Economic Integration in Asia - Paul J. J. Welfens€¦ · Selected Graphs from ADB Report 2015 plus...

Prof. Dr. Paul J.J. Welfens, www.eiiw.eu

Prof. Dr. Paul JJ Welfens (EIIW and Chair for

Macroeconomics; Jean Monnet Chair for

European Economic Integration)

Economic Integration in AsiaSelected Graphs from ADB Report 2015 plus key reflections

ADB: Asian Economic Integration Report 2015

Required reading: pp. 1-62


GDP Per Capita, Germany, Japan, Asean C., China


Regional Integration: in Asia (see ADB Report)

• Removing barriers to trade, investment andmigration

– EU 1992= EU single market = free trade (previouslyonly for merchandise trade, not for services trade) plus free capital flows plus free migration

– Asean 2016: Starting a single market project in the region with 10 countries and 620 millionpeople; China, Japan trying also regional integration

– WTO framework crucial= stands for global liberalization framework; China member countrysince 2001

3


Global Value-added Chains: trade in intermediate

products rising – not least due to ICT/digital technology

that allows more complex international

outsourcing/offshoring (within MNC)

Final Product

(and export

of final

product)

Final Product

(and export

of final

product)

Medium-

tech

suppliers

Medium-

tech

suppliers

Imported

Inter-

mediate

input

Imported

Inter-

mediate

input

4


In Asia...

• there are high FDI inflows from the US, the EU and Japan...

• China has attracted much FDI over decades (in special economiczones), but has become a major foreign investor since 2005 itself –more Chinese firms with ownership specific advantages (DUNNING: OLI approach) and China‘s labor force supply has peaked in 2015 so that further wage pressure to be expected; hence Chinese firms havestarted outsourcing and offshoring in Asia

• Similar reasoning relevant for many ASEAN countries

• India is different; however, India and China active in asset-seekingFDI in EU and US (e.g. technology-intensive firms whose innovationdynamics are considered as crucial)

• Links between trade, FDI and innovation dynamics

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Interaction Trade, FDI, Innovation Dynamics

• Trade expansion as a starting point = real income gains

• With output growth and rise of per capita income thedemand for differentiated products will rise: pressure forproduct innovation

• Expansion of information and communication technology (ICT) is ongoing, some Asian countries are strong here

• More competition through globalization encouragesinnovation and FDI – competition = lower rate of return on investment; innovation basis for raising rate of return on inv.

• FDI flows to countries with advantages in relative unit laborcost and with attractive technology/innovation fields (asset-seeking FDI – different from OLI)

• Product cycle trade...

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Trade


Trade• Rise of China‘s role as high & medium tech exporter; however,

unclear to which extent US, Japanese, EU subsidiaries in China are drivers of this development (some insights for US firms...)


Trade; DVA = domestic value added absorbed abroad („true

exports“ = gross exports minus intermediate imports)

China‘s position increasing

over time, Japan‘s pos declining


FDI


FDI: long run rise of regional FDI (not clear how strong

the role of US/EU subsidiaries is for this development)


FDI


Migration


12 countries in Trans-Pacific Partnership (TPP)

• TPP concluded by US and 11 other Pacific Rim countries (including Japan and Australia)

• Estimation of economic benefit of TPP is – according toPETRI/PLUMMER/ZHAI (2014) – $ 285 bill. or 0.9% of GDP of the 12 countries involved. Several other Asian countries – not involved in negotiations – have expressed interest to join.

– Petri, P.; Plummer, M.; Zha, F. (2014), The TPP, (the People‘s Republic of) China and the FTAAP. The Case for Convergence. In G. Tang and P.A. Petri, eds., New Directions in Asia-Pacific Economic Integration, Honolulu: East-West Center

– Welfens: If more countries join TPP, benefits could reach about $ 350 bill.

– Do not forget TTIP project: EU-USA which could generate benefits of about € 550 bill. or about $ 600 bill. (with macro repercussion effects a bit higher) seeWELFENS/IRAWAN (2014), WELFENS (2015); based on global GDP of $ 65 000 bill. global output increase of € 1000 bill. (TPP+TTIP) = + 1,5% of world GDP

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Economic Integration in Asia - Paul J. J. Welfens€¦ · Selected Graphs from ADB Report 2015 plus...

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