60.75 50.82 90.29 53.63 20.37 44.75 41.65 98.24 38.72 36.47

0.00 0.30 0.00 0.00 10.55 0.00 24.09 0.00 0.00 0.00 0.00 84.97 6.84 96.09 7.71 98.49 54.15 95.41

Note 0.00 denotes import or export only. # denotes no import and export Data source UN Comtrade

of these goods from Kazakhstan has been declining since 2003. China’s import of nuclear reactors, boilers, machinery and mechanical appliances, and parts thereof in Chapter 84 from Kazakhstan keeps falling, and the IIT index of these goods has dropped to nearly zero. China’s import of wood, articles of wood and wood charcoal in Chapter 44 from Kazakhstan has also been declining, and there was no such import in 2006, 2007 and 2009. There used to be a large volume of import and export of paper and paperboard, and articles of paper pulp, paper or paperboard in Chapter 48 in the 1990s, but China has had nearly no import of these goods in recent years. From this perspective, the development of China’s manufacturing causes declining IIT in manufacturing and rising IIT in basic industries in the trade between China and Central Asian countries. This also reflects the trends and directions of industrial cooperation.

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Table 9.11 Chapters of goods with an IIT index above fifty percent between China and four Central Asian countries for three to four years from 1992 to 2009 Code

44 (%)

57 (%)

84 (%)

88 (%)

08 (%)

01 (%)

76 (%)

48 (%)

87 (%)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

28.85 2.85 33.01 81.19 52.96 53.56 38.74 5.33 11.08 4.84 30.32 50.65 18.06 0.33 0.03 0.05 0.18 0.12

7.91 0.00 68.00 89.54 65.08 0.00 48.56 16.18 19.39 0.00 37.88 49.39 72.32 11.31 5.74 0.00 0.00 1.92

63.15 59.45 35.27 15.78 77.99 6.91 3.98 73.27 0.26 0.14 0.20 0.19 0.14 0.83 0.08 0.02 0.02 0.19

# 0.00 # 75.85 2.23 0.67 97.79 0.00 0.00 55.99 22.88 23.43 53.23 0.25 0.00 0.00 0.00 0.00

0.00 0.00 0.00 20.76 86.40 30.65 36.59 7.44 59.80 91.37 39.13 7.17 6.07 2.58 1.93 2.49 1.34 1.42

0.00 0.00 # 0.00 0.00 0.00 0.00 # 0.00 76.90 75.54 0.00 0.00 13.39 64.86 0.00 0.00 0.00

5.31 0.71 3.10 0.55 0.14 0.65 1.87 0.44 0.68 0.34 10.67 32.58 69.21 72.31 41.06 21.34 16.18 63.92

70.61 83.50 13.48 0.17 35.89 89.78 13.38 1.21 0.86 2.95 1.61 0.00 0.00 0.00 0.02 0.00 0.30 0.00

46.86 16.33 81.63 68.46 68.77 1.85 0.13 25.85 8.30 10.52 0.17 5.18 0.02 0.00 0.00 0.00 0.00 0.00

Note 0.00 denotes import or export only. # denotes no import and export Data source UN Comtrade

In summary, since the industries of China and the four Central Asian countries are more complementary than linked, there is more interindustry trade than IIT. If an SIEC zone is to be established comprising Xinjiang, China, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan, the primary goal should be to facilitate bilateral trade and entrepot trade instead of creating industrial clusters through regional industrial agglomeration.

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Table 9.12 Top ten chapters of goods in terms of IIT index between China and Kazakhstan Code

Goods

03

Fish and crustaceans, mollusks and other aquatic invertebrates Oil seeds and oleaginous fruits; miscellaneous seeds and fruit Salt; sulfur; earths and stone; lime and cement and so forth Cotton Aluminum and articles thereof Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Inorganic chemicals; compounds of precious metals and so forth Wood and articles of wood; wood charcoal Paper and paperboard; articles of paper pulp, of paper or of paperboard

12 25 52 76 87

84

28 44 48

1992 (%)

1995 (%)

2000 (%)

2005 (%)

0.00

0.00

0.00

96.09 97.68

0.00

30.72

45.06

44.74 43.27

2.99

0.00

50.74

38.74 20.44

35.86 7.93 47.48

10.91 0.20 87.83

0.00 0.82 9.36

73.37 24.65 64.25 61.27 0.00 0.00

75.98

46.89

0.30

1.58

49.00

74.14

29.30

56.48

8.55

0.46

0.00

73.04

0.00

1.00

0.00

0.00

0.98

2009 (%)

0.00

16.91 18.03

Note 0.00 denotes import or export only Data source UN Comtrade

9.4 Subregional Cooperation Between Jilin in China, Primorsky Krai in Russia and Gangwon in the ROK The subregional cooperation in Northeast Asia is initiated by UNDP and well received by countries in this subregion. Thanks to efforts of international organizations such as UNDP, the United Nations Industrial Development Organization, the United Nations Conference on Trade and Development and the United Nations World Tourism Organization, various cooperation mechanisms have emerged in Northeast Asia, such as the Northeast Asia Cooperation Forum and the Northeast Asia Expo. While there is no clear definition of Northeast Asia, it is generally agreed that it comprises China, Japan, Mongolia, the ROK, the DPRK and the Russian Far East.

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The economic cooperation in Northeast Asia is different from that between China and the rest of the world. Its progress is impeded by diversity in many aspects, including in economic system and economic development levels. Market economies co-exist with planned economies and transition economies that are moving from a planned economy to a market economy. In terms of economic development levels, this subregion is home to developed countries, emerging industrialized countries and developing countries. Without a well-established state-level cooperation mechanism, the cooperation between China and other Northeast Asian countries is loosely organized and mainly promoted by local governments and non-governmental organizations. Currently, there are several cooperation mechanisms in this subregion, such as the Governor’s Conference of Northeast Asia (GCONA), the Association of Northeast Asia Regional Governments (NEAR), the Conference of Major Cities in the East Sea (Sea of Japan) Rim Region, East Asia Inter-Regional Tourism Forum (EATOF) and the Hunchun-Zarubino-Sokcho route.2 After the launch of the said route between Hunchun, Zarubino and Sokcho, researchers proposed the establishment of an international economic cooperation zone comprising Jilin in China, Primorsky Krai in Russia and Gangwon in the ROK. This idea takes on great significance after the approval of the Changchun-Jilin-Tumen Development and Opening-up Pilot Zone by the State Council of China. Assuming the existence of a B-B SIEC zone, i.e., the Jilin-Primorsky Krai-Gangwon Cooperation Zone, this section analyzes the spatial structure and industrial structure of the three areas concerned and comments on challenges in the cooperation. China, Russia, Mongolia and some other countries stepped up their efforts to reform and open up in 1990. Then the TRADP was launched in 1991 at the proposal of UNDP. Japan and the ROK also started cooperation with port cities in China, Russia and the DPRK in the hope of expanding the market in Russia, especially in Primorsky Krai, and in Europe and enhancing trade with China’s northeastern provinces. They worked actively to establish new shipping routes, including the Hunchun-Rajin-Busan freight shipping route launched in October 1995, the Posyet-Akita route in August 1999 and the Hunchun-Rajin-Niigata route in October 1999. But these lines, except the first one, were irregular 2 Quan Hongzhen, “Research on Localized Transnational Economic Cooperations (sic) in Northeast Asia,” (Ph.D. thesis, Jilin University, 2009).

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or trial ones which did not function as expected due to low profitability as a result of economic backwardness of the Tumen River Area and lack of cooperation from the DPRK. Dongchin Shipping Corporation of the ROK launched the HunchunZarubino-Sokcho route, the only land–water transport route involving China, in cooperation with Jilin of China, Vladivostok of Russia and Gangwon of the ROK on April 28, 2000. The local governments made concerted efforts to deal with issues such as customs declaration, other customs-related problems and visa requirements of cargo and cruise ships during operation of the route to further improve its use. Since the launch of said route, Jilin has made vigorous efforts to attract foreign investment and tourists and promote foreign trade. Tourist exchanges and trade between Russia’s Primorsky Krai and the ROK have also been increasing rapidly. After gaining a foothold in Primorsky Krai, Gangwon of the ROK has enjoyed success in exporting automobiles and attracting tourists. The Hunchun-Zarubino-Sokcho route is considered by many researchers a model of successful cross-border economic cooperation between local governments in Northeast Asia. Jilin is a landlocked province in China. It has made consistent efforts to participate in economic cooperation in the East Sea (Sea of Japan) Rim. Inspired by UNDP, Jilin actively promotes the TRADP. It designated Hunchun, which is at the heart of the program, as a special economic zone, and established Hunchun Border Economic Cooperation Zone, a state-level development zone, Export Processing Zone and China-Russia Trade Area in the city. All these measures have played an important role in promoting economic cooperation between Jilin, Primorsky Krai and Gangwon. Rich in resources, Jilin has developed agriculture and manufacturing. Home to FAW, a famous automotive company in China, Jilin has two primary industries, namely the automobile industry and the petrochemical industry. Other industries such as food, pharmaceuticals and electronics are also developing rapidly. At present, Jilin focuses on establishing itself as a resource-based city and developing high-tech bases of the automobile industry, petrochemical industry, agro-processing industry, modern TCM and biopharmaceutical industries, electronic information industry and so forth and six major bases including the regional demonstration base of compatible industries. Primorsky Krai is the southernmost region of the Russian Far East. It borders the East Sea (Sea of Japan) to the southeast and south, China to the west across the Ussuri River, the DPRK to the south and Khabarovsk

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to the north. After taking office, Russian president Yeltsin launched the Vladivostok Project in 1992 and designed a long-term strategy of opening up the Vladivostok Military Port and the Far East. The ports of Vladivostok, Posyet and Nakhodka in Primorsky Krai were gradually opened up to transform the Russian Far East to an entry port to the rest of the country and a tourism and trade hub in the East Sea (Sea of Japan) Rim. His short-term plan was to interact with local governments in the rim in order to establish the Russian Far East as a central city in Northeast Asia. In the long run, Russia intended to connect the Trans-Siberian Railway (TSR) with the Trans-Korean Railway (TKR) and give priority to the development of Primorsky Krai. Primorsky Krai is rich in resources including coal and other mineral resources. Forests account for 79.5 percent of this area. As one of the most developed areas in the Russian Far East, Primorsky Krai has thirty percent of the social and economic potential of this region. While its area is only 2.7 percent of the total in Russia’s Far East, it contributes to thirty percent of the population, 24.4 percent of the industrial output, 25.92 percent of the agricultural output and 17.18 percent of the investment in this region. Its construction materials industry, including wood processing, cement, bricks and tiles and glass, coal mining and metallurgical industry are well developed. Industries in Primorsky Krai are mainly based on natural resources, typical examples of which include fishery, forestry and mining. Its goods participating in interregional exchange are mainly products of fishery, machinery manufacturing, metal processing industry, forestry, mineral and chemical industries. Thanks to its superior tourism resources and natural environment, Gangwon is known as the best tourist destination in the ROK and is rich in timber, minerals and other resources. Its dominant industries are tourism, medical equipment, electronics, mineral, and agricultural and fishery products processing. Major institutions in the province include the Multimedia Valley and High-Tech Venture Town specializing in filming and biological industries and S/W Startup Support Center in Chuncheon, the Science and Technology Park, Advanced Medical Equipment Technological Innovation Center and Medical Equipment Venture Town and Internet SOHO Startup Support Center focusing on medical equipment, information and communications in Wonju, EcoMedia, Natural Resources Research Institute and S/W support center combining tourism, new materials and marine research in Gangneung.

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Gangwon has thirty-nine industrial zones, including one at the state level, nine local industrial zones and twenty-nine agroindustry zones. Jilin, Primorsky Krai and Gangwon have advantages in different industries which are highly complementary. A collaborative industrial chain tends to form in their cooperation, which comprises resources, mining, metallurgical, smelting and processing industries, manufacturing, and high-tech industries. This also creates potential for industrial cooperation that leads to regional industrial agglomeration. The launch of relevant routes will expedite the cooperation between these three places. In terms of spatial structure, Jilin, China has only relative location advantages in cooperation with Primorsky Krai and Gangwon, which somewhat reduces the cooperation potential. Nonetheless, China has launched the Changchun-Jilin-Tumen Development and Opening-up Pilot Zone. According to the “Outline of the Tumen River Area Collaborative Development Program of China,” the Changchun-Jilin-Tumen region will play an important role in China’s development and openingup of border areas, and will serve as a gateway to Northeast Asia and an important platform for economic and technological cooperation in Northeast Asia. It is expected to become a new growth pole in northeast China and a pilot and demonstration zone for China’s efforts to open up and develop its border areas. The pilot zone will be established as a platform for international cooperation with a significantly higher level of opening-up, and a pilot zone for opening-up and institutional innovation in inland and border areas. It will take the lead in development with significantly improved industrial competitiveness and serve as an important engine of the rejuvenation of northeast China including Jilin, thus contributing to the creation of a new pattern of opening-up across China. The government’s policy support strengthens Jilin’s location advantages, and effectively reduces the international border effects in the B-B Jilin-Primorsky Krai-Gangwon Cooperation Zone. In particular, UNDP and other international organizations have consequently shown an increased interest in development of this area, and Japan and the ROK are more interested in investment in this area. All these suggest a bright prospect for the establishment of the cooperation zone.

9

9.5

ESTABLISHMENT OF SIEC ZONES INVOLVING CHINA’S …

223

Summary and Implications

International economic cooperation in a wide range of ways is in progress in China’s northwestern and northeastern border areas where there are good prospects for SIEC. Recent efforts may focus on establishing the B-C SIEC zone comprising Xinjiang, China and four Central Asian countries and the B-B SIEC zone encompassing China’s Jilin province, Russia’s Primorsky Krai and Gangwon of the ROK. A great development gap exists in the first SIEC zone as proposed. Of the four Central Asian countries, Kazakhstan is the best developed and has a high degree of IIT with Xinjiang, which means a great potential for industrial cooperation. Kyrgyzstan, Tajikistan and Uzbekistan are comparatively less developed, so the potential for industrial cooperation with Xinjiang, China is smaller. As the four Central Asian countries are landlocked countries bordering or adjacent to Xinjiang, Xinjiang and the rest of China constitute perfect asymmetry in such B-C SIEI. Considering the economic performance of Kazakhstan and other Central Asian countries and the possibility to enter the farther Eastern European market through these countries, the said SIEC zone will give Xinjiang a unique location advantage in foreign market expansion. It can also encourage enterprises from China’s inland area to invest in Xinjiang in the hope of entering the Central Asian market. Therefore, policies on this cooperation zone should give priority to export-oriented manufacturing and processing industries and import-based resource processing industries. The Jilin-Primorsky Krai-Gangwon Cooperation Zone has abundant resources, developed economies and complementary industries with advantages, so cooperation tends to emerge at various stages of the industrial chain. The Hunchun-Zarubino-Sokcho route, which is already in operation, provides a solid foundation for the establishment of the cooperation zone. Jilin province in the cooperation zone and the rest of China constitute imperfect symmetry. However, the approval of the ChangchunJilin-Tumen Development and Opening-up Pilot Zone and the “Plan of China for Cooperative Development the Tumen River Area” will significantly reduce international border barriers and expedite the progress in this B-B SIEI program. Thus, there is great potential for cooperation.

