Peter A. Petri

Foreign Direct Investment in a Computable General Equilibrium Framework

This paper develops a model of foreign direct investment (FDI) in a computable general equilibrium (CGE) framework by distinguishing between the activities of domestic and foreign-owned firms in both production and demand. Using a variant of the Armington assumption, the model is implemented by merging conventional production, demand and trade data with information on FDI. In a preliminary application, the model is used to analyze the Asia-Pacific Economic Cooperation goal of “free trade and investment in the region” by 2020. The model demonstrates that FDI matters; even in scenarios that do not liberalize FDI flows directly, FDI reinforces liberalization by making production more flexible. Trade and investment liberalization are generally complementary, in the sense that each strengthens the other linkage. Because FDI offers access to foreign technology and variety even in non-traded sectors, its economic effects are particularly pronounced in services.

ASEAN Economic Community: A General Equilibrium Analysis*

The ASEAN Economic Community (AEC) is the largest integration effort attempted in the developing world; if realized, it will create a single market with the free movement of goods, services, foreign direct investment and skilled labor, and freer movement of capital encompassing nearly 600 million people. The study finds that the AEC could yield benefits similar to those of the European Union, amounting to 5.3% of the region’s GDP and more than twice that if, as expected, the AEC leads to free trade agreements with key external partners. Every ASEAN member will share in these benefits. There will be mild trade and investment diversion effects, but the world as a whole will benefit from the AEC. Nevertheless, the AEC poses political challenges: the study finds that the project will imply significant structural adjustment in several ASEAN economies.

The determinants of bilateral FDI: Is Asia different?☆

Intra-Asian foreign direct investment (FDI) is dominated by flows from high technology economies to medium technology economies, while FDI elsewhere primarily consists of flows among high technology economies. This distinctive pattern is not due simply to differences in the relative distribution of Asian FDI recipients by technology, or to systematic differences in Asia’s technology characteristics. A gravity model analysis is used to explore whether Asian FDI patterns differ significantly from those elsewhere, and if so, in what ways. The results show that Asian FDI flows, in contrast to other FDI flows, systematically favor hosts with relatively low technology achievement and relatively strong intellectual property rights regimes. This type of “Asian exceptionalism” is consistent with “flying geese” theories that have argued that Asian development is the result of technology flows among economies that occupy nearby rungs of the technology ladder.

Korea's export niche: Origins and prospects

Abstract Korea has achieved significant global market shares in variety of labor-intensive, intermediate, as well as sophisticated consumer products. Its revealed comparative advantage is quite similar to Japans (particularly when evaluated with a 15-year lag). Korean and Japanese export baskets are more closely correlated than those of Japan and other East Asian NICs. Circumstantial evidence suggests that this similarly is the result of Koreas “following” a Japanese development model—through the adoption of Japanese technologies, policies, and commercial institutions, and the exploitation of externalities generated by Japanese penetration of global markets. Partly for these reasons, Korean exports are heavily concentrated in the US market and tend to consist of relatively protection-prone commodities. Consequently, issues of trade management and diplomacy will play an increasingly important role in determining the volume and composition of future exports.

Trade Strategies for the Southern Mediterranean

The lagging economic performance of the Southern Mediterranean (SOM) region over the past decade is often attributed to the region’s relative lack of openness to international trade. The closer analysis of the region’s trade patterns undertaken in this study suggest a more complex picture. These findings show that except for Syria and to a lesser extent Morocco, the region’s overall trade flows are above international norms, that is, levels predicted given the country economic characteristics. Moreover, they also suggest that intra-regional trade, with some qualifications, is relatively high given the region’s economic characteristics. Nevertheless, trade relationships in the Southern Mediterranean appear to lack the vitality of those in East Asia and even Eastern Europe. The Southern Mediterranean’s trade is expanding relatively slowly, exports are concentrated in relatively slow-growing sectors, and the region does not figure prominently in the multinational production strategies ... Les resultats mediocres de la region Sud-mediterraneenne au cours de la derniere decennie sont souvent attribues a sa relative absence d’ouverture aux echanges internationaux. Neanmoins, l’analyse plus fine de la structure commerciale de la region menee dans ce document aboutit a des resultats plus nuances. Ainsi, a l’exception de la Syrie et, dans une moindre mesure, du Maroc, les flux commerciaux totaux de la region sont au-dessus des normes internationales, a savoir des niveaux calcules en fonction des caracteristiques economiques des pays. En outre, les echanges intraregionaux sont relativement importants compte tenu des caracteristiques economiques de la region. Il n’en demeure pas moins que le Bassin sudmediterraneen n’a pas la vitalite de l’Asie de l’Est, ni meme de l’Europe de l’Est, en matiere d’echanges commerciaux. Ces derniers se developpent avec lenteur ; les exportations sont concentrees dans des secteurs dont la croissance est atone ; et la region ne figure pas en ...

