Domestic Market-based Industrial Cluster Development in Modern China

China’s huge domestic market is constantly expanding, and is low-end demand oriented and highly dispersed. The domestic market-based development of China’s industrial cluster, however, is not only a quantitative expansion, but has also been accompanied with remarkable qualitative upgrading. Specialized markets are a microcosm that clearly indicate this paradoxical phenomenon. By analyzing three typical cases of industrial clusters that have specialized markets, this paper will make the case that under modern China’s market conditions, the local public sector is the crucial driving force for upgrading industrial clusters, which organize complicated transactions, promote quality control, and stimulate the division of labor.

Chapter 6 Economic integration and changes in industrial location in Vietnam

Vietnam has been praised for its achievements in economic growth and success in poverty reduction over the last two decades. The incidence of poverty reportedly fell from 58.1% in 1993 to 19.5% in 2004 (VASS [2006, 13]). The country is also considered to have only a moderate level of aggregate economic inequality by international comparisons. As of the early 2000s, Vietnam’s consumption-based Gini coefficient is found to be comparable to that of other countries with similar levels of per capita GDP. The Gini index did increase between 1993 and 2004, but rather slowly, from 0.34 to 0.37 (VASS [2006, 13]). Yet, as the country moves on with its market oriented reforms, the question of inequality has been highlighted in policy and academic discourses. In particular, it is pointed out that socio-economic inequalities between regions (or provinces) are significant and have been widening behind aggregate figures (NCSSH [2001], Mekong Economics [2005], VASS [2006]). Between 1993 and 2004, while real per capita expenditure increased in all regions, it grew fastest in those regions with the highest per capita expenditures and vice versa, resulting in greater regional disparities (VASS [2006, 37]). A major contributing factor to such regional inequalities is the uneven distribution of industry within the country. According to the Statistical Yearbook of Vietnam, of the country's gross industrial output in 2007, over 50% belongs to the South East region, close to 25% to the Red River Delta, and about 10% to the Mekong River Delta. All remaining regions share some 10% of the country's gross industrial output. At a quick glance, the South East increased its share of the total industrial gross output in the 1990s, while the Red River Delta started to gain ground in more recent years. How can the government deal with regional disparities is a valid question. In order to offer an answer, it is necessary in the first place to grasp the trend of disparities as well as its background. To that end, this paper is a preparatory endeavor. Regional disparities in industrial activities can essentially be seen as a result of the location decisions of enterprises. While the General Statistics Office (GSO) of Vietnam has conducted one enterprise census (followed by annual enterprise surveys) and two stages of establishment censuses since 2000, sectorally and geographically disaggregated data are not readily available. Therefore, for the moment, we will draw on earlier studies of industrial location and the determinants of enterprises’ location decisions in Vietnam. The remainder of this paper is structured as follows. The following two sections deal with the country context. Section 2 will outline some major developments in Vietnam’s international economic relations that may affect sub-national location of industry. According to the theory of spatial economics, economic integration is seen as a major driver of changes in industrial location, both between and within countries (Nishikimi [2008]). Section 3, on the other hand, will consider some possible factors affecting geographic distribution of industry in the domestic sphere. In Section 4, existing literature on industrial and firm location will be examined, and Section 5 will briefly summarize the findings and suggest some areas for future research.

Transformation of the Rice Marketing System and Myanmar's Transition to a Market Economy

Creating a rice marketing system has been one of the central policy issues in Myanmar's move to a market economy since the end of the 1980s. Two liberalizations of rice marketing were implemented in 1987 and 2003. This paper examines the essential aspects of the liberalizations and the subsequent transformation of Myanmar's rice marketing sector. It attempts to bring into clearer focus the rationale of the government's rice marketing reforms which is to maintain a stable supply of rice at a low price to consumers. Under this rationale, however, the state rice marketing sector continued to lose efficiency while the private sector was allowed to develop on condition that it did not jeopardize the rationale of stable supply at low price. The paper concludes that the prospect for the future development of the private rice marketing sector is dim since a change in the rice market's rationale is unlikely. Private rice exporting is unlikely to be permitted, while the domestic market is approaching the saturation point. Thus, there is little momentum for the private rice sector to undertake any substantial expansion of investment.

Theoretical Models Based on a Flowchart Approach to Industrial Cluster Policy

This article examined the issue of whether or not the currency exchange rate, country risk, and cooperate tax rate affect decisions of multinational firms to invest in industrial clusters. First, if the exchange rate between a multinational company in an industry of diminishing returns to scale and a developing country is appreciated, then production in the developing country should increase. Second, if the investment period becomes longer, the currency exchange rate of a multinational company's country should be revalued more in order for it to further invest in the developing country. Third, if the investment period becomes longer, the developing country's risk should become less. Fourth, compensation for the developing country's high risk can be made by lowering its corporate tax rate.