CHAPTER 10

Conclusions and Policy Implications

10.1

Conclusions

According to the scope of areas concerned, regional economic integration is divided into domestic regional economic integration and international regional economic integration. The latter includes RIEI and SIEI. Economic integration involving foreign countries is divided into the B-C type and the B-B type according to the nature of participants. SIEI is different from RIEI in four aspects, namely no sovereignty ceding or supernational authority, geographic proximity and geographic relationships, open internal market and extensive cooperation. International industrial cooperation can develop into industrial clusters or coalitions depending on the spatial structure of the countries concerned. Geographically close countries have industrial cooperation in the form of industrial clusters, the most pronounced features of which are regional industrial agglomeration and specialization. The better developed the economy and the manufacturing sector, the greater the market potential and the share of manufactured goods in household consumption, the stronger the agglomeration forces. SIEI can be well interpreted using this dynamic mechanism of spatial economics. The GMS and the Southern ASEAN Growth Triangle show a spatial structure characteristic of B-C SIEI. They are international economic cooperation zones encompassing regions of one country and several other countries. The major condition for spatial industrial agglomeration is the reduction of iceberg trade costs which may be pushed up © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4_10

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by physical geographical border barriers, institutional border barriers and costs of international agreements. In SIEI, border effects change from barrier effects to opening-up effects. A basic principle in SIEI is that agglomeration forces in the participating border area grow in tandem with the degree of SIEI. According to this principle, regional industrial agglomeration in B-C SIEI is affected by resource endowments, market potential and level of industrialization of partner countries and domestic spatial structure. That of B-B SIEI, on the other hand, is more affected by domestic resource endowments, level of industrialization and spatial structure and industrial structure of cooperating parties. In terms of the practical significance of domestic spatial structure, perfect asymmetry better captures the characteristics of B-B SIEI, because the most convenient export channels for the inland area are often the foundation for establishing cooperation zones. B-C SIEI shows imperfect symmetry, because maritime transport still has a cost advantage thanks to superiority over land transport in long-distance transport. The GMS program has verified the mechanism of regional industrial agglomeration and influencing factors in B-C SIEI. The five countries cooperating with China in the program vary significantly in development levels. Better developed Thailand and Vietnam have a higher degree of IIT with China than less developed Myanmar, Laos and Cambodia. Yunnan and Guangxi of China, which participate in the GMS program, constitute imperfect symmetry with the rest of the country, so they do not enjoy absolute location advantages. Industrial cooperation mainly focuses on basic industries, such as agriculture, mining and power, and transport, communications and other infrastructure that can reduce iceberg transport costs. On the other hand, the large scale of trade between Yunnan, China and Myanmar, the least developed GMS member, has verified the significance of perfect asymmetry in SIEI. Nonetheless, their cooperation is limited to basic industries such as agriculture and mining due to the development level of Myanmar. The cooperation mechanism between Yunnan, China and northern Laos has verified the mechanism of regional industrial agglomeration and influencing factors in B-B SIEI. Despite the extremely low level of development of northern Laos, Yunnan enjoys absolute location advantages in China in the perfectly asymmetric structure, so industrial cooperation between the two parties have been in progress. The resources of northern Laos enhance their cooperation in many industries such as agriculture, mining and power. The demand for special goods of same-origin

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ethnic groups living across the border between China and Laos, known as the Dai-Thai people, creates considerable market potential. This provides a foundation and conditions for the formation of regional production networks. It also conduces the development of SMEs and industries in the cooperation zone. Northwest and Northeast Asian countries around China have been pursuing economic cooperation with China in various ways. The B-C SIEC zone encompassing Xinjiang, China and four Central Asian countries and the B-B SIEC zone comprising Jilin in China, Primorsky Krai in Russia and Gangwon in the ROK are considered to have great potential. The former tends to have regional industrial agglomeration thanks to the absolute location advantages of Xinjiang, China and Kazakhstan’s economic level. In the latter, the three parties tend to have cooperation at different stages of the industrial chain thanks to their highly complementary industrial structure.

10.2

Policy Implications

The conclusions of this study provide the following policy implications: a. SIEC between countries with a great development gap should focus on primary goods in which the less developed countries have advantages. A major form of industrial cooperation should be investment of better developed countries in less developed ones. China should pursue subregional cooperation with neighboring countries mainly through outbound investment in these countries in line with their industrial policies. b. If the partner country has better developed manufacturing and the regions participating in cooperation do not have absolute location advantages at home, the increase in integration and the reduction of border barriers have negative effects on factor agglomeration in these regions. In this case, priority should be given to improving domestic interregional transport conditions and reducing domestic interregional trade costs. c. Industrial cooperation in cooperation zones benefits the most from subregional cooperation when the participants are at similar levels of development. In this case, cooperation zones have strong regional industrial agglomeration forces. There is a high degree of IIT and

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cooperation in a lot of areas between participants. With the exception of a few countries at a high level of development, most of China’s neighboring countries are less developed than China. Some are in traditional agrarian society, and some have just started industrialization. This has impeded the expansion of cooperation. In cooperation with such countries, China should follow the inclusive development approach. To promote SIEC with these countries, China should encourage outbound investment in these countries in line with their foreign investment policies and provide more assistance to expedite their economic growth. d. The spatial structure of a country’s border area that participates in subregional cooperation and its inland area that does not participate in the cooperation has a significant impact on the forces driving industrial agglomeration toward the border area. Perfect asymmetry facilitates industrial agglomeration in the region participating in cooperation, and there is potential for cooperation even if the partner country or region lags behind in economic development. Therefore, improvement in infrastructure such as exit channels and ports between Xinjiang, China and Central Asian countries and between Yunnan, China and Myanmar, reduction of border effects, a higher level of opening-up and accelerated SIEI will have greater effects in these areas than in other areas. e. Same-origin ethnic groups living across the border constitute a relatively independent market which has a demand for special goods. To promote regional economic growth, an important measure should be to create a regional production network of such goods to fill the market gap and cultivate local SMEs. This should be considered an important area of industrial cooperation in SIEI. Xishuangbanna, Dehong and so forth of Yunnan, China and Indochinese Peninsula countries are inhabited by Dai-Thai people, which provides a foundation for increased opening-up and industrial cooperation in these places. Many border areas between China and neighboring countries are inhabited by same-origin ethnic groups. Further economic integration in these areas will contribute to economic development in China’s land border areas. f. Like market potential, foreign resource endowments contribute to regional industrial agglomeration. Most of China’s neighboring countries are less developed than China and have small market potential, but have advantages in resource endowments, so SIEI

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with these countries is worth promoting efforts. There are still many other areas where China can pursue subregional cooperation with neighboring countries. China should make greater efforts in this regard.

10.3 10.3.1

Future Work

Further Study of Border Effects

This study categorizes border effects into barrier effects and openingup effects, and conducts qualitative analysis of both types. The first type includes the effects of physical geographical barriers, institutional barriers and citizenship-based barrier effects. The second type includes the intermediary effect, market expansion, resource agglomeration, cross-border capital flow, cross-border technology transfer, cross-border labor mobility and dual-currency in border areas. These effects are included in iceberg trade costs, but they have not been analyzed separately in our models. For iceberg trade costs T BaR (in B-C SIEI) and T BaBr (in B-B SIEI) in perfect asymmetry and T CaR and T BaR (in B-C SIEI) and T CaBr , T BaBr , T BaCr and T CaCr (in B-B SIEI) in imperfect symmetry, further studies are needed to examine the impact of each border effect on integration in models. 10.3.2

Empirical Research of Model Parameters

This study only analyzes and calculates the values of µ, the expenditure on manufacture consumption, and a, the share of intermediate inputs, in verification using the GMS program. The parameter values in the models of two types of SIEI are largely based on those from dynamic spatial economic models. Such values are drawn from the empirical research of Western economists based on European and US economies, so their explanatory power for factor mobility in other countries may not be as good. While parameter evaluation is not our focus in this study, it is necessary to examine the range of parameter values in the future. 10.3.3

Specialization and Non-Specific Agreements

This study examines industrial cooperation mainly from the perspective of regional agglomeration, and deals briefly with industrial linkages. But

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it does not elaborate on another two characteristics of industrial clusters, i.e., specialization and non-specific agreements. Dynamic research in this regard will be conducted using multi-industry and multi-region models.

Appendix I: Tripartite Model of Interregional Factor Movements

Demand Consumers’ income from agriculture and manufacturing determines their expenditure on agricultural products and manufactured goods. This depends on consumer preferences. Assuming that all consumers have the same quasi-linear utility function: U = α ln C X + C A α > 0.

(A.1)

In Formula A.1, C X is the set of manufacture consumption amount, and C A is the set of agricultural consumption amount. For C X , the DS model of monopolistic competition is adopted. Let x i be the level of expenditure on a variety of manufacture, and n be the number of available manufactures. The function of manufacture’s overall consumption level is the function of the consumption of manufacture variety i, i.e., x i: CX =

| n E

σ −1 σ

|

σ σ −1

xi

(A.2)

i=1

x i is the consumption amount of variety i of manufacture, σ is the elasticity of substitution between any two varieties of goods and n is the number of variety. Since manufactures are diverse, consumers have preferences for varieties. As σ variety increases, the substation elasticity of variety climbs higher, while the willingness to increase manufacture consumption decreases. Differences in variety do not affect utility (100 units of a variety © Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4

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APPENDIX I: TRIPARTITE MODEL OF INTERREGIONAL …

of products have the same utility as 100 varieties of products). Because of the presence of monopolistic competition, σ > 1, meaning that different varieties of products are imperfect substitutes. At a given level of income, utility maximization of consumers is subject to the following budget constraint: Y = C A pA +

n E

(A.3)

xi pi

i=1

In Formula A.3, p i is the ex-factory price of manufacture variety i, p A is the price of agricultural products and Y is consumers’ income. The following function of demand of a region for manufactures from another regions is derived from Formulas A.2 and A.3: ( ) α (A.4) xi = pi−σ P σ −1 α = pi−σ En 1−σ i=1 pi To maximize utility, consumers must make an optimal choice about the expenditure on agricultural products and manufactures. C X = α P −1

(A.5)

Formula A.5 is also the demand function of manufactures. Include Formula A.4 in the spatial structure. Assume that s (q) = C a , B a , R and each s (q) produces n s varieties of manufactures. In this model, iceberg trade costs are the price of product i, which is manufactured in region s and sold to region q, including ex-factory price and trade costs, so p isq = p s T sq (since all varieties manufactured in a region are symmetrical, the subscript i is omitted hereinafter). Let T sq be the general expression of T CaBa , T CaR and T BaR . Based on Formulas A.2 and A.4, the producer price index in each region q is as follows: ⎡ Pq = ⎣

E

(

n s ps Tsq

)1−σ

⎤ ⎦

1 1−σ

(A.6)

s=C,B,R

Apply Formula A.4 in three regions and obtain the following formula: )−σ ( α ps Tsq , s, q = Ca , Ba , R (A.7) xsq = Piσ −1

APPENDIX I: TRIPARTITE MODEL OF INTERREGIONAL …

233

Supply In monopolistic competition, labor and human capital are employed to produce manufactures. Manufacturers have the same production function. Through unit conversion, the case is presented as labor being employed at a wage level of 1 to produce x i units of product i in region s, where the total costs are T C s (xi ) = Ws K i + L i xi . W s is the reward for human capital in region s. Therefore, TC s (x i ) includes the fixed costs per unit of human capital, i.e., K i = 1, and the marginal costs of labor. The fixed costs climb as the returns to scale increase. Within the framework of monopolistic competition, we assume a large number of manufacturers, each providing a variety of goods. The constant price equation for maximum profitability of manufacturers is thus derived: ) ( (A.8) ps = σ σ−1 . In Formula A.8, p s is the price of a variety of goods produced in the region s. The equilibrium output of a manufacturer in region s is calculated assuming market clearing of each variety. Based on Formula A.7, the equilibrium output is: E Xs = (K q + L q )Tsq xsq . (A.9) s=Ca ,Ba ,R

The profit function of a typical manufacturer in region s is: | = ps X s − X s − W s .

(A.10)

Short-Run Equilibrium The number of varieties produced is equal to that of manufacturers in a region. Human capital cannot move between two regions in short-run equilibrium. Zero profit in equilibrium suggests changes in W s . Based on Formulas A.8 and A.10, it is calculated that: X s = W (σ − 1).

(A.11)

According to Formula A.6, the price of each variety of goods manufactured in region s and sold to region q includes ex-factory price and

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APPENDIX I: TRIPARTITE MODEL OF INTERREGIONAL …

trade costs. The producer price index of the following regions are thus as follows: )| ( | 1 σ 1−σ 1−σ 1−σ K R TCa PCa = , (A.12) R + K Ca + K Ba TCa Ba σ −1 )| ( | 1 σ 1−σ 1−σ 1−σ K R TBa PBa = + K + K T , (A.13) Ca Ba R Ca Ba σ −1 )| ( | 1 σ 1−σ 1−σ 1−σ K R + K Ca TCa . (A.14) + K T PR = Ba Ba R R σ −1 For distribution of human capital across the regions, the equilibrium value of W s of all regions can be calculated (s = C a , B a , R). In the framework of three regions, reward to human capital is expressed as follows: | 1−σ (L R + K R )TCa α (L Ca + K Ca ) R WCa = + 1−σ 1−σ 1−σ 1−σ σ K R + K Ca TCa R + K Ba TBa R K R TCa R + K Ca + K Ba TCa Ba | 1−σ (L Ba + K Ba )TCa Ba + , (A.15) 1−σ 1−σ K R TBa + K T Ca Ca Ba + K Ba R | 1−σ 1−σ (L Ca + K Ca )TCa (L R + K R )TBa α R Ba W Ba = + 1−σ 1−σ 1−σ 1−σ σ K R + K Ca TCa K R TCa R + K Ba TBa R R + K Ca + K Ba TCa Ba | (L Ba + K Ba ) + , (A.16) 1−σ 1−σ K R TBa R + K Ca TCa Ba + K Ba | 1−σ (L Ca + K Ca )TCa (L R + K R ) α Ra + WR = 1−σ 1−σ 1−σ 1−σ σ K R + K Ca TCa + K T K T + K + K Ba Ba R R Ca R Ca Ba TCa Ba R | 1−σ (L Ba + K Ba )TBa R + . (A.17) 1−σ 1−σ K R TBa + K T Ca R Ca Ba + K Ba

Long-Run Equilibrium In long-run equilibrium, human capital can move between the two regions of country a and move toward the region with the highest indirect utility. Based on the relevant formulae, the indirect utility function

APPENDIX I: TRIPARTITE MODEL OF INTERREGIONAL …

235

with maximum utility is as follows: (α)

+Y −α P ⇒ Vs = α(ln α − 1) + Y − α ln(Ps ),

Vs (P, Y ) = max U = α ln

where P is the price index, and Y is the consumers’ income level. The utility difference between border area and inland area is therefore: ) ( PBa + (WCa − W Ba ). VCa − VBa = α ln (A.18) PCa When VCa −VBa = 0, the manufactured goods of the two regions reach long-run equilibrium. The first item on the right-hand side of Formula A.18 reflects the supply, which shows that regions with a greater share of human capital have a larger manufacturing share and consequently a lower price index. The second item on its right-hand side reflects the demand, showing that the rise in human capital share in a region leads to a greater market, which pushes up firms’ profits expressed as and attracts more human capital. As a relatively stable resistance in the model, trade costs tend to disperse production in two regions. When trade costs increase, firms closer to immobile consumers are more profitable. Therefore (VCa − VBa ) in Formula A.18 depends only on the share of human capital of the two regions. The human capital share of region C a is λ = K Ca /(K Ca + K Ba ). With given model parameters, human capital share changes as follows: ⎧ If 0 < λCa < 1 ⎨ (Vca − VBa ) dλca = min{0, (VCa − VBa )} If λCa = 1 . (A.19) ⎩ dt max{0, (VCa − VBa )} If λCa = 0

Appendix II: Quadruple Model of Interregional Factor Movements

As with consumption expenditure and price index in the tripartite model, the model is constructed using quasi-linear utility function and the D-S model of monopolistic competition. The difference is that after Formula A.4 is included into the spatial structure, s (q) = C a , B a , C r , B r and each s (q) produces n s varieties of manufactures. Iceberg trade costs are the same as in the tripartite model, and T sq is used as the general expression of T CaBa , T CaBr , T CaCr , T BaBr and T BaCr . The producer price index of each region q is: ⎡ Pq = ⎣

E

(

n s ps Tsq

)1−σ

⎤

1 1−σ

⎦

.

