Byron Gangnes

Why is China so Competitive? Measuring and Explaining China's Competitiveness

This paper evaluates factors responsible for the competitiveness of China in the world economy and relative to its East Asian rivals. China has been highly successful in capturing world export markets. Chinese competitiveness is not just a matter of an undervalued exchange rate and extremely low labour costs. It reflects the coincidence of favourable cost conditions with improvements in Chinas ability to produce products that meet world market specififications. These improvements are closely related to foreign participation in Chinas economy through foreign direct investment and joint venture enterprises.

Is foreign direct investment good for growth? Evidence from sectoral analysis of China and Vietnam

We estimate the impact of FDI on growth using sectoral data for FDI inflows to China and Vietnam. Previous empirical studies, using either cross-country growth regressions or firm-level micro-econometric analysis, fail to reach a consensus. Our paper is the first to use sectoral FDI inflow data to evaluate the sector-specific impact of FDI on growth. Our results show that, for the two developing-transition economies we examine, FDI has a statistically-significant positive effect on economic growth operating directly and through its interaction with labor. Intriguingly, we find the effects seem to be very different across economic sectors, with most of the beneficial impact concentrated in the secondary industries. Other sectors appear to see much less growth benefit from sector-specific FDI.

Intervention analysis with cointegrated time series: the case of the Hawaii hotel room tax.

Tourism taxes have become an important source of revenue or many tourist destinations in the USA. Among the most widely used is the hotel room tax, levied by 47 states and many localities. Room taxes are touted by proponents as a way to shift the local tax burden to non-residents, while the travel industry claims the levies significantly harm their competitiveness. Previous studies of room tax impacts have relied on ex ante estimates of demand and supply elasticities. In this study, we analyse the effect on hotel revenues of the Hawaii room tax using time series intervention analysis. We specify a time series model of revenue behaviour that captures the long-run cointegrating relationships among revenues and important income and relative price variables, as well as other short-run dynamic influences. We estimate the effect on Hawaii hotel room revenues of the 5% Hawaii hotel room tax introduced in January 1987. We find no evidence of statistically significant tax impacts.

Electronics Production Upgrading: Is China Exceptional?

In this article, we make use of a unique world electronics production dataset to assess Chinas upgrading trajectory in the global electronics industry. Contrary to existing trade studies, we find no evidence that Chinas electronics production activities are more sophisticated than one would expect from its level of development. We also find little evidence that China is rapidly upgrading into more sophisticated production activities.

Fragmentation and East Asia's Information Technology Trade

This article studies the growth and determinants of information technology (IT) trade in the Asia-Pacific region. We argue that the rise of IT trade must be understood within the context of increasing vertical fragmentation of production processes that has occurred over the past two decades. To evaluate this empirically, we estimate a set of pooled bilateral IT export equations for eight Asian countries, the USA and the EU, where foreign direct investment (FDI) inflows are introduced as a proxy for fragmentation. We apply a panel cointegration approach that allows for heterogeneity in short-run dynamics and in fixed effects. Consistent with production fragmentation, we find that the evolution of IT trade can be explained in part by traditional income and relative price effects but also by FDI inflows.

Global Production Networks in Electronics and Intra-Asian Trade

The growth of East Asia’s intra-regional trade is driven largely by increased component trade within global electronics production networks. Data on both electronics trade and production elucidate a pattern of specialization in which upper- and middle-income countries produce sophisticated components and lower-income countries assemble lower- value-added final goods. There is evidence of increasing sophistication within the electronics sector by the Newly Industrialized Economies and to a lesser extent by ASEAN countries. Despite the marked increase in intra-regional trade, developing East Asian countries remain heavily dependent on developed-country markets. When Western export demand rapidly contracted during the 2008-2009 economic crisis, these specialization patterns led the rapid diffusion of the business cycle shock throughout the East Asian region.

Impact of Japanese investment in U.S. automobile production

Abstract The transfer of automobile production by Japanese firms to the United States represents a giant direct foreign investment. Using the disaggregated NIRA U.S.-Japan model in the framework of Project LINK, this article evaluates the impact of these investments on the U.S. and Japanese economies. The benefit in terms of auto production, capacity, employment, activity in supplier industries, and aggregate GNP in the United States is readily apparent. Japanese industry has incentives to move production into the United States to avoid protectionism and to guard against adverse movements of the exchange rate and production costs, but there is some loss in output and related variables in Japan.

How the Dragon Captured the World Export Markets: Outsourcing and Foreign Investment Lead the Way

This paper explores several theories regarding how China has become highly successful in capturing world export markets. The paper concludes that increased competitiveness is dependant on, but not limited to several factors discussed in detail including, exchange rate undervaluation, low wage rates and excess labor resources. Direct foreign investment which enabled China to produce products that meet world market specifications, brought new technology and foreign management, played a key factor. Reasons for Chinas advantage over other East Asian countries are explored. The merits and methods of various measures of Chinas competitiveness and comparative competitiveness are also discussed.

Japan's Persistent Trade Surplus: Policies for Adjustment

While part of the recent increase in the Japanese trade surplus can be attributed to the Japanese recession, the surplus has widened despite the appreciation of the yen and enactment of policies to open Japanese markets. We review the trade surplus issue in the light of theories of trade and current account adjustment. We evaluate the potential for exchange appreciation and Japanese fiscal policy to reduce the imbalance, estimating their effects using simulations of the NIRA-LINK model of the US-Japan-world economy. The simulations show that moderate use of macropolicies would not be sufficient to eliminate the trade imbalance.

Is Our World Going to Get a Whole Lot Smaller

The surge of oil prices in recent years has led to speculation that rising transportation costs could end the period of dramatic world trade growth in the words of Rubin (2009), Your world is going to get a whole lot smaller. Using data from Chinas Customs Statistics, we examine the impact of oil prices on trades sensitivity to distance. We find that higher oil prices increase trades elasticity to distance, but that the economic effect is small. We also find that the effect is more pronounced for trade within global production networks, and less large for goods shipped by air.