Economic Reforms and Income Inequality in Urban China

This paper reports the results of an analysis of changes in income inequality, and in its determinants, in urban China since the economic reforms that began in 1978. The intention is to identify new characteristics of economic inequality. It first shows that income differentials acrossand in provinces widened and that their economic rankings were becoming fixed during the period from 1988 to 1995. Second, age was the major factor in inequality in 1988, while education became the important factor in 1995. Third, education significantly contributed to increasing inequality during the period. Fourth, the higher education-level groups had less within-group inequality. These changes reflect the penetration of the market mechanism into China after the reforms. However, this will be problematic without equality of opportunity.

Transformation of the Financial Sector in Indonesia

Introduction : The source and deployment of finance are central issues in economic development. Since 1966, when the Soeharto Administration was inaugurated, Indonesian economic development has relied on funds in the form of aid from international organizations and foreign countries. After the 1990s, a further abundant inflow of capital sustained a rapid economic development. Foreign funding was the basis of Indonesian economic growth. This paper will describe the mechanism for allocating funds in the Indonesian economy. It will identify the problems this mechanism generated in the Indonesian experience, and it will attempt to explain why there was a collapse of the financial system in the wake of the Asian Currency Crisis of 1997. History of the Indonesian Financial system The year 1966 saw the emergence of commercial banks in Indonesia. It can be said that before 1966 a financial system hardly existed, a fact commonly attributed to economic disruptions like the consecutive runs of fiscal deficit and hyperinflation under the Soekarno Administration. After 1996, with the inauguration of Soeharto, a regulatory system of financial legislation, e.g. central banking law and banking regulation, was introduced and implemented, and the banking sector that is the basis of the current financial system in Indonesia was built up. 　　　The Indonesian financial structure was significantly altered at the first financial reform of 1983. Between 1966 and 1982, the banking sector consisted of Bank Indonesia (the Central Bank) and the state-owned banks. There was also a system for distributing the abundant public revenue derived from the soaring oil price of the 1970s. The public finance distribution function, incorporated in Indonesian financial system, changed after the successive financial reforms of 1983 and 1988, when there was a move away from the monopoly-market style dominated by state-owned banks (which was a system of public finance distribution that operated at the discretion of the government) towards a modern market mechanism. The five phases of development The Indonesian financial system developed in five phases between 1966 and the present time. The first period (1966-72) was its formative period, the second (1973-82) its policy based finance period under soaring oil prices, the third (1983-91) its financial-reform period, the fourth (1992-97) its period of expansion, and the fifth (1998-) its period of financial restructuring. The first section of this paper summarizes the financial policies operative during each of the periods identified above. In the second section changes to the financial sector in response to policies are examined, and an analysis of these changes shows that an important development of the financial sector occurred during the financial reform period. In the third section the focus of analysis shifts from the general financial sector to particular commercial banks’ performances. In the third section changes in commercial banks’ lending and fund-raising behaviour after the 1990s are analysed by comparing several banking groups in terms of their ownership and foundation time. The last section summarizes the foregoing analyses and examines the problems that remain in the Indonesian financial sector, which is still undergoing restructuring.

The Feasibility of Cuban Market Economy: A Comparison with Vietnam

In spite of the difficulties incurred by its people, Cuba has maintained a centrally planned economy with single party system. On the contrary, Vietnam has introduced a market economy under communist rule, and succeeded in generally improving living standards. The factors that contributed to the introduction of Vietnamese-style reforms are (1) severe economic crisis, (2) demonstration effects from neighboring countries, (3) poor social policy, (4) initiatives by ex-conservative leader/s, and (5) weak state capacity. The conditions to sustain high economic growth are (1) social sectors familiar with capitalist economics, (2) abundant labor forces with relatively low labor cost, and (3) investment by exiles. This paper analyzes to what extent Cuba meets these conditions.

Market discipline by depositors : impact of deposit insurance on the Indonesian banking sector

This paper investigates market discipline by depositors in the Indonesian banking sector. Does depositor discipline fulfill its role in Indonesia? Does deposit insurance affect depositor behavior thereby imposing discipline on banks? These questions are empirically examined using panel data on Indonesian commercial banks from 1998 to 2009. In Indonesia deposit insurance was introduced in 2005. Depositor discipline is examined by two measures: change in the amount of deposits and interest rate. The empirical results show that depositors pay attention to bank soundness and riskiness and select banks based on the bank's condition with particular attention paid to equity ratio. It is found that depositors impose discipline on banks, but it varies according to regulatory and economic circumstances.

Myanmar's two decades of partial transition to a market economy : a negative legacy for the new government

Despite more than two decades of transition from a centrally planned to a market-oriented economy, Myanmar’s economic transition is still only partly complete. The government’s initial strategy for dealing with the swelling deficits of the state economic enterprises (SEEs) was to put them under direct control in order to scrutinize their expenditures. This policy change postponed restructuring and exacerbated the