(A.20)

s=Ca,Ba,Cr,Br

The function of demand of a region for manufactures from another region is: xsq =

)−σ ( α ps Tsq Piσ −1

, s, q = Ca , Ba , Cr , Br .

(A.21)

Labor and human capital are still employed to produce manufactures in monopolistic competition.

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4

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APPENDIX II: QUADRUPLE MODEL OF INTERREGIONAL …

Short-Run Equilibrium The number of varieties produced is equal to that of manufacturers in a region. Human capital cannot move between two regions in short-run equilibrium. Zero profit in equilibrium means changes in W s . As in Annex I, it is calculated that: X s = W (σ − 1).

(A.22)

According to Formula A.20, the price of each variety of goods produced in region i and sold to region j includes ex-factory price and trade costs. The producer price index of the following region is therefore as follows: ( )| σ K Cr (TCaCr )1−σ + K Br (TCa Br )1−σ PCa = σ −1 | 1 1−σ +K Ca + K Ba (TCa Ba )1−σ , (A.23) (

)| σ K Cr (TBaCr )1−σ + K Br (TBa Br )1−σ σ −1 | 1 1−σ +K Ba + K Ca (TCa Ba )1−σ ,

(A.24)

)| σ K Ca (TCaCr )1−σ + K Ba (TCr Ba )1−σ σ −1 | 1 1−σ , +K Cr + K Br (TCr Br )1−σ

(A.25)

)| σ = K Ca (TBrCa )1−σ + K Ba (TBa Br )1−σ σ −1 | 1 1−σ . +K Br + K Cr (TCr Br )1−σ

(A.26)

PBa =

( PCr =

(

PBr

The equations in square brackets are respectively expressed as Z Ca , Z Ba , Z Cr and Z Br . For distribution of human capital across the regions, the equilibrium value of W s of all regions can be calculated (s = C a , B a , R). In the framework of four regions, reward to human capital is expressed as

APPENDIX II: QUADRUPLE MODEL OF INTERREGIONAL …

239

follows: | α (L Cr + K Cr )(TCaCr )1−σ (L Br + K Br )(TCa Br )1−σ WCa = + σ Z Cr Z Br | (L Ba + K Ba )(TCa Ba )1−σ L Ca + K Ca , (A.27) + + Z Ca Z Ba | (L Br + K Br )(TBa Br )1−σ α (L Cr + K Cr )(TBaCr )1−σ + W Ba = σ Z Cr Z Br | (L Ca + K Ca )(TBaCa )1−σ L Ba + K Ba , (A.28) + + Z Ba Z Ca | α (L Cr + K Cr ) (L Br + K Br )(TCr Br )1−σ + WCr = σ Z Cr Z Br | (L Ba + K Ba )(TCr Ba )1−σ (L Ca + K Ca )(TCaCr )1−σ + + , Z Ca Z Ba (A.29) | α (L Cr + K Cr )(TBrCr )1−σ (L Br + K Br ) W Br = + σ Z Cr Z Br | 1−σ (L Ba + K Ba )(TBa Br ) (L Ca + K Ca )(TBrCa )1−σ . + + Z Ba Z Ca (A.30)

Long-Run Equilibrium In long-run equilibrium, human capital can move between two regions of a country that participates in subregional cooperation, and move toward the region with maximum indirect utility. Based on the relevant formulae, the indirect utility function with maximum utility is as follows: (α) +Y −α Vs (P, Y ) = max U = α ln P ⇒ Vs = α(ln α − 1) + Y − α ln(Ps ), where P is the price index, and Y is the consumers’ income level.

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APPENDIX II: QUADRUPLE MODEL OF INTERREGIONAL …

The utility difference between border area and inland area is therefore: ( ) PB + (WC − W B ). VC − VB = α ln (A.31) PC When VC − VB = 0, the manufactured goods of the two regions reach long-run equilibrium. The first item on the right-hand side of Formula A.31 reflects the supply, showing that the region with a greater share of human capital has a larger manufacturing share and consequently a lower price index. The second item on its right-hand side reflects the demand, showing that the rise in human capital share in a region leads to a greater market, which pushes up firms’ profits and attracts more human capital. As a relatively stable resistance in the model, trade costs tend to disperse production in these two regions. (VC −VB ) in Formula A.31 depends only on the share of human capital of these two regions. With given model parameters, human capital share changes as follows: ⎧ If 0 < λC < 1 ⎨ (Vc − VB ) dλc = min{0, (VC − VB )} If λC = 1 (A.32) ⎩ dt max{0, (VC − VB )} If λC = 0

Appendix III: Catalog of Special Necessities for Ethnic Minority Groups (Revised in 2001)

Knitted Fabrics and Textiles 1. Hand-made rugs and tapestries for ethnic minorities, jacquard blankets with a fringe, worship blankets (mats), Zhuang cotton blankets, palazzi woven rugs, kaikezi carpets, kang carpets, horse saddle blankets, kadian (Tibetan area rugs), yurt felt, Kirgiz felt with patterns, Kazak felt with patterns, felt, yurt matazi, pulu, pulu bedcover and so forth. 2. Hongyang silk, xinhua silk, jinghua silk, minglang silk, zhengchun silk, xinchun silk, seven-star silk, shou (longevity) patterned silk, yiren silk, yingchun silk, xinyuan silk, youtong pingee, golden trimming silk, cuff trimming silk, waist belt silk, silk with stripes, ribbed silk with patterns, Adelais silk, expanded polyester silk, interwoven fabrics made from cotton and silk, interwoven fabrics made from pure silk, brocade, Xinjiang characteristic silk, chaoyang satin, keli satin, seven-star satin, long sheet of satin, hard satin, suzhou brocade satin, suyan satin, embroidered satin, lilac satin, jinyu satin, caixia satin, figured mixed satin, jiuxia satin, jacquard hard satin, mixed satin containing pure silk, sanghua satin, xiangyang satin, plain mixed satin, xinxia satin, pile satin, guxiang satin, figured satin, figured palace satin, chunxia satin, plain palace satin, palace satin made from spun silk, Zhuang crepe satin, jiuxiangguang crepe satin,

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4

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242

APPENDIX III: CATALOG OF SPECIAL NECESSITIES …

jinbaodi brocade, huanian jacquard mock crepe, caizhi jacquard mock crepe, ethnic brocade (Yunjin brocade, Song brocade, Dong brocade, Dai brocade, Zhuang brocade, lotus brocade, multicolor kujin brocade, plum blossom brocade, Buyei brocade, Tujia brocade and so forth), liuxiang crepe, yunjin crepe, crepe for making satin quilt, two-five crepe, guangzhuang crepe, silk guangzhuang crepe, tianxiang taffeta, heping taffeta, devoré georgette velvet, plush, plush cut velvet, Suzhou cut velvet, peach twill, zhang velvet, Tibetan woolen fabric, taffeta, jacquard silk fabric, interwoven jacquard silk fabric, guangxia gauze, minghua poplin, wenshang poplin, silk fabric made from waxed thread, devoré georgette gauze, waxed luster lining, metallic yarn, printed fuchun rayon, rayon striped silk, fuxing silk, silver light fabric, Yao embroidered cloth, white cotton cloth, tie-dyed products, batik products, xilankapu brocade, ethnic red and blue cloth, blue nankeen, Lisu striped cloth, Miao dress linen, seedling nursery cloth, ethnic striped cloth, Yao long gauze, turbans and so forth. 3. Hada, lace, multicolor thread, knitted bands, wedding quilts and pillow cases for ethnic minorities, white silk scarves, Tibetan quilts, leaning cushions, Hani head thread, (Tibetan) xiema, tobacco pouches of cotton, Yao knapsacks, straps, knitted headwear, Yao quilts with eight traditional patterns, Dong quilts, ethnic ribbons, ethnic flower knots, embroidered pillows, embroidered baby carriers, veils, ethnic headscarves, ethnic embroidery, swaddling blankets, Yao and Miao embroidered bags, ethnic tongpa shoulder bags, She aprons, ethnic bags and purses.

Clothing 1. Apparel of ethnic minority style (including ethnic gloves of leather, clothing made of otter fur and so on). 2. Ethnic costumes for special purposes, including stage and theatrical costumes.

APPENDIX III: CATALOG OF SPECIAL NECESSITIES …

243

Footwear and Headgear 1. Headgear of ethnic minority style, including Hui caps, kaibukai caps, kulakeqie caps, felt hats, hats of Ukrainian style, buntal hat, hat tassel, Tujia cap, Miao cap, and Tu caps, embellished caps, top hats, phoenix crowns of the She people and so forth. 2. Boots and shoes of ethnic minority style, including Mongolian boots, Manchu boots, Korean shoes, embroidered shoes, riding boots, felt boots, Tibetan shoes and boots, Hui shoes, Kazak shoes, Tujia shoes, Miao shoes, spikes, ethnic snow boots, pink shoes, horsehide shoes, ethnic rubber boots, felt boots, felt stockings, felt socks, mansai, leather socks, qiaoluke leather boots and so forth.

Everyday Utensils Cast iron pots with wide brim, copper pots, Mongolian steamers, fourhandle iron pots, pot set, milk pots, tsamba pots, barley frying pans, spherical pots with an iron top, Miao pots, wine pots, ethnic pots without handles, stew pots, Qiang wine pots, pressure cookers, silver pots, dragon bowls, ku bowls, ethnic wooden bowls, root plates, cast iron fire pan, baking pan, ethnic frying pan, hanging plates, glutinous rice trays, trays, copper (aluminum) spoons, wooden spoons, suspended tanks, wat jars, soup bottles, milk basins, copper (aluminum) ladles, copper (aluminum) water ladles, milk wine steamer, rice frying pans, milk pie molds, aluminum teapots, lotus-shaped copper milk tea pots, two-purpose pots, butter pots, butter (tea) barrel, lamp butter, butter boxes, butter spoons and bowls, tsamba boxes, lifting rings, Korean pots, ladles, basins and tableware, Korea stone pots and electric stone pots, mounts for radiating pipes of Korea kang with underfloor heating, Mongolian cookware, Mongolian knives, knives used by ethnic groups in Xinjiang, Tibetan knives, Jingpo knives, Bonan knives, knives used by Wa, Dai and Lisu ethnic groups, husa knives, hanging knives, waist sabers, knife tassels, horn-shaped dagger, guatian knives, kantian knives, ethnic stoves (Mongolian stoves, dung-burning stoves and so on), Yi fire basins, fire tongs, grill boxes, buckets for agricultural purposes, slanted buckets, water-carrying buckets, buckets for household use, milk pails, milk jars, iron pots for hand washing, hand brush, Oroqen water pouches, flagons, pouches, pedals, horsehide, madazi shoulder bags, felt raincoats,

244

APPENDIX III: CATALOG OF SPECIAL NECESSITIES …

copper basins, Mongolian dragon stumps, ethnic wedding chests, pocket bags, ethnic mirrors, kang wardrobe mirrors, copper shamawa, copper qiaogong, abudula, qilabuqi washing basins, mortars, soaps made from fats of cattle and sheep, bird backpacks, carrying baskets, tripods, jindou containers, shilan containers, powder tray, bamboo orchid gold holder, copper bells, game table, cowhide pouches, gas lamps, waist bags, Korean tiles, buttons for Mongolian robes, five-bead thread, five-color string, hair binding string, fringes, tassels, lamp tassels, straw mattress, ethnic linoleum, weaving shuttles of wood, porcelain drums, mercury beads, beard tweezers, incense for sanitary purpose, Tibetan incense, ethnic art supplies and ornaments, imitation antiques of ethnic minority style, ornaments for ethnic buildings, micro solar generators and wind turbines for pastoral areas. Ceramics of ethnic minority style, including vats, kettles, garden ceramics, pomegranate soup bowls, fakou bowls, forty-nine-piece Uygur tableware set, forty-two-piece Tibetan tableware set, pomegranate rice bowls, dwarf rice bowls, paunchy cups, fakou cups, Tibetan arhat cups, Muslim tableware set with patterns, enamel teacup sets with lids, ethnic bowls with patterns, ethnic tea trays, dishes and plates for Uygur polo, bamboo-shaped kettles, mini teapots, ethnic teapots, stewing pots, handwashing pots, stemmed fruit plate, Tibetan pottery, Dai pottery, tea sets with Muslim patterns, Muslim couplets for use in central halls, ethnic bowls of china and so forth. Furniture Furniture of ethnic minority style, including Mongolian liquor cabinets and kang table, kang cabinet, Korean table for the aged, kang closets, baxian square table, tables and chairs, Tibetan cabinets, Tibetan tables, Tibetan iron chests, table cabinet of Hui style, sleeping closet, treasure cabinet, hanger, rocking cradles, Zhuang brocade clothing chests, Zhuang special cupboard, gourd beds, cradles, floral wooden chests and so forth. Sport and Recreation Articles Musical instruments for ethnic minorities (horsehead fiddles, hubosi, fourstring fiddles, drums, flutes and trumpets for ethnic minorities, lusheng, dombra, gayageum, shangmao, rawap, komuz, kalong, pipi, tembor, surnai flute, nagara, sataer, Uygur dulcimers, dap, ghijak, kebuzi, keyake, nai,

APPENDIX III: CATALOG OF SPECIAL NECESSITIES …

245

ethnic copper bells, copper gongs, suspended gongs, gyongdoengz (bronze drum), moon guitar, mouth harp, one-string musical instrument of the Jing ethnicity, bawu, copper percussion instruments and so forth), articles for ethnic minority dramas, ethnic minority chess, printed matters in ethnic minority languages, software in ethnic minority languages, fountain pens for writing in ethnic minority languages, wrestling outfits, bows and arrows and so forth for horse races. Art and Craft Supplies 1. Printed matters of gold, silver, copper, jade, and pearl of ethnic minority style. 2. Carvings of coconut, horn, leather and bone; lacquer works of art; cloisonné articles for ethnic minority groups, carved gourds, tea covers and frames carved in gold and silver, wooden bowls with silver details, ethnic metal ornaments, lacquer chopsticks decorated with gemstones, mirror screens, silk balls, pouches, sachets, gold and silver yarn, foil of gold, silver and other metals.