The case of missing foreign investment in the Southern Mediterranean

The developing countries of the Southern Mediterranean (SOM) have missed the extraordinary surge of private international investment in recent years. Although the SOM region was an important destination for foreign direct investments, its share of world FDI has declined. In 1994, private capital represented only 37 per cent of the SOM’s capital inflows (of which nearly all went to Egypt and Morocco) compared to 76 per cent for all developing countries.There is great potential for expanding foreign investment in the region. Comparative econometric exercises in the study also suggest large gaps between actual inflows into SOM and into similar economies elsewhere. Moreover, the region’s history of emigration and capital flight have created a pool of resources that could quickly respond to opportunities.This paper identifies a cluster of policy initiatives that could help increase private capital inflows:domestic measures — including privatisation, trade liberalisation, and currency ... Les pays en developpement du Bassin sud-mediterraneen n’ont pas profite de l’expansion remarquable des investissements prives internationaux de ces dernieres annees. Bien que la region ait ete precedemment une destination privilegiee pour les investissements directs etrangers, sa part dans les IDE mondiaux a decline. Ainsi, en 1994, les capitaux prives representaient 37 pour cent seulement des entrees de capitaux dans la region (et ils se sont concentres essentiellement sur l’Egypte et le Maroc), alors qu’ils atteignent 76 pour cent pour l’ensemble des pays en developpement.Il existe donc un vaste potentiel pour le developpement de l’investissement etranger dans la region. Les comparaisons econometriques effectuees dans l’etude montrent egalement l’importance des differences entre les entrees actuelles de capitaux dans la region sud-mediterraneenne et dans d’autres economies comparables. L’emigration et les fuites de capitaux qui ont caracterise la region par le passe ont cree une ...

Economic Interdependence in Asia: Developing Indicators for Regional Integration and Cooperation

We develop indicators to measure the degree of economic integration and cooperation among East Asian economies and compare these with similar measures for other regions. Our indicators cover regional integration in trade, investment, financial assets, and people-to-people exchange. We also analyze measures of regional cooperation such as the density of free trade agreements and official policy dialogues. We find that in various Asian groupings, and especially in a group of 16 integrating Asian economies, interdependence in trade, direct investment, financial flows, and other forms of economic and social exchange has increased significantly over time, and now approaches that in the European Union. Nonetheless, Asias official cooperation remains weak and formal regional institutions remain relatively underdeveloped. To provide insight into the causes of this discrepancy, we also develop quantitative measures of political and cultural similarity of nations, and find that Asian countries have relatively low levels of political and cultural proximity compared to regions such as Europe. The diversity of political interests and cultural values may have hindered more intense cooperation among Asian economies in the past. But if regional economic and social interactions continue to grow, requirements for joint decision-making are also likely to expand, leading to stronger frameworks of official cooperation.

Asia in Global Governance: A Case for Decentralized Institutions

The structure and policy architecture of the world economy, as it emerges from the historic challenges now underway, will be affected by the dramatic rise of Asian economies and deepening connections among them. This important book examines the rapid transformation of the Asian economy, the challenges it faces, emerging regional solutions, and how Asia can play a more constructive role in the global economy.

Charting the pacific: an empirical assessment of integration initiatives

Trade negotiations after Uruguay may well be dominated by the Pacific Rim, where two free trade areas (ASEAN Free Trade Agreement, or AFTA; and North American Free Trade Agreement, or NAFTA) already exist and larger agreements are under active discussion (involving the Asia Pacific Economic Cooperation, or APEC, area and an East Asian Economic Group). This article analyzes several initiatives using a simple global general equilibrium model that incorporates conventional welfare gains as well as benefits derived from firm level economies of scale, induced changes in foreign investment, and dynamic increases in productivity. Broad Pacific liberalization—i.e., East Asia, North America, and Australasia—is shown to be superior for each participant to liberalization limited to individual countries or East Asia, but not by much. Most favored nation liberalization is shown to be superior for each participant to preferential liberalization—if the actor is East Asia, but not the Pacific as a whole. These estimates ...

Leontief's contribution to economics

Abstract It is often difficult to pinpoint an individual economists contribution to his discipline but Leontiefs is clear. While his interests and publications are wide-ranging, he has dedicated most of his extraordinary energy to the development of input-output analysis, involving himself directly at all levels, from fundamental theory to very specific data. He paved the way for systematic large-scale modeling efforts and for a sounder empirical base for all of economics. This review can only touch upon some highlights of the impressive corpus of his pioneering work.