Prema-chandra Athukorala

Production Networks and Trade Patterns in East Asia: Regionalization or Globalization?*

This paper examines the implications of global production sharing for economic integration in East Asia with emphasis on the behavior of trade flows in the wake of the 2008 global financial crisis. Although trade in parts and components and final assembly within production networks (network trade) has generally grown faster than total world trade in manufacturing, the degree of dependence of East Asia on this new form of international specialization is proportionately larger than elsewhere in the world. Network trade has certainly strengthened economic interdependence among countries in the region with the Peoples Republic of China playing a pivotal role as the premier center of final assembly. However, contrary to popular belief, this has not lessened the dependence of the export dynamism of these countries on the global economy. This inference is basically consistent with the behavior of trade flows following the onset of the global financial crisis.

The Rise of China and East Asian Export Performance: Is the Crowding-Out Fear Warranted?

This paper examines the effects of China’s rapid integration into the global economy on export performance of its East Asian neighbours against the backdrop of ongoing changes in patterns of international production. Following a stage-setting overview of trends and patterns of China’s export performance since the early 1990s, it probes two key themes central to the current policy debate, namely China competition in third country markets and emerging patterns of East Asian exports to China. The statistical analysis places particular emphasis on the supply-side complementarities between China and its East Asian neighbours resulting from China’s rapid integration into regional production networks. The findings suggest that the fear of export crowding-out has been vastly exaggerated in the contemporary policy debate on the implications of China’s rise.

Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports

This paper examines the relationship between exchange rate changes and Japanese export pricing behavior employing a methodology which permits the separate measurement of pricing to market behavior and the cost impact of exchange rate changes. The results suggest that incomplete pass-through of exchange rate changes is a pervasive phenomenon, but rejects the widely held view that Japanese export firms have relied more heavily on pricing to market strategies during the period of yen appreciation in order to maintain market shares. There is also evidence that estimates which capture only pricing to market behavior may over-emphasise the degree of pass-through to the extent that cost of production is sensitive to exchange rate changes. Copyright 1994 by Royal Economic Society.

Capital inflows and the real exchange rate: a comparative study of Asia and Latin America

The nexus of real exchange rate (RER) and capital inflows is examined through a comparative analysis of the experiences of emerging market economies in Asian and Latin America during the period 1985-2000. It is found that the degree of appreciation in RER associated with capital inflow is uniformly much higher in Latin American countries compared to their Asian counterparts, despite the fact that the latter experienced far greater foreign capital inflows relative to the size of the economy. The econometric evidence suggests that both the composition of capital flows and differences in the degree of response of RER to capital flows matter in explaining these contrasting experiences. While RER appreciation is a phenomenon predominantly associated with other (non-FDI) forms of capital inflows (OCFW), a given level of OCFW brings about a far greater degree of appreciation of the real exchange rate in Latin America where the importance of these flows in total capital inflow is also far greater. On the policy front, Asian countries seem to have used fiscal contraction and nominal exchange rate adjustment more effectively to cushion the RER against the appreciation pressure of capital inflows. There is, however, no evidence to suggest that sterilized intervention can generate a lasting impact on the real exchange rate.

Trade Policy Reforms and the Structure of Protection in Vietnam

This paper examines the current state of the trade policy regime in Vietnam against the backdrop of market-oriented policy reforms undertaken over the past one-and-a-half decades. The core of the paper is an in-depth analysis of the structure of protection, focusing on both incentives for import-competing production and the bias in the incentive structure against export production compared to import-competing production. It is found that, despite notable reform efforts, the structure of protection in Vietnam is still out of line with that of the major trading nations in the region, in terms of the level and the inter-industry dispersion of nominal and effective protection rates. There is a clear anti-export bias in the incentive structure, even though the degree of the bias has considerably declined over the years. There is no evidence to justify the existing protection structure on grounds of infant industry protection or employment generation.

The Indian Ocean Tsunami: Economic Impact, Disaster Management and Lessons

This paper documents and analyzes the immediate economic impact of the Indian Ocean tsunami generated by the Sumatra-Andaman earthquake of 26 December 2004, with a focus on Indonesia (Aceh province) and Sri Lanka, and assesses the disaster management process. The preliminary findings point to the importance of educating the public about simple precautions in the event of a disaster and enforcing coastal environmental regulations. The findings also argue for designing policies and programs, as an integral part of national development strategies, for mitigating the impact of natural disasters on the poor and highlight the need for combining international aid commitments with solutions to the limited aid-absorptive capacity in disaster-affected countries.

Determinants of Household Saving in Taiwan: Growth, Demography and Public Policy

This article examines the determinants of household saving in the process of economic development, in the light of the Taiwanese experience during the period 1952–99. The methodology involves the estimation of a saving rate function derived within the life-cycle framework. It is found that the household saving rate rises with both the level and the rate of growth of household disposable income. The real deposit rate has a significant positive impact, but the magnitude of the impact is modest. Public saving seems to crowd out private saving, but less than proportionately. While both old- and young-dependency in population have a negative impact on the saving rate, the magnitude of the impact of the former is far greater than that of the latter. Increased availability of social security provisions and enhanced credit availability also seem to reduce saving. As regards methodological implications, the study casts doubt on the usual practice of lumping together public, corporate and household savings in saving analysis, and points to the need for separating young dependence and ageing as two distinct aspects of the influence of population dynamics on saving behaviour.

Multinational firms and export performance in developing countries: Some analytical issues and new empirical evidence

Abstract In a given developing-country environment, are the affiliates of MNEs more export oriented than wholly domestic-owned firms? No clear conclusions emerge from the theoretical models or the few available empirical studies of this issue. This paper draws attention to methodological flaws of these studies and presents new empirical evidence through the application of a more appropriate econometric procedure to data from Sri Lanka. We find no significant relationship between MNE affiliation and the degree of export orientation of exporting firms. On the other hand, there is evidence that multinational affiliation is an important determinant of whether a firm is an exporter or not.

Post-crisis export performance: The Indonesian experience in regional perspective

This paper examines post-crisis export performance in Indonesia against the backdrop of pre-crisis experience and the comparative export performance of other Southeast Asian countries. It surveys trends and patterns of export performance, focusing on comparative experience in major commodity categories and changing revealed comparative advantage. It also examines the implications for Indonesias export performance of Chinas emergence as a major competitor in world trade, considers market prospects for textile and garment exports following the demise of the Multi-fibre Arrangement, and explores the factors contributing to the post-crisis export slowdown. The findings support the view that Indonesias poor export performance in the post-crisis era is largely supply driven. They strengthen the case for reversal of recent backsliding in macroeconomic policy reform, and for speedy implementation of the unfinished reform agenda. Prudent macroeconomic management, while necessary, is not sufficient to achieve rapid and sustained export growth in an era of rapid economic globalisation.

Vulnerability to a Currency Crisis: Lessons from the Asian Experience

Are currency crises caused by manias and panics in financial markets, or by unsustainable deteriorations in domestic macroeconomic conditions? This question is explored in the context of the recent Asian currency crisis. The theoretical concept of vulnerability is used to identify three early-warning indicators of susceptibility to a currency crisis: rapid accumulation of mobile capital; domestic lending booms; and overvalued exchange rates. It is shown that the crisis and noncrisis countries of Asia may be distinguished empirically, using these indicators, over the decade preceding the crisis. This exercise provides convincing evidence that the crisis emanated largely from domestic macroeconomic conditions.