Pharmaceutical Products Medicine for ethnic minorities (including the Mongolian, Tibetan, Uygur, Dai and so forth). Medicine for cattle, sheep and other livestock in pastoral areas. Production Tools Yurt fittings, yurt doors, tents for ethnic minorities, sheep-bathing troughs, drinking troughs, water wheels, sinks, water tanks, milk separators, ice chisels, sheepfold shovels, wool catchers, wool scissors, garnet machines, wooden snow shovels, snow scrapers, baskets, mowers, power rakes, rakes, grass forks, horse wrangling poles, horse wrangling lassos, bowstrings, scythes, scythe holders, saddlery (tuotuo saddles, baskets for horse carriage, saddle pads, studs, saddle string holes, saddle strips, saddle felt, stirrups, bridles, cane rods, girth rings, stirrup rods, horse felt), vehicles (aodeng carts, lele carts, covered carts), cold noodle machines, rice sickles for ethnic minorities, well faucets, ploughs for use in paddy fields, ploughshare, ketman digging tools, kankanzi farming tools, cow saddlery,

246

APPENDIX III: CATALOG OF SPECIAL NECESSITIES …

Tibetan plough harrow, fritillary hoes, hoes, moon-shaped hoes, mini rice mills for mountain areas, grinders, micro water turbines, wooden oil presses, wooden threshers, shearing machines, cow and horse harnesses, camel saddles, mobile sheep pens, mesh fence, triangle ploughshare, xingkeli, greenhouse plastics for pastoral areas, portable spray irrigation equipment for family ranches. Tea Bricks (Compressed Tea) Source Notice of the National Ethnic Affairs Commission on Issuing the Catalog of Special Necessities for Ethnic Minority Groups (Revised in 2001) (No. [2001]129).

Appendix IV: Miscellaneous Data

See Tables A.1, A.2, A.3, A.4, A.5, A.6, A.7, A.8, A.9, A.10, A.11, and A.12.

© Social Sciences Academic Press 2023 S. Liang, Subregional International Economic Integration, https://doi.org/10.1007/978-981-99-4307-4

247

248

APPENDIX IV: MISCELLANEOUS DATA

Table A.1 countries

IIT index between Yunnan and Guangxi of China and other GMS

G&L Index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VI: Products of the chemical or allied industries Section VII: Plastics and articles thereof, rubber and articles thereof Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials Section X: Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof Section XI: Textiles and textile articles Section XII: Footwear, headgear, umbrellas, sun umbrellas and so forth, prepared feathers and articles made there with, artificial flowers, articles of human hair Section XIII: Articles of mineral materials; ceramic products, glass and glassware Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin

68.85 99.75 56.22 38.79 47.81 84.05 50.83 86.61 86.34 97.73 94.60 67.21 87.79 90.50 30.71 20.05 56.43 28.98 33.37 33.88 56.81

11.37

7.77 23.25 30.54 39.95 37.60 21.25

63.82 53.43 33.88 34.44 29.44 43.27 57.82 11.40 2.60 0.72 1.92 1.41 1.37 1.53 18.54

9.22

9.58 13.49

9.41 19.41 26.03

58.34 29.86 19.90 42.12

7.14 42.01 26.12

2.47

6.06

5.30

6.75 10.72 13.48 14.34

0.25

2.20

2.90

1.22

1.50 10.32

0.41

25.68 12.90 11.64 12.67 14.37 15.33 16.18 14.74 10.04

2.52

0.06

0.85

1.10

8.31

0.89

2.47

2.18

1.61

2.55

3.82

2.96

52.40

5.45

1.84

1.73

1.76

7.34

3.68

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.1 G&L Index

249

(continued) 2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section XV: Base metals and 11.61 3.91 3.62 2.07 14.01 10.73 1.01 articles thereof Section XVI: Electrical machinery 2.79 5.42 3.67 3.98 3.30 3.11 2.97 and equipment and parts thereof, audio and video equipment and parts thereof Section XVII: Vehicles, aircraft, 0.01 0.00 0.16 0.00 0.77 0.00 0.00 vessels and associated transport equipment Section XVIII: Optical and medical 0.00 0.51 0.15 0.00 0.59 0.04 0.04 instruments and apparatus, clocks and watches, musical instruments Section XX: Miscellaneous 81.64 97.86 55.89 79.23 83.35 51.69 79.87 manufactured articles Section XXI: Works of art, 71.29 26.58 0.00 0.13 0.12 34.40 0.00 collectors’ pieces and antiques Section XXII: Special goods and 0.00 0.01 0.00 19.72 0.00 0.00 0.00 goods unclassified Data source Calculation based on trade statistics from www.drcnet.com.cn

250

APPENDIX IV: MISCELLANEOUS DATA

Table A.2

IIT index between Yunnan and Guangxi of China and Myanmar

G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VI: Products of the chemical or allied industries Section VII: Plastics and articles thereof, rubber and articles thereof Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials Section X: Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof Section XI: Textiles and textile articles Section XII: Footwear, headgear, umbrellas, sun umbrellas and so forth, prepared feathers and articles made there with, artificial flowers, articles of human hair Section XIII: Articles of mineral materials; ceramic products, glass and glassware Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin Section XV: Base metals and articles thereof

66.24 14.30 13.04 14.58 13.95 96.33 42.76 96.46 75.52 98.64 53.25 67.86 30.50 2.88 0.00 0.00 0.00 58.51 34.20

4.43

2008 (%)

9.75 #

7.96 18.44 38.67 26.53 41.19 65.61

48.43 43.98 43.39 40.04 70.75 56.57 46.43 2.60 4.76 3.43 6.85 7.32 8.68 8.48 83.03 50.38 44.00 78.22 55.21 62.07 30.59 0.00

0.00

0.00

0.00

0.00

#

44.80

0.53

0.25

0.20

0.50

1.14

1.62

1.38

0.00

0.00

4.95

8.47

0.00

1.14

0.19

9.28

2.81

5.43

3.37

1.85

1.26

2.65

15.41 30.83

2.40

0.00

0.09

0.00

0.00

3.43

3.40

3.46

3.70

3.17

5.76

6.28

0.00

#

0.00 14.60

0.97

0.00

0.00

0.35

0.27

7.06

1.49

5.70

0.37

2.07

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.2

251

(continued)

G&L index Section XVI: Electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof Section XVII: Vehicles, aircraft, vessels and associated transport equipment Section XVIII: Optical and medical instruments and apparatus, clocks and watches, musical instruments Section XX: Miscellaneous manufactured articles Section XXI: Works of art, collectors’ pieces and antiques Section XXII: Special goods and goods unclassified

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

0.00

0.04

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.01

0.00

0.00

0.00

0.00

0.15

0.00

0.00

0.00

0.00

2.88

0.00

0.34

4.51

1.89

3.36

5.60

33.33

0.00

0.00

0.07

0.00

#

0.00

0.00

0.00

0.00

0.00

#

# 0.00

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on trade statistics from www.drcnet.com.cn

252

APPENDIX IV: MISCELLANEOUS DATA

Table A.3

IIT index between Yunnan and Guangxi of China and Cambodia

G&L index

2002 (%)

2003 (%)

2004 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VI: Products of the chemical or allied industries Section VII: Plastics and articles thereof, rubber and articles thereof Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials Section X: Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof Section XI: Textiles and textile articles Section XII: Footwear, headgear, umbrellas, sun umbrellas and so forth, prepared feathers and articles made there with, artificial flowers, articles of human hair Section XIII: Articles of mineral materials; ceramic products, glass and glassware Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin Section XV: Base metals and articles thereof

0.00

0.00

#

# #

2005 (%)

2006 (%)

2007 (%)

2008 (%)

0.00

0.00

0.00

# #

0.00 75.76 91.99 # 0.00 #

0.00 #

0.15 #

0.00

0.00

0.01

0.08

0.01

0.00

0.29

# 0.00

# 0.00

0.00 23.17

0.00 0.37

# 15.18 0.32 0.41

0.00 2.90

0.00

6.06

0.57

0.00

0.00

0.00

0.00

#

#

#

#

#

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.25 18.87

0.00

#

0.30

0.00

0.00

0.00

0.00

0.00

0.00

4.24

7.48

#

0.00

0.00

0.00

#

#

#

#

#

#

0.00

0.00

0.00

0.21

0.00

0.77

0.00

#

#

#

#

#

#

#

0.00

0.00

#

0.00

0.00

0.00

0.00

#

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.3

253

(continued)

G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section XVI: Electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof Section XVII: Vehicles, aircraft, vessels and associated transport equipment Section XVIII: Optical and medical instruments and apparatus, clocks and watches, musical instruments Section XX: Miscellaneous manufactured articles Section XXI: Works of art, collectors’ pieces and antiques Section XXII: Special goods and goods unclassified

0.00

0.00

0.00

0.00

0.00

0.00

0.00

#

#

#

#

0.00

0.00

0.00

0.00

0.00

#

#

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4.65

0.83

#

#

#

#

#

#

#

#

#

#

#

#

0.00

0.00

Note 0.00 denotes import or export only. # denotes no import and export Data source: Calculation based on trade statistics from www.drcnet.com.cn

254

APPENDIX IV: MISCELLANEOUS DATA

Table A.4

IIT index between Yunnan and Guangxi of China and Laos

G&L index

2002 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VI: Products of the chemical or allied industries Section VII: Plastics and articles thereof, rubber and articles thereof Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials Section X: Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof Section XI: Textiles and textile articles Section XII: Footwear, headgear, umbrellas, sun umbrellas, and so forth, prepared feathers and articles made there with, artificial flowers, articles of human hair Section XIII: Articles of mineral materials; ceramic products, glass and glassware Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin Section XV: Base metals and articles thereof

16.22

2003 (%) #

2004 (%)

2005 (%)

2006 (%)

0.00

0.00

0.00

28.69 60.64 60.13 33.84 16.91 # # # # #

0.00

0.00

0.01

0.00

0.00

2007 (%)

2008 (%)

0.00 23.35 4.61 #

6.07 #

0.00

0.00

26.58 35.48 55.43 82.31 94.35 36.36 49.41 0.00 0.00 0.00 4.92 5.34 15.59 8.65 20.05 31.96 41.30 20.79 11.29 19.72 24.09 0.00

#

0.33

#

0.00

0.00

0.00

0.00

0.38 20.40

1.60

0.14

1.01

3.55

0.00

0.16

0.25

0.00

0.00

0.00

0.02

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

#

#

0.00

#

#

0.00

0.00

0.00

0.00

0.00

0.56

3.24 10.99

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.4

255

(continued)

G&L index Section XVI: Electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof Section XVII: Vehicles, aircraft, vessels and associated transport equipment Section XVIII: Optical and medical instruments and apparatus, clocks and watches, musical instruments Section XX: Miscellaneous manufactured articles Section XXI: Works of art, collectors’ pieces and antiques Section XXII: Special goods and goods unclassified

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

3.34

0.22

1.49

1.28 20.80 39.86

#

#

#

0.00

0.00

0.00

#

0.00

0.00

0.00

0.00

#

0.00

#

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on trade statistics from www.drcnet.com.cn

256

APPENDIX IV: MISCELLANEOUS DATA

Table A.5

IIT index between Yunnan and Guangxi of China and Thailand

G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VI: Products of the chemical or allied industries Section VII: Plastics and articles thereof, rubber and articles thereof Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials Section X: Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof Section XI: Textiles and textile articles Section XII: Footwear, headgear, umbrellas, sun umbrellas, and so forth, prepared feathers and articles made there with, artificial flowers, articles of human hair Section XIII: Articles of mineral materials; ceramic products, glass and glassware Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin Section XV: Base metals and articles thereof

77.06 54.68 61.70 61.58 26.13 29.97 44.93 89.30 86.48 45.87 45.37 63.71 44.15 81.72 69.44 0.00 8.17 0.00 0.00 0.01 42.14

8.20

3.21 76.41

6.25 99.92 83.64

0.31

70.44 67.36 88.42 69.75 99.81 56.32 60.93 0.32 0.02 0.26 0.23 0.12 0.25 0.51 2.13

6.11 14.90 16.63

5.52

36.01

0.29 59.25 32.20

4.12 10.90

30.93

0.73

0.07 14.62

7.55 31.23 5.01

1.16 62.48 97.98 26.90 50.64

4.22

0.22

0.53 41.73

0.14

86.48 45.58 41.08 27.25 31.49 16.48 73.31 0.41

0.15 14.13

9.03

4.98

1.97 13.84

10.09 33.67 10.25

3.48

7.38

2.10

0.26

52.49

5.45

1.84

1.64

1.61

7.34

#

53.84

7.12

4.69

0.72 99.99 95.01

0.48

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.5

257

(continued)

G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section XVI: Electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof Section XVII: Vehicles, aircraft, vessels and associated transport equipment Section XVIII: Optical and medical instruments and apparatus, clocks and watches, musical instruments Section XX: Miscellaneous manufactured articles Section XXI: Works of art, collectors’ pieces and antiques Section XXII: Special goods and goods unclassified

17.06 49.48 20.06 20.66 19.65 30.09

0.90

0.13

0.00

0.57

0.00

0.41

0.00

0.00

0.00

0.97

0.45

0.00

1.71

0.22

0.00

5.69

2.78

0.52 26.05 69.80 58.14 20.78

0.00

0.00

#

0.00

3.18 53.12

0.00

0.00

0.01

0.00

0.00

#

#

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on trade statistics from www.drcnet.com.cn

#

258

APPENDIX IV: MISCELLANEOUS DATA

Table A.6

IIT index between Yunnan and Guangxi of China and Vietnam

G&L index

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

Section I: Live animals, animal products Section II: Vegetable products Section III: Animal or vegetable fats and oils; prepared edible fats; animal or vegetable waxes Section IV: Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes Section V: Mineral products Section VI: Products of the chemical or allied industries Section VII: Plastics and articles thereof, rubber and articles thereof Section VIII: Raw hides and skins, leather, furskins and articles thereof; bags and cases; articles of animal gut Section IX: Wood and articles of wood, wood charcoal, cork, manufactures of plaiting materials Section X: Pulp of wood or of other fibrous cellulosic material, recovered (waste and scrap) paper or paperboard; paper and paperboard and articles thereof Section XI: Textiles and textile articles Section XII: Footwear, headgear, umbrellas, sun umbrellas, and so forth, prepared feathers and articles made there with, artificial flowers, articles of human hair Section XIII: Articles of mineral materials; ceramic products, glass and glassware Section XIV: Jewelry, precious metal and articles thereof, imitation jewelry, coin Section XV: Base metals and articles thereof

15.60 52.32 69.96 50.28 65.28 80.17 44.93 86.06 87.66 98.16 95.74 68.81 96.21 81.72 2.25 1.01 2.92 21.19 4.62 23.18 42.14

19.13

8.44 13.05 35.68 52.77

5.50

0.31

69.19 51.86 27.54 30.12 23.99 42.04 60.93 18.58 2.91 0.30 1.77 0.81 0.32 0.51 17.28

6.61

4.69

4.97

3.76

9.91 31.23

13.99

3.49

1.23

4.86

4.48 53.62

5.01

22.50 67.49 44.03 61.35 47.88 24.52 50.64

0.74

0.56

1.32

0.22

2.25

3.55

0.14

44.39 49.60 53.39 84.42 81.29 93.43 73.31 47.86

7.44

0.00

0.00

5.23

5.52 13.84

0.00

0.03

0.03

0.00

2.24

2.35

0.26

#

0.00

0.00

0.00

0.00

#

#

6.31

1.63

2.50

0.73

0.16

0.48

10.95

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.6

259

(continued)

G&L index Section XVI: Electrical machinery and equipment and parts thereof, audio and video equipment and parts thereof Section XVII: Vehicles, aircraft, vessels and associated transport equipment Section XVIII: Optical and medical instruments and apparatus, clocks and watches, musical instruments Section XX: Miscellaneous manufactured articles Section XXI: Works of art, collectors’ pieces and antiques Section XXII: Special goods and goods unclassified

2002 (%)

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

4.69

3.50

4.36

3.94

2.65

1.23

0.90

0.00

0.00

0.21

0.00

1.15

0.00

0.00

0.00

0.00

0.00

0.00

0.65

0.05

0.00

40.67 35.41 36.96 54.61 63.50 20.40 20.78 0.00

#

#

#

#

0.00

0.00

#

#

#

#

#

0.00

#

Note 0.00 denotes import or export only. # denotes no import and export Data source Calculation based on trade statistics from www.drcnet.com.cn

260

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

IIT index between China and other GMS countries

Code Goods

1992 (%)

01 02 03

97.37 29.82 20.71 57.87 29.23 36.08 53.95 32.64 90.96 13.42 12.58 31.97 12.19 32.48 33.18 38.51 47.08 62.27

04

05 06

07 08 09 10 11 12 13 14

15 16 17 18 19 20 21 22

Live animals Meat and edible meat offal Fish and crustaceans, mollusks and other aquatic invertebrates Dairy produce, birds’ eggs, natural honey, edible products of animal origin, not elsewhere specified or included Animal originated products, not elsewhere specified or included Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Edible vegetables and certain roots and tubers Edible fruit and nuts; peel of citrus fruit or melons Coffee, tea, maté and spices Cereals Products of the milling industry, malt, starches, wheat gluten Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Lac, gums, resins and other vegetable saps and extracts Vegetable plaiting materials, vegetable products not elsewhere specified or included Animal or vegetable fats and oils and their cleavage products Preparations of meat, of fish, of other aquatic invertebrates Sugars and sugar confectionery Cocoa and cocoa preparations Preparations of cereals, flour, starch or milk; pastrycooks’ products Preparations of vegetables, fruit, nuts or other parts of plants Miscellaneous edible preparations Beverages, spirits and vinegar

1993 (%)

1994 (%)

1995 (%)

1996 (%)

1997 (%)

80.87 95.21 80.57 40.58 49.14 31.00

94.28 59.45 60.35 50.78 35.20 54.58 1.63

4.82 37.98 17.97 16.60 27.07

39.84 69.33 28.00 67.95 50.22 63.49 18.26 39.99 29.65 61.57 81.08 63.40 30.00 67.22 49.57 76.53 51.38 39.85 91.24 34.68 2.29 0.56 0.65 3.19 31.93 98.66 60.63 98.34 80.87 35.66 76.14 84.51 82.96 62.55 63.65 94.22 56.60 86.67 54.39 26.68 37.48 30.02 5.58

6.85 12.12

5.99

8.04

6.02

67.19 21.96 10.44 13.56 71.61 86.75 34.83 20.30 15.43 27.32 37.12 39.92 47.64 71.73 6.69 1.96 8.50 10.96 60.61 9.51 50.47 20.00 17.16 0.61 98.67 75.45 34.57 21.00 40.61 27.49 82.85 54.82 92.19 48.19 82.78 88.31 39.55 78.55 90.89 44.73 45.75 37.89 26.31 23.48 11.51 1.17 5.78 1.31

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

261

(continued)

Code Goods

1992 (%)

23

16.05 21.85 12.27 51.29 63.81 63.58

24 25 26 27

28 29 30 31 32

33

34

35 36

37 38 39 40 41 42

Residues and waste from the food industries; prepared animal fodder Tobacco and manufactured tobacco substitutes; Salt, sulfur, earths and stone, lime and cement and so forth Ores, slag and ash Mineral fuels, mineral oils and products of their distillation, bituminous substances and so forth Inorganic chemicals and compounds of precious metals and so forth Organic chemicals Pharmaceutical products Fertilizers Tanning extracts; coloring matter; paints and varnishes; inks and so forth Essential oils and resinoids; perfumery, cosmetic or toilet preparations Washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth Albuminoidal substances; modified starches; glues; enzymes Explosives; pyrotechnic products; matches; certain combustible preparations Photographic or cinematographic goods Chemical products not elsewhere specified Plastics and articles thereof Rubber and articles thereof Raw hides and skins (other than furskins) and leather Articles of leather; travel goods, handbags and similar containers; articles of animal gut

38.83

1993 (%)

3.85

1994 (%)

1995 (%)

1996 (%)

1997 (%)

2.73

2.61

5.73

6.71

3.10 36.18 34.88

5.78

0.95 23.80

46.77 85.56 17.36 25.34 16.33 98.10 77.33 82.11 88.95 74.62 64.57 64.83

3.19

8.42

7.77

5.97

8.08

7.99

11.00 11.02 15.67 64.69 97.61 87.57 26.50 23.59 15.85 7.72 16.92 17.62 0.50 0.02 0.29 2.21 0.01 2.55 12.76 49.08 39.88 25.78 22.46 38.29

1.12 10.00 21.75 26.82 24.78 19.18

8.76 28.75 14.08 29.81 25.64 24.82

45.44 27.81 25.09 19.05 11.07

6.08

0.39

0.08

0.33

0.06

0.23

0.12

10.75

1.82

5.69

6.63

7.15

2.00

7.76 10.12 11.39 11.62 14.67 15.77 49.43 39.15 49.09 44.35 31.34 38.31 10.06 9.00 10.54 20.45 9.87 15.88 76.85 94.36 62.13 77.76 89.90 96.95 73.83 52.85 69.35 69.56 81.67 29.76

(continued)

262

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods 43 44 45 46 47

48

49 50 51 52 53

54 55 56 57 58 59

60 61 62

Furskins and artificial fur; manufactures thereof Wood and articles of wood; wood charcoal Cork and articles of cork Manufactures of plaiting materials; basketware and wickerwork Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Paper and paperboard; articles of paper pulp, of paper or of paperboard Printed articles; manuscripts, typescripts and plans Silk Wool, fine or coarse animal hair; horsehair yarn and woven fabric Cotton Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made filaments Man-made staple fibers Wadding, felt and nonwovens; ropes and cables and articles thereof Carpets and other textile floor coverings Special woven fabrics; tufted textile fabrics; embroidery; and so forth Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Knitted or crocheted fabrics Articles of apparel and clothing accessories, knitted or crocheted Articles of apparel and clothing accessories, not knitted or crocheted

1992 (%)

1995 (%)

1996 (%)

1997 (%)

5.57 63.70 63.17 42.66

1.70

1.65

6.66

1993 (%)

1994 (%)

6.48

7.69 14.07 12.24 11.40

17.62 87.23 25.00 23.43

4.52 67.60 16.44 26.17 9.06 3.61 5.10 27.93

8.18 18.52

1.40 13.62

3.09 21.17

68.57 96.90 99.35 70.69 97.83 67.42

26.71 99.43 70.89 35.93 34.58 16.89 0.18 5.48 2.61 2.19 2.86 14.31 41.38 65.14 91.57 71.89 62.88 69.88 2.15 0.15

4.06 29.27 54.86 79.83 75.03 4.12 24.95 33.80 48.53 67.36

73.18 95.07 51.57 70.09 46.47 90.66 93.89 61.80 71.18 70.50 71.62 56.24 29.72 36.51 55.66 42.48 32.00 21.30 12.01 62.24 65.83 87.72 42.50 42.32 3.99 17.41 16.36

9.28 15.06

9.60

60.38 78.35 35.51 18.24 26.56 16.74

1.70 15.01 16.59 15.22 3.35 3.19 8.03

8.87

2.26

8.88 38.89 34.81 0.90 4.51 0.80 5.82 13.65

6.76

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods 63

64 65 66

67

68 69 70 71 72 73 74 75 76 78 79 80 81 82

83 84

85

263

Other made up textile articles; sets; worn clothing and worn textile articles Footwear, gaiters and the like; parts of such articles Headgear and parts thereof Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Articles of mineral materials Ceramic products Glass and glassware Jewelry, precious metals and articles thereof; imitation jewelry; coin Iron and steel Articles of iron or steel Copper and articles thereof Nickel and articles thereof Aluminum and articles thereof Lead and articles thereof Zinc and articles thereof Tin and articles thereof Other base metals; cermets; articles thereof Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Miscellaneous articles of base metals Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles

1992 (%)

1993 (%)

1994 (%)

1995 (%)

1996 (%)

1997 (%)

1.87

5.28

5.15

5.27

0.10

1.84

19.14 22.39

8.19 21.99 11.38 15.62

13.10 90.25 19.19 11.75 3.56 11.00 45.46 0.26 19.09 42.18

3.99 40.13 31.52

1.55 2.55

2.59

8.47

6.65

21.79 27.64 25.80 34.98

22.71 37.77 78.93 18.38

27.17 23.94 93.23 37.17

32.47 31.77 60.01 38.03

36.66 40.63 49.67 36.34

69.74 10.81 68.05 41.23

3.74 22.19 90.43 3.08 49.54 0.36 6.04 0.70 44.14

56.80 91.65 55.98 81.75 36.11 2.96 1.91 0.17 11.28

9.02 73.35 46.79 24.79 13.62 2.40 12.91 32.70 12.50

2.74 38.12 74.86 0.39 14.66 9.01 20.18 0.18 7.48

9.39 25.52 59.76 1.02 22.82 3.79 1.37 14.14 28.14

14.15 30.47 78.22 10.96 13.22 4.29 15.57 7.36 24.53

3.16

1.20

1.13

1.59

2.85

7.71

4.16 7.51 9.18 5.86 4.26 7.92 32.66 41.25 33.35 43.61 77.81 95.10

25.64 40.17 44.26 40.12 60.48 81.64

(continued)

264

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods 86

87

88 89 90

91 92 93 94 95 96 97 99

Railway or tramway locomotives, track fixtures; traffic signaling equipment of all kinds Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Aircraft, spacecraft, and parts thereof Ships, boats and floating structures Optical, photographic, medical or surgical instruments and apparatus; parts and accessories thereof Clocks and watches and parts thereof Musical instruments; parts and accessories of such articles Arms and ammunition; parts and accessories thereof Furniture; bedding; lighting fittings; prefabricated buildings Toys, games and sports requisites; parts and accessories thereof Miscellaneous manufactured articles Works of art, collectors’ pieces and antiques Goods unclassified

1992 (%)

1993 (%)

1994 (%)

1995 (%)

1996 (%)

1997 (%)

0.43

0.01

0.10

0.02

1.24

0.36

17.77 39.84 25.20

6.02

3.92 11.84

0.01 0.04 0.04 0.01 0.46 0.50 0.07 10.05 0.33 0.00 0.07 0.14 19.50 18.09 13.17 16.70 64.68 89.00

76.06 53.31 41.51 39.39 77.83 57.11 0.29

5.68

1.86

1.39

1.61

2.16

0.11

0.02

0.01

0.00

0.00

0.00

97.59 45.57 18.83 31.52 23.15 28.25 29.43 25.00

4.56

2.74

5.95

4.28

4.72 9.51 15.63 16.01 8.66 8.32 39.53 64.41 18.86 38.41 58.46 65.92 0.68

6.28

1.01

Code Goods

1998

1999

2000

01 02 03

0.57 1.58 4.09 38.46 59.55 3.91 13.82 0.18 2.66 1.06 21.68 53.72 75.46 53.11 11.17 26.93 81.06 83.21

04

05 06

Live animals Meat and edible meat offal Fish and crustaceans, mollusks and other aquatic invertebrates Dairy produce, birds’ eggs, natural honey, edible products of animal origin, not elsewhere specified or included Animal originated products, not elsewhere specified or included Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage

3.28 12.52 2001

2002

0.22 2003

48.54 21.52 25.85 25.71 23.75 21.57

32.48 39.87 41.53 66.66 63.82 50.10 47.69 44.93 47.62 51.25 54.06 27.91

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

265

(continued)

Code Goods

1998

07

66.01 90.80 82.72 20.84 47.57 47.96

08 09 10 11 12 13 14

15 16 17 18 19 20 21 22 23 24 25 26 27

28 29 30

Edible vegetables and certain roots and tubers Edible fruit and nuts; peel of citrus fruit or melons Coffee, tea, maté and spices Cereals Products of the milling industry, malt, starches, wheat gluten Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Lac, gums, resins and other vegetable saps and extracts Vegetable plaiting materials, vegetable products not elsewhere specified or included Animal or vegetable fats and oils and their cleavage products Preparations of meat, of fish, of other aquatic invertebrates Sugars and sugar confectionery Cocoa and cocoa preparations Preparations of cereals, flour, starch or milk; pastrycooks’ products Preparations of vegetables, fruit, nuts or other parts of plants Miscellaneous edible preparations Beverages, spirits and vinegar Residues and waste from the food industries; prepared animal fodder Tobacco and manufactured tobacco substitutes; Salt, sulfur, earths and stone, lime and cement and so forth Ores, slag and ash Mineral fuels, mineral oils and products of their distillation, bituminous substances, and so forth Inorganic chemicals and compounds of precious metals and so forth Organic chemicals Pharmaceutical products

1999

2000

2001

2002

2003

80.49 90.84 53.23 31.24 51.04 66.39 86.47 76.98 94.35 66.76 81.27 90.21 12.19 57.33 62.24 31.69 70.53 95.81 68.73 27.69 23.69 9.84 16.66 14.55 87.04 96.67 72.41 85.46 47.45 55.92 22.25 17.21 71.91 95.85 26.86 68.40 2.70

5.33

4.55

80.74 13.28 13.78 27.09 33.22

4.49 12.00

9.58

8.70 12.66 22.25

8.94 24.65

8.98

8.74

26.41 37.99 24.18 23.45 23.98 27.77 5.72 5.64 0.69 64.55 37.91 14.60 34.19 20.58 18.57 37.30 58.82 36.79 81.20 64.30 93.90 31.40 26.90 16.67 48.14 88.75 90.52 41.91 58.98 50.68 12.23 3.79 0.88 2.65 1.46 2.33 76.36 53.23 40.55 20.27 10.58 18.34 3.48 18.35 10.77

2.74 11.12

2.54

68.61 73.42 73.43 46.91 40.31 41.34 72.08 68.57 38.40 8.44 3.79 3.23 83.39 57.43 51.79 44.09 59.90 69.47

10.12

8.96

9.38

9.96

9.51

9.71

67.03 96.58 97.69 89.12 92.96 75.74 18.52 21.15 19.74 23.42 21.69 22.65

(continued)

266

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods

1998

31 32

6.94 0.00 0.03 0.08 0.05 0.01 48.92 22.57 29.08 28.53 25.66 31.50

33

34

35 36

37 38 39 40 41 42 43 44 45 46 47

48

49 50

Fertilizers Tanning extracts; coloring matter; paints and varnishes; inks; and so forth Essential oils and resinoids; perfumery, cosmetic or toilet preparations Washing preparations, lubricating preparations, artificial waxes, modeling pastes, and so forth Albuminoidal substances; modified starches; glues; enzymes Explosives; pyrotechnic products; matches; certain combustible preparations Photographic or cinematographic goods Chemical products not elsewhere specified Plastics and articles thereof Rubber and articles thereof Raw hides and skins (other than furskins) and leather Plastics and articles thereof Furskins and artificial fur; manufactures thereof Wood and articles of wood; wood charcoal Cork and articles of cork Manufactures of plaiting materials; basketware and wickerwork Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Paper and paperboard; articles of paper pulp, of paper or of paperboard Printed articles; manuscripts, typescripts and plans Silk

1999

2000

2001

2002

2003

44.60 32.34 39.74 27.48 24.82 61.65

33.26 62.42 70.77 98.81 90.09 91.76

20.37 28.70 42.24 57.37 52.09 54.13 6.05 65.09 89.88 32.71

28.42 29.07 11.51

5.64

0.00

0.00

0.70 26.75

19.38 37.11 23.55 15.39 14.71 16.26 24.56 14.64 12.04 13.81 17.24 21.06 20.72 20.89 11.28 12.90 13.60 9.70 85.64 56.70 56.36 78.19 81.16 73.69 94.64 64.74 96.92 95.58 90.80 45.85 1.59 1.11 7.28 8.33 4.13 1.74 6.86

6.93

4.81

5.44

6.40

7.72

74.86 18.16

1.51 2.65

0.45 0.02 0.03 0.00 7.87 86.42 64.52 14.28

12.79

1.10

6.54

6.61 11.96 22.61

36.66 23.66 39.68 43.65 51.65 59.84

26.75 29.40 39.20 98.64 12.29 17.14 12.70

4.76

5.96 10.44 11.19 11.17

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

267

(continued)

Code Goods

1998

51

88.83 75.70 29.76 46.60 46.35 35.76

52 53

54 55 56 57 58 59

60 61 62 63

64 65 66

67

68 69 70 71

Wool, fine or coarse animal hair; horsehair yarn and woven fabric Cotton Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made filaments Man-made staple fibers Wadding, felt and nonwovens; ropes and cables and articles thereof Carpets and other textile floor coverings Special woven fabrics; tufted textile fabrics; embroidery; and so forth Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Knitted or crocheted fabrics Articles of apparel and clothing accessories, knitted or crocheted Articles of apparel and clothing accessories, not knitted or crocheted Other made up textile articles; sets; worn clothing and worn textile articles Footwear, gaiters and the like; parts of such articles Headgear and parts thereof Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Articles of mineral materials Ceramic products Glass and glassware Jewelry, precious metals and articles thereof; imitation jewelry; coin

1999

2000

2001

2002

2003

65.37 42.60 35.73 34.96 25.05 25.98 56.66 34.76 38.31 83.29 84.88 93.36

92.35 99.31 93.84 75.74 62.97 56.48 48.00 41.46 56.79 56.74 65.21 71.27 60.57 80.86 70.32 76.62 73.55 64.01 55.22 94.23 37.49 93.10 63.24 92.48 20.42 22.71 20.08 12.58

9.66 16.07

20.59 25.95 25.90 32.98 26.03 35.50

11.95 17.40 0.59 1.22

8.09 17.16 3.40 8.49

8.28 7.91 5.29 16.89

16.92 22.97 43.52 26.78 11.44 2.27

1.78

3.07 13.23

6.43

9.39 7.24

14.92 18.47 31.28 34.51 41.89 58.14 1.11 10.96

0.30 0.01

4.62 0.10

2.37

1.95

6.74 20.53 21.86 17.63

95.52 21.07 95.33 59.40

30.40 39.78 94.72 30.44

31.47 41.63 96.72 45.96

4.45 27.65 31.59 0.03 0.28 0.39

20.23 39.68 98.06 80.76

16.97 19.44 80.57 99.61

11.43 22.88 74.34 72.55

(continued)

268

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods

1998

1999

2000

2001

2002

2003

72 73 74 75 76 78 79 80 81

20.27 14.01 96.85 27.71 37.97 0.94 70.99 1.11 9.42

54.42 18.66 83.12 30.93 48.36 0.65 78.43 6.80 21.88

64.77 20.90 52.81 8.38 85.94 0.98 45.75 2.92 4.12

71.97 16.20 45.15 28.17 69.49 0.17 78.19 5.87 1.21

89.75 12.88 58.52 85.28 49.84 0.45 93.77 46.04 7.89

95.21 21.33 70.03 13.17 37.67 0.60 81.36 11.08 14.28

4.46

1.82

82

83 84

85

86

87

88 89 90

91 92 93 94

Iron and steel Articles of iron or steel Copper and articles thereof Nickel and articles thereof Aluminum and articles thereof Lead and articles thereof Zinc and articles thereof Tin and articles thereof Other base metals; cermets; articles thereof Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Miscellaneous articles of base metals Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Railway or tramway locomotives, track fixtures; traffic signaling equipment of all kinds Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Aircraft, spacecraft, and parts thereof Ships, boats and floating structures Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Clocks and watches and parts thereof Musical instruments; parts and accessories of such articles Arms and ammunition; parts and accessories thereof Furniture; bedding; lighting fittings; prefabricated buildings

4.08 13.15 11.21 20.33

16.95 11.64 9.79 7.13 16.79 22.91 76.46 81.65 90.87 98.82 93.57 84.78

79.80 97.66 77.48 88.60 89.93 75.16

0.27

1.02

0.36

0.03

0.38

0.00

9.27 21.46

2.18

4.63 12.68 17.13

1.48 3.74 0.21 0.00 9.37 12.59 0.45 1.09 1.10 0.61 1.20 84.03 94.28 99.81 80.72 78.25 81.38 97.44

27.14

5.75 59.98 93.54 81.62 72.17

4.11

6.16 25.42 11.45 22.48 16.21

0.00

0.00

0.00

0.00

0.00

0.00

38.57 62.56 43.36 54.76 54.32 32.59

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

269

(continued)

Code Goods

1998

95

30.12 52.72 21.36 35.57 55.72 40.65

96 97 99

Toys, games and sports requisites; parts and accessories thereof Miscellaneous manufactured articles Works of art, collectors’ pieces and antiques Goods unclassified

1999

2000

2001

2002

2003

6.70 11.60 11.78 7.99 7.89 9.23 94.29 54.27 16.09 49.58 80.08 22.64 0.45

2.69

0.07

0.21

0.37

0.00

Code Goods

2004

2005

2006

2007

2008

2009

01 02 03

17.85 1.56 7.35 2.43 10.04 1.08 80.81 23.55 0.28 0.97 0.00 0.00 63.51 49.95 46.07 33.74 43.34 56.76

04

05 06

07 08 09 10 11 12 13 14

15 16

Live animals Meat and edible meat offal Fish and crustaceans, mollusks and other aquatic invertebrates Dairy produce, birds’ eggs, natural honey, edible products of animal origin, not elsewhere specified or included Animal originated products, not elsewhere specified or included Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Edible vegetables and certain roots and tubers Edible fruit and nuts; peel of citrus fruit or melons Coffee, tea, maté and spices Cereals Products of the milling industry, malt, starches, inulin, wheat gluten Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Lac, gums, resins and other vegetable saps and extracts Vegetable plaiting materials, vegetable products not elsewhere specified or included Animal or vegetable fats and oils and their cleavage products Preparations of meat, of fish, of other aquatic invertebrates

18.62

7.74 19.49

7.58 11.94 31.98

26.64 23.07 25.62 24.36 22.99 14.56 18.63 29.88 45.54 34.32 40.30 83.33

40.54 44.17 34.93 35.66 77.07 65.00 65.42 68.53 64.21 54.53 70.78 67.57 86.03 95.97 71.09 69.76 77.60 97.64 21.26 22.46 26.92 47.43 16.88 16.59 17.41 20.03 21.00 66.50 57.03 41.88 57.49 42.46 34.63 53.71 86.63 56.75 97.00 90.53 49.95 28.12 42.19 41.11 9.83 36.53 32.61 29.83 25.13 47.09

25.56 78.01 63.48 68.24 91.24 34.35 12.10

7.38 27.34 57.82

6.77 15.74

(continued)

270

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods

2004

17 18 19

11.00 22.36 37.48 50.76 86.15 99.79 19.72 44.83 11.68 9.74 6.73 0.00 41.06 51.68 47.29 51.54 79.83 77.85

20 21 22 23 24 25 26 27

28 29 30 31 32

33

34

35 36

37 38

Sugars and sugar confectionery Cocoa and cocoa preparations Preparations of cereals, flour, starch or milk; pastrycooks’ products Preparations of vegetables, fruit, nuts or other parts of plants Miscellaneous edible preparations Beverages, spirits and vinegar Residues and waste from the food industries; prepared animal fodder Tobacco and manufactured tobacco substitutes; Salt, sulfur, earths and stone, lime and cement, and so forth Ores, slag and ash Mineral fuels, mineral oils and products of their distillation, bituminous substances, and so forth Inorganic chemicals and compounds of precious metals and so forth Organic chemicals Pharmaceutical products Fertilizers Tanning extracts; coloring matter; paints and varnishes; inks; and so forth Essential oils and resinoids; perfumery, cosmetic or toilet preparations Washing preparations, lubricating preparations, artificial waxes, modeling pastes, and so forth Albuminoidal substances; modified starches; glues; enzymes Explosives; pyrotechnic products; matches; certain combustible preparations Photographic or cinematographic goods Chemical products not elsewhere specified

2005

2006

20.54 18.07 12.01

2007

2008

2009

7.19 13.52 20.92

50.98 28.66 21.91 48.48 47.68 28.77 2.05 3.28 3.18 1.98 2.45 8.88 31.32 71.45 89.50 94.87 24.83 27.89 7.82 13.80

4.30

2.59

0.00

0.00

46.01 30.21 26.07 39.31 33.99 41.56 1.24 0.29 0.71 0.74 2.90 2.59 49.46 60.57 62.34 58.89 52.33 77.35

6.82

6.54

6.10

6.93

4.57

5.60

80.06 79.86 55.75 64.52 94.75 88.86 24.05 22.41 16.80 14.93 12.75 11.31 0.01 0.03 0.03 0.15 0.68 0.00 28.33 26.30 28.34 29.20 35.05 36.54

77.01 79.20 80.20 87.48 72.25 71.88

82.14 78.27 67.91 60.85 71.93 76.79

52.45 69.14 93.26 97.45 75.05 87.00 0.00

0.00

0.00

0.00

0.00

0.00

22.58

7.97

5.02

3.47

4.14

3.86

18.36 21.46 36.16 36.79 28.54 38.93

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

271

(continued)

Code Goods

2004

39 40 41

26.88 32.61 39.08 47.69 54.11 53.18 11.52 13.90 13.43 16.70 14.05 17.26 85.71 90.99 81.60 49.64 21.69 18.43

42 43 44 45 46 47

48

49 50 51 52 53

54 55 56 57 58 59

60

Plastics and articles thereof Rubber and articles thereof Raw hides and skins (other than furskins) and leather Plastics and articles thereof Furskins and artificial fur; manufactures thereof Wood and articles of wood; wood charcoal Cork and articles of cork Manufactures of plaiting materials; basketware and wickerwork Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Paper and paperboard; articles of paper pulp, of paper or of paperboard Printed articles; manuscripts, typescripts and plans Silk Wool, fine or coarse animal hair; horsehair yarn and woven fabric Cotton Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made filaments Man-made staple fibers Wadding, felt and nonwovens; ropes and cables and articles thereof Carpets and other textile floor coverings Special woven fabrics; tufted textile fabrics; embroidery and so forth Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Knitted or crocheted fabrics

2005

2006

2007

2008

2009

92.65 93.95 92.17 97.39 74.58 63.62 2.71 1.82 0.00 0.00 0.00 0.00 19.27 25.44 37.42 38.85 40.84 37.22 0.14 0.00 0.00 0.00 41.03 38.46 34.57 14.33 10.85

5.28

# # 7.92 15.95

6.39 12.19 16.18

0.00

69.37 94.58 81.02 64.11 62.34 42.05

15.02

7.84

9.03

5.77

7.26

6.74

5.04 4.53 8.79 8.20 22.20 11.90 10.57 11.41

0.89 7.36

0.76 2.24

38.58 30.04 22.38 20.29 27.18 38.77 94.32 85.05 75.84 71.67 66.07 63.34

56.62 50.78 47.94 44.72 41.60 46.76 68.60 59.21 42.28 28.01 19.67 22.50 93.26 89.11 61.65 47.33 43.16 34.92 88.59 90.16 68.07 87.60 94.36 68.51 18.50 18.34 18.71 19.27 13.82 14.88 32.93 19.91 22.56 16.64 11.06

9.78

8.68

9.48

8.25

6.96

9.91

5.78

(continued)

272

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

(continued)

Code Goods

2004

61

13.82 24.44 22.95 19.13 15.77 11.11

62 63

64 65 66

67

68 69 70 71 72 73 74 75 76 78 79 80 81 82

83 84

Articles of apparel and clothing accessories, knitted or crocheted Articles of apparel and clothing accessories, not knitted or crocheted Other made up textile articles; sets; worn clothing and worn textile articles Footwear, gaiters and the like; parts of such articles Headgear and parts thereof Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Articles of mineral materials Ceramic products Glass and glassware Jewelry, precious metals and articles thereof; imitation jewelry; coin Iron and steel Articles of iron or steel Copper and articles thereof Nickel and articles thereof Aluminum and articles thereof Lead and articles thereof Zinc and articles thereof Tin and articles thereof Other base metals; cermets; articles thereof Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Miscellaneous articles of base metals Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

2005

2006

2007

2008

2009

20.12 28.67 40.72 36.77 40.49 29.27 11.60 13.56 21.44 27.33 26.54 11.07

71.14 89.39 92.05 94.49 95.88 89.92 26.99 33.18 73.71 52.01 24.54 0.15 0.11 0.01 0.06 0.03

3.07 12.47 17.23

0.00 0.00

2.94

4.65

14.55 14.27 93.26 58.39

16.35 15.14 65.86 53.87

12.13 15.53 68.91 58.58

13.97 12.60 69.46 68.68

27.33 22.17 61.18 52.09 27.87 1.41 81.63 31.73 16.84

27.45 13.71 90.25 14.18 17.57 0.37 96.72 89.13 6.96

7.45 12.71 77.40 0.00 11.50 0.49 34.23 8.49 1.21

6.41 4.09 11.12 16.33 15.60 15.41 98.62 51.13 68.02 0.00 0.00 0.00 7.37 7.52 10.17 1.28 3.59 8.69 60.40 87.74 72.94 29.83 3.58 1.72 1.28 5.17 5.80

42.56 22.27 17.98 19.40

9.90

12.57 8.03 12.19 11.07 86.10 85.32 67.88 75.72

8.29 10.56

27.87 21.61 17.29 11.90 7.33 3.69 80.92 81.08 81.99 79.98 82.32 84.40

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.7

273

(continued)

Code Goods

2004

85

74.12 72.84 80.33 82.89 90.69 94.52

86

87

88 89 90

91 92 93 94 95 96 97 99

Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Railway or tramway locomotives, track fixtures; traffic signaling equipment of all kinds Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Aircraft, spacecraft, and parts thereof Ships, boats and floating structures Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Clocks and watches and parts thereof Musical instruments; parts and accessories of such articles Arms and ammunition; parts and accessories thereof Furniture; bedding; lighting fittings; prefabricated buildings Toys, games and sports requisites; parts and accessories thereof Miscellaneous manufactured articles Works of art, collectors’ pieces and antiques Goods unclassified

0.00

2005

0.00

2006

2007

2008

2009

0.00

0.00

0.00

0.00

28.11 19.03 18.04

9.59

6.39

9.24

52.04 91.68 0.09 0.00 0.00 0.00 24.46 0.00 0.00 0.00 0.00 0.00 93.67 87.54 91.39 92.71 56.91 47.06

62.41 72.46 83.36 58.94 46.33 60.87 28.18 27.44 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

21.71 19.81 21.47 34.00 28.95 26.97 54.28 49.22 46.97 50.03 57.15 61.61 8.20 6.98 7.98 10.95 9.09 6.34 26.69 15.88 39.88 71.20 85.48 64.80 #

#

#

Note 0.00 denotes import or export only. # denotes no import and export Data source UN Comtrade

#

#

#

274

APPENDIX IV: MISCELLANEOUS DATA

Table A.8 Goods with a high IIT index between China and other GMS countries from 2002 to 2008 Code Goods

2002 (%)

08

51.04 66.39 65.42 68.53 64.21 54.53 70.78

09 12

15

19

27

29 33

34

35

41 42 48

53

54 55 56

Edible fruit and nuts; peel of citrus fruit or melons Coffee, tea, maté and spices Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Animal or vegetable fats and oils and their cleavage products Preparations of cereals, flour, starch or milk; pastrycooks’ products Mineral fuels, mineral oils and products of their distillation, bituminous substances, and so forth Organic chemicals Essential oils and resinoids; perfumery, cosmetic or toilet preparations Washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth Albuminoidal substances; modified starches; glues; enzymes Raw hides and skins (other than furskins) and leather Plastics and articles thereof Paper and paperboard; articles of paper pulp, of paper or of paperboard Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made filaments Man-made staple fibers Wadding, felt and nonwovens; ropes and cables and articles thereof

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

81.27 90.21 86.03 95.97 71.09 69.76 77.60 47.45 55.92 57.49 42.46 34.63 53.71 86.63

12.66 22.25 25.56 78.01 63.48 68.24 91.24

58.82 36.79 41.06 51.68 47.29 51.54 79.83

59.90 69.47 49.46 60.57 62.34 58.89 52.33

92.96 75.74 80.06 79.86 55.75 64.52 94.75 24.82 61.65 77.01 79.20 80.20 87.48 72.25

90.09 91.76 82.14 78.27 67.91 60.85 71.93

52.09 54.13 52.45 69.14 93.26 97.45 75.05

81.16 73.69 85.71 90.99 81.60 49.64 21.69 90.80 45.85 92.65 93.95 92.17 97.39 74.58 51.65 59.84 69.37 94.58 81.02 64.11 62.34

84.88 93.36 94.32 85.05 75.84 71.67 66.07

62.97 56.48 56.62 50.78 47.94 44.72 41.60 65.21 71.27 68.60 59.21 42.28 28.01 19.67 73.55 64.01 93.26 89.11 61.65 47.33 43.16

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.8

275

(continued)

Code Goods

2002 (%)

57

63.24 92.48 88.59 90.16 68.07 87.60 94.36

64 70 71

74 79 84

85

90

91 95

Carpets and other textile floor coverings Footwear, gaiters and the like; parts of such articles Glass and glassware Jewelry, precious metals and articles thereof; imitation jewelry; coin Copper and articles thereof Zinc and articles thereof Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Clocks and watches and parts thereof Toys, games and sports requisites; parts and accessories thereof

Data source UN Comtrade

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

41.89 58.14 71.14 89.39 92.05 94.49 95.88 80.57 74.34 93.26 65.86 68.91 69.46 86.10 99.61 72.55 58.39 53.87 58.58 68.68 67.88

58.52 70.03 61.18 90.25 77.40 98.62 51.13 93.77 81.36 81.63 96.72 34.23 60.40 87.74 93.57 84.78 80.92 81.08 81.99 79.98 82.32

89.93 75.16 74.12 72.84 80.33 82.89 90.69

81.38 97.44 93.67 87.54 91.39 92.71 56.91

81.62 72.17 62.41 72.46 83.36 58.94 46.33 55.72 40.65 54.28 49.22 46.97 50.03 57.15

276

APPENDIX IV: MISCELLANEOUS DATA

Table A.9 Industries with a high IIT index between China and other GMS countries since 2002 Code G&L index

2002 (%)

2003 (%)

Cambodia 12 Oil seeds and 0.00 26.21 oleaginous fruits, miscellaneous seeds and fruit 33 Essential oils and 0.00 39.01 resinoids; perfumery, cosmetic or toilet preparations 62 Articles of apparel and 6.97 3.20 clothing accessories, not knitted or crocheted Laos 06 Live trees and other 0.00 0.00 plants; bulbs, roots and the like; cut flowers and ornamental foliage 07 Edible vegetables and 0.00 0.00 certain roots and tubers 08 Edible fruit and nuts; 22.14 0.00 peel of citrus fruit or melons 10 Cereals 0.00 0.00 11 Products of the milling # 0.00 industry, malt, starches, wheat gluten 12 Oil seeds and 9.04 2.06 oleaginous fruits, miscellaneous seeds and fruit 39 Plastics and articles 0.81 0.29 thereof 40 Rubber and articles 38.36 21.75 thereof

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

62.85 84.66 75.75 37.53 62.69

2.78

27.68 78.80 65.17 85.37

0.00

9.55

46.66 80.88 89.01 61.84 88.99 66.22

0.00 56.64

1.77 42.66

0.00

0.00

0.00 93.60 77.33 60.96

1.48

0.00

0.00 37.75 75.14 84.74

0.00 26.21 0.00 0.00 0.00 0.00 75.65 89.44

0.00

1.08 0.00

0.00

0.00 0.00

15.98

4.20

0.08

3.11

1.53 12.50

2.11

0.39

0.10

1.37

0.16

2.06

56.14 31.37 17.36 36.73 40.08 59.93

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.9

277

(continued)

Code G&L index

2002 (%)

94

30.42 26.60 14.75 50.73 70.34 88.89 52.91 16.40

Furniture; bedding; lighting fittings; prefabricated buildings Myanmar 05 Animal originated products, not elsewhere specified or included 06 Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage 07 Edible vegetables and certain roots and tubers 08 Edible fruit and nuts; peel of citrus fruit or melons 09 Coffee, tea, maté and spices 10 Cereals 11 Products of the milling industry, malt, starches, wheat gluten 12 Oil seeds and oleaginous fruits, miscellaneous seeds and fruit 25 Salt, sulfur, earths and stone, lime and cement, and so forth 33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations 40 Rubber and articles thereof 41 Raw hides and skins (other than furskins) and leather 53 Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

25.86 53.94 29.00 10.90 23.26 27.22 51.61 47.62

0.00 47.28

4.93 12.77

3.79 57.60 45.15

1.29

29.72 11.25 93.78 79.03 83.56 40.60

0.69 11.33

89.90 74.77 31.15 25.73

6.97

8.86 11.59 82.58 2.65

9.11 5.77

2.86 15.38

6.97

9.93 15.57 49.55 50.34 52.82 19.81 0.00 5.92 45.49 72.81 97.66 5.59 42.15 11.42 0.15 0.00

98.66 31.70 33.25 23.02 13.44

6.62

0.58

7.93 0.00

0.49

75.13 85.39 74.02 85.26 72.17 63.55 62.32 65.66

22.64 52.77 62.06 92.21 98.22 92.59 80.28 60.86

34.82 45.19 78.94 65.04 77.21 74.45 90.92 57.07 69.66 83.79 24.99 62.30 75.18 13.82 47.71 34.93

85.29 97.17 71.01 57.90 32.70 17.09 44.88 14.47

(continued)

278

APPENDIX IV: MISCELLANEOUS DATA

Table A.9

(continued)

Code G&L index 67

Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair 74 Copper and articles thereof Thailand 02 Meat and edible meat offal 03 Fish and crustaceans, mollusks and other aquatic invertebrates 04 Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included 07 Edible vegetables and certain roots and tubers 08 Edible fruit and nuts; peel of citrus fruit or melons 12 Oil seeds and oleaginous fruits, miscellaneous seeds and fruit 13 Lac, gums, resins and other vegetable saps and extracts

2002 (%)

2003 (%)

2004 (%)

2005 (%)

0.00

6.16

0.00

0.00

12.08

0.00

2006 (%)

2007 (%)

2008 (%)

2009 (%)

0.00 86.35 98.77 66.40

6.35 12.98 19.22 89.42 18.33 31.37 19.49

0.77 63.91 71.34 14.48 86.31

0.00

0.00

98.47 64.38 50.29 48.64 51.74 43.56 58.86 69.93

96.73 91.15 95.06 64.46 50.22 12.06 22.57 93.55

13.81 19.12 26.19 32.05 26.43 27.21 69.06 53.04 32.56 50.39 32.96 42.49 51.22 46.80 56.03 49.19

98.80 72.97 67.46 63.24 44.72 47.56 50.88 39.77

27.56

0.67 61.53

7.80 30.50 18.06 37.49 17.67

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.9

279

(continued)

Code G&L index

2002 (%)

14

60.21 69.93 88.39 54.02 86.10 48.95 70.66 48.77

15

19

20

21 23

29 30 32

33

34

35

48

51

Vegetable plaiting materials, vegetable products not elsewhere specified or included Animal or vegetable fats and oils and their cleavage products Preparations of cereals, flour, starch or milk; pastrycooks’ products Preparations of vegetables, fruit, nuts or other parts of plants Miscellaneous edible preparations Residues and waste from the food industries; prepared animal fodder Organic chemicals Pharmaceutical products Tanning extracts; coloring matter; paints and varnishes; inks and so forth Essential oils and resinoids; perfumery, cosmetic or toilet preparations Washing preparations, lubricating preparations, artificial waxes, modeling pastes, and so forth Albuminoidal substances; modified starches; glues; enzymes Paper and paperboard; articles of paper pulp, of paper or of paperboard Wool, fine or coarse animal hair; horsehair yarn and woven fabric

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

18.33 43.10 33.92 79.72 29.96 71.43 30.62 27.83

69.00 43.99 50.34 64.92 74.32 71.49 88.39 83.37

27.47 15.30 20.62 19.23 12.43

6.93 14.49 21.51

84.77 57.77 57.20 46.15 56.06 67.14 80.71 43.19 9.89 25.01 33.12 74.59 93.06 64.04 38.83 57.55

69.61 53.82 59.40 59.31 36.36 43.03 81.13 63.07 70.31 78.71 72.63 72.36 50.48 45.99 36.36 29.49 38.28 49.72 44.42 46.44 52.49 52.71 57.22 61.41

27.25 72.62 93.43 73.88 79.20 90.39 85.83 95.63

51.02 61.82 90.03 84.80 97.85 88.17 96.31 93.51

14.17 16.07 24.19 37.11 54.16 65.85 89.42 67.79

24.55 30.84 38.89 62.95 97.61 92.04 89.14 68.47

83.06 71.26 48.61 37.20 34.80 32.63 16.29

4.59

(continued)

280

APPENDIX IV: MISCELLANEOUS DATA

Table A.9

(continued)

Code G&L index

2002 (%)

52 53

67.73 57.21 95.52 80.30 53.33 48.71 42.30 47.49 78.24 84.48 78.07 95.80 94.92 88.35 87.18 89.65

55 56

57 60 64

70 71

84

85

90

91 95

96

Cotton Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made staple fibers Wadding, felt and nonwovens; ropes and cables and articles thereof Carpets and other textile floor coverings Knitted or crocheted fabrics Footwear, gaiters and the like; parts of such articles Glass and glassware Jewelry, precious metals and articles thereof; imitation jewelry; coin Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Clocks and watches and parts thereof Toys, games and sports requisites; parts and accessories thereof Miscellaneous manufactured articles

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

98.18 94.02 85.41 90.17 89.69 75.75 53.77 63.62 98.80 93.59 71.52 78.23 97.01 96.39 83.36 79.13

98.45 76.94 60.79 47.74 44.66 44.39 56.56 76.77 58.77 57.97 61.14 54.86 58.79 51.75 47.50 38.72 45.59 45.04 76.19 95.23 70.56 52.93 55.80 42.93

31.63 42.77 78.89 91.37 98.22 93.62 89.91 99.89 91.25 65.64 52.62 51.37 51.85 61.34 58.09 82.11

78.91 63.87 62.10 63.16 63.42 56.06 54.64 53.99

80.74 62.73 61.25 62.76 67.28 61.82 66.28 62.61

66.95 93.24 83.96 96.56 99.58 95.57 63.44 54.06

79.04 69.80 61.18 69.86 81.53 56.34 43.81 44.97 84.55 61.09 69.90 53.65 40.99 51.09 55.49 53.38

5.06

9.40

8.37

8.35

8.69 13.34 12.28

8.29

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.9

281

(continued)

Code G&L index

2002 (%)

97

79.24 16.48 94.79 53.48 71.29 32.12 65.25 68.49

Works of art, collectors’ pieces and antiques Vietnam 03 Fish and crustaceans, mollusks and other aquatic invertebrates 05 Animal originated products, not elsewhere specified or included 06 Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage 07 Edible vegetables and certain roots and tubers 08 Edible fruit and nuts; peel of citrus fruit or melons 09 Coffee, tea, maté and spices 13 Lac, gums, resins and other vegetable saps and extracts 14 Vegetable plaiting materials, vegetable products not elsewhere specified or included 15 Animal or vegetable fats and oils and their cleavage products

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

34.26 81.36 97.06 57.06 34.97 15.83 29.68 86.49

81.85 99.20 72.13 40.88 30.73 13.77 27.34 12.54

24.01

5.35 30.26

0.00 97.79 48.78 65.81 31.16

79.33 98.29 85.20 93.75 58.72 53.27 94.24 85.11 56.72 80.07 69.87 86.30 85.37 70.64 89.79 92.16

78.92 52.66 34.02 36.98 25.60 20.57 33.45 33.65 0.00 40.95 91.74 39.43 42.17 49.24 61.24 88.16

11.51

0.86

6.69

8.86 67.41 70.91 69.82 46.76 53.51

3.16 18.36 13.58 40.68 63.09 49.57 99.06

(continued)

282

APPENDIX IV: MISCELLANEOUS DATA

Table A.9

(continued)

Code G&L index

2002 (%)

27

69.53 90.70 54.12 71.58 85.42 79.76 70.95 96.38

40 42 44 46

53

64

65 94

95

97

Mineral fuels, mineral oils and products of their distillation, bituminous substances and so forth Rubber and articles thereof Plastics and articles thereof Wood and articles of wood; wood charcoal Manufactures of plaiting materials; basketware and wickerwork Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Footwear, gaiters and the like; parts of such articles Headgear and parts thereof Furniture; bedding; lighting fittings; prefabricated buildings Toys, games and sports requisites; parts and accessories thereof Works of art, collectors’ pieces and antiques

2003 (%)

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

36.77 26.45 28.30 32.27 25.46 38.14 58.73 59.45 28.36

4.63 83.65 83.40 62.85 61.47 44.88 27.85

42.85 59.96 99.40 75.26 75.17 58.42 75.70 70.96 87.70 16.85 54.13 66.11 68.15 95.02 82.46 75.83

90.02 95.93 94.87 83.56 79.04 61.67 58.93 64.42

55.39 76.03 82.40 97.56 80.02 71.46 61.28 70.41

87.00 54.40 40.27 90.26 50.99 88.64 58.65

0.00

84.27 43.64 28.52 25.05 30.63 55.82 53.88 51.33

2.87

5.04 27.22 51.70 69.17 52.75 67.09 80.87

18.75

4.01 96.76 14.11 87.77 96.78 83.18 42.03

Note 0.00 denotes import or export only. # denotes no import and export Data source UN Comtrade

APPENDIX IV: MISCELLANEOUS DATA

283

Table A.10 Main goods with trade between China and Laos in 2007 (Unit: 10,000 USD) Code

Goods

84

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Aircraft, spacecraft and parts thereof

87

85

90

88

Export

Code Goods

4092.38

44

Wood and articles of wood; wood charcoal

3295.86

3230.94

74

Copper and articles thereof

1771.99

2412.26

40

Rubber and articles thereof

1302.89

1561.75

26

Ores, slag and ash

804.41

1454.01

12

Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Cereals Essential oils and resinoids; perfumery, cosmetic or toilet preparations Live animals

349.88

Furniture; bedding; lighting fittings; prefabricated buildings Edible fruit and nuts; peel of citrus fruit or melons Lac, gums, resins and other vegetable saps and extracts

103.04

72 73

Iron and steel Articles of iron or steel

677.79 400.86

10 33

76

Aluminum and articles thereof Rubber and articles thereof

341.49

01

293.05

94

31

Fertilizers

172.38

08

27

Mineral fuels, mineral oils and products of their distillation, bituminous substances and so forth Articles of apparel and clothing accessories, not knitted or crocheted

151.61

13

113.60

27

40

62

Import

Mineral fuels, mineral oils and products of their distillation, bituminous substances, and so forth

348.80 266.24

127.5

62.89

32.95

32.23

(continued)

284

APPENDIX IV: MISCELLANEOUS DATA

Table A.10

(continued)

Code

Goods

96

Miscellaneous manufactured articles Explosives; pyrotechnic products; matches; certain combustible preparations Other made up textile articles; sets; worn clothing and worn textile articles Washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth Man-made filaments

99.83

07

98.51

Furniture; bedding; lighting fittings; prefabricated buildings Cotton

36

63

34

54

94

52

Data source UN Comtrade

Export

Code Goods

Import 31.81

25

Edible vegetables and certain roots and tubers Ores, slag and ash

93.87

79

Zinc and articles thereof

12.08

87.55

03

Fish and crustaceans, mollusks and other aquatic invertebrates

5.90

83.99

06

4.82

82.42

62

73.84

14

Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Articles of apparel and clothing accessories, not knitted or crocheted Vegetable plaiting materials, vegetable products not elsewhere specified or included

13.61

4.48

4.30

APPENDIX IV: MISCELLANEOUS DATA

285

Table A.11 China’s import from and export to four Central Asian countries in 2008 (Unit: 10,000 USD) Code

Goods

Export value

Code

61

Articles of apparel and clothing accessories, knitted or crocheted

596,563.56

27

62

Articles of apparel and clothing accessories, not knitted or crocheted Footwear, gaiters and the like; parts of such articles Articles of iron or steel Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Other made up textile articles; sets; worn clothing and worn textile articles Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Plastics and articles thereof Plastics and articles thereof

265,316.93

74

230,679.04

72

Iron and steel

92,795.43

140,282.14

26

Ores, slag and ash

84,782.20

127,668.23

52

Cotton

27,516.49

101,863.57

25

15,011.64

88,632.81

28

Salt, sulfur, earths and stone, lime and cement, and so forth Inorganic chemicals and compounds of precious metals and so forth

61,262.01

79

11,618.15

54,565.04

41

Zinc and articles thereof Raw hides and skins (other than furskins) and leather

64

73 84

63

85

39 42

Goods

Import value

Mineral fuels, 433,885.11 mineral oils and products of their distillation, bituminous substances, and so forth Copper and articles 122,532.39 thereof

13,209.42

9992.00

(continued)

286

APPENDIX IV: MISCELLANEOUS DATA

Table A.11 Code

Goods

87

(continued) Export value

Code

Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Special woven fabrics; tufted textile fabrics; embroidery; and so forth Furniture; bedding; lighting fittings; prefabricated buildings Articles of mineral materials

53,383.41

14

47,727.26

76

44,129.77

51

32,852.71

81

Miscellaneous manufactured articles Man-made staple fibers

30,720.34

39

29,685.75

38

70

Glass and glassware

24,886.10

78

72

Iron and steel

24,710.60

32

76

Aluminum and articles thereof Knitted or crocheted fabrics

16,903.06

31

16,471.17

05

Man-made filaments

16,188.91

20

58

94

68

96

55

60

54

Goods

Import value

Vegetable plaiting materials, vegetable products not elsewhere specified or included Aluminum and articles thereof

2010.59

Wool, fine or coarse animal hair; horsehair yarn and woven fabric Other base metals; cermets; articles thereof Plastics and articles thereof

1458.91

Chemical products not elsewhere specified Lead and articles thereof Tanning extracts; coloring matter; paints and varnishes; inks and so forth Fertilizers

450.69

Animal originated products, not elsewhere specified or included Preparations of vegetables, fruit, nuts or other parts of plants

205.73

1487.76

622.82

493.38

295.46 242.38

236.10

193.03

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.11 Code

Goods

83

90

(continued) Export value

Code

Miscellaneous articles of base metals

15,343.09

86

Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Paper and paperboard; articles of paper pulp, of paper or of paperboard

12,402.75

29

11,285.10

47

69

Ceramic products

10,669.86

67

52 82

Cotton Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Mineral fuels, mineral oils and products of their distillation, bituminous substances and so forth

8404.77 8140.87

50 08

8097.05

03

48

27

287

Goods

Import value

Railway or tramway locomotives, track fixtures; traffic signaling equipment of all kinds Organic chemicals

131.05

Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Silk Edible fruit and nuts; peel of citrus fruit or melons

90.20

Fish and crustaceans, mollusks and other aquatic invertebrates

44.81

95.43

81.32

66.36 54.07

(continued)

288

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

08

Edible fruit and nuts; peel of citrus fruit or melons

8042.69

85

38

Chemical products not elsewhere specified

7587.84

12

65

Headgear and parts thereof Rubber and articles thereof Inorganic chemicals and compounds of precious metals and so forth

6974.00

73

6863.73

55

6289.17

48

Washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth Meat and edible meat offal

5298.14

84

4943.25

97

Toys, games and sports requisites; parts and accessories thereof

4786.13

82

40 28

34

02

95

Export value

Code

Goods

Import value

Electrical machinery and equipment and parts thereof; audio and video equipment, and parts and accessories of such articles Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Articles of iron or steel Man-made staple fibers Paper and paperboard; articles of paper pulp, of paper or of paperboard Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

43.32

Works of art, collectors’ pieces and antiques Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal

13.39

39.37

33.36 16.88 16.85

14.09

9.92

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

44

Wood and articles of wood; wood charcoal

4075.83

90

25

Salt, sulfur, earths and stone, lime and cement and so forth Preparations of vegetables, fruit, nuts or other parts of plants Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Coffee, tea, maté and spices

3604.25

22

3438.28

35

67

20

59

09

29

289

Export value

Code

Goods

Import value

Optical, photographic, medical or surgical instruments and apparatus and so forth; parts and accessories thereof Beverages, spirits and vinegar

9.69

75

Nickel and articles thereof

4.56

3306.67

43

Furskins and artificial fur; manufactures thereof

3.68

2935.99

44

3.58

Albuminoidal substances; modified starches; glues; enzymes

2645.16

62

Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Organic chemicals

2337.65

40

Wood and articles of wood; wood charcoal Articles of apparel and clothing accessories, not knitted or crocheted Rubber and articles thereof

2266.96

19

Preparations of cereals, flour, starch or milk; pastrycooks’ products

2.58

5.97

2.86

2.62

(continued)

290

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

32

Tanning extracts; coloring matter; paints and varnishes; inks and so forth Wadding, felt and nonwovens; ropes and cables and articles thereof Pharmaceutical products

2032.53

15

Animal or vegetable fats and oils and their cleavage products

1.37

1734.08

49

0.31

1706.53

61

66

Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof

1682.30

04

86

Railway or tramway locomotives, track fixtures; traffic signaling equipment of all kinds Products of the milling industry, malt, starches, wheat gluten Cereals

1672.25

83

Printed articles; manuscripts, typescripts and plans Articles of apparel and clothing accessories, knitted or crocheted Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included Miscellaneous articles of base metals

1508.68

96

Miscellaneous manufactured articles

0.06

1301.15

95

0.03

Miscellaneous edible preparations Edible vegetables and certain roots and tubers

1195.11

42

1032.52

69

Toys, games and sports requisites; parts and accessories thereof Plastics and articles thereof Ceramic products

56

30

11

10

21 07

Export value

Code

Goods

Import value

0.29

0.21

0.11

0.02 0.02

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

291

(continued)

Code

Goods

19

Preparations of cereals, flour, starch or milk; pastrycooks’ products Tin and articles thereof

960.42

70

Glass and glassware

0.01

954.13

71

0.01

Carpets and other textile floor coverings Explosives; pyrotechnic products; matches; certain combustible preparations Printed articles; manuscripts, typescripts and plans Ores, slag and ash

901.50

65

Jewelry, precious metals and articles thereof; imitation jewelry; coin Headgear and parts thereof

884.73

63

Other made up textile articles; sets; worn clothing and worn textile articles

0.00

789.20

01

Live animals

0.00

780.75

02

0.00

Essential oils and resinoids; perfumery, cosmetic or toilet preparations Copper and articles thereof

708.44

06

520.15

07

Other base metals; cermets; articles thereof Aircraft, spacecraft, and parts thereof Clocks and watches and parts thereof

420.23

09

Meat and edible meat offal Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Edible vegetables and certain roots and tubers Coffee, tea, maté and spices

418.69

10

Cereals

0.00

396.82

11

Products of the milling industry, malt, starches, wheat gluten

0.00

80

57

36

49

26 33

74

81

88 91

Export value

Code

Goods

Import value

0.00

0.00

0.00

0.00

(continued)

292

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

15

Animal or vegetable fats and oils and their cleavage products Ships, boats and floating structures

390.13

13

Lac, gums, resins and other vegetable saps and extracts

0.00

375.47

16

0.00

Preparations of meat, of fish, of other aquatic invertebrates Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included Photographic or cinematographic goods Furskins and artificial fur; manufactures thereof Animal originated products, not elsewhere specified or included Goods unclassified

326.90

17

Preparations of meat, of fish, of other aquatic invertebrates Sugars and sugar confectionery

282.55

18

Cocoa and cocoa preparations

0.00

277.47

21

Miscellaneous edible preparations

0.00

245.76

23

0.00

158.05

24

Residues and waste from the food industries; prepared animal fodder Tobacco and manufactured tobacco substitutes;

154.08

30

0.00

Tobacco and manufactured tobacco substitutes;

146.29

33

Pharmaceutical products Essential oils and resinoids; perfumery, cosmetic or toilet preparations

89

16

04

37

43

05

99 24

Export value

Code

Goods

Import value

0.00

0.00

0.00

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

03

Fish and crustaceans, mollusks and other aquatic invertebrates

120.69

34

01

Live animals

117.71

35

92

Musical instruments; parts and accessories of such articles

110.98

36

79

Zinc and articles thereof

109.44

37

17

Sugars and sugar confectionery Arms and ammunition; parts and accessories thereof Cocoa and cocoa preparations

104.56

45

96.37

46

85.89

53

Oil seeds and oleaginous fruits, miscellaneous seeds and fruit Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Lead and articles thereof

78.15

54

72.89

54.27

93

18

12

53

78

293

Export value

Code

Goods

Import value

Washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth Albuminoidal substances; modified starches; glues; enzymes Explosives; pyrotechnic products; matches; certain combustible preparations Photographic or cinematographic goods Cork and articles of cork Manufactures of plaiting materials; basketware and wickerwork Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made filaments

0.00

56

Wadding, felt and nonwovens; ropes and cables and articles thereof

0.00

57

Carpets and other textile floor coverings

0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00

(continued)

294

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

41

Raw hides and skins (other than furskins) and leather

38.78

58

22

Beverages, spirits and vinegar

37.81

59

51

Wool, fine or coarse animal hair; horsehair yarn and woven fabric Fertilizers

33.72

60

33.51

64

13

Lac, gums, resins and other vegetable saps and extracts

25.54

66

97

Works of art, collectors’ pieces and antiques Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Manufactures of plaiting materials; basketware and wickerwork Jewelry, precious metals and articles thereof; imitation jewelry; coin

24.92

68

23.64

77

22.04

80

Tin and articles thereof

0

16.07

87

Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof

0

31

06

46

71

Export value

Code

Goods

Import value

Special woven fabrics; tufted textile fabrics; embroidery; and so forth Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Knitted or crocheted fabrics

0

Footwear, gaiters and the like; parts of such articles Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof Articles of mineral materials

0

0

0

0

0

0

(continued)

295

APPENDIX IV: MISCELLANEOUS DATA

Table A.11

(continued)

Code

Goods

47

Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Residues and waste from the food industries; prepared animal fodder Vegetable plaiting materials, vegetable products not elsewhere specified or included Nickel and articles thereof

7.10

88

Aircraft, spacecraft and parts thereof

0

1.81

89

Ships, boats and floating structures

0

1.14

91

Clocks and watches and parts thereof

0

0.12

92

0

45

Cork and articles of cork

0.04

93

50

Silk

0.00

94

Musical instruments; parts and accessories of such articles Arms and ammunition; parts and accessories thereof Furniture; bedding; lighting fittings; prefabricated buildings

0.00 0.00 21.794

98 99

23

14

75

77 98 Total (billion USD) Data source UN Comtrade

Export value

Code

Goods

Goods unclassified Total (billion USD)

Import value

0

0

0 0 8.198

296

APPENDIX IV: MISCELLANEOUS DATA

Table A.12 Sixty-four industries with nearly no IIT between China and four Central Asian countries Code

Goods

38

Chemical products not elsewhere specified Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Residues and waste from the food industries; prepared animal fodder

79

Zinc and articles thereof

15

Animal or vegetable fats and oils and their cleavage products

27

52

Cotton

34

82

Tools, implements, cutlery, spoons and forks, of base metal; parts thereof ofbase metal Musical instruments; parts and accessories of such articles

97

Mineral fuels, mineral oils and products of their distillation, bituminous substances and so forth Washing preparations, lubricating preparations, artificial waxes, modeling pastes and so forth Works of art, collectors’ pieces and antiques

Furniture; bedding; lighting fittings; prefabricated buildings Wool, fine or coarse animal hair; horsehair yarn and woven fabric Articles of mineral materials Articles of iron or steel

07

Meat and edible meat offal Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Coffee, tea, maté and spices Cereals

39 40

Products of the milling industry, malt, starches, wheat gluten Lac, gums, resins and other vegetable saps and extracts

45

47

23

92

94 51 68 73 02 04

06

09 10 11 13

Code

59

26 29 37

Goods

Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Edible vegetables and certain roots and tubers Ores, slag and ash Organic chemicals Photographic or cinematographic goods Plastics and articles thereof Rubber and articles thereof

41

Raw hides and skins (other than furskins) and leather

42 43

Plastics and articles thereof Furskins and artificial fur; manufactures thereof Cork and articles of cork

46

Manufactures of plaiting materials; basketware and wickerwork

(continued)

APPENDIX IV: MISCELLANEOUS DATA

Table A.12

297

(continued)

Code

Goods

14

Vegetable plaiting materials, vegetable products not elsewhere specified or included Preparations of meat, of fish, of other aquatic invertebrates Sugars and sugar confectionery

49

Printed articles; manuscripts, typescripts and plans

50

Silk

53

Cocoa and cocoa preparations Preparations of cereals, flour, starch or milk; pastrycooks’ products Preparations of vegetables, fruit, nuts or other parts of plants

54 55

Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn Man-made filaments Man-made staple fibers

21

Miscellaneous edible preparations

58

22 24

60 61

30

Beverages, spirits and vinegar Tobacco and manufactured tobacco substitutes; Pharmaceutical products

31

Fertilizers

63

32

Tanning extracts; coloring matter; paints and varnishes; inks; and so forth Essential oils and resinoids; perfumery, cosmetic or toilet preparations Albuminoidal substances; modified starches; glues; enzymes

64

Explosives; pyrotechnic products; matches; certain combustible preparations

67

16 17

18 19 20

33

35

36

Data source UN Comtrade

Code

56

62

Goods

Wadding, felt and nonwovens; ropes and cables and articles thereof Special woven fabrics; tufted textile fabrics; embroidery; and so forth Knitted or crocheted fabrics Articles of apparel and clothing accessories, knitted or crocheted Articles of apparel and clothing accessories, not knitted or crocheted Other made up textile articles; sets; worn clothing and worn textile articles Footwear, gaiters and the like; parts of such articles

65

Headgear and parts thereof

66

Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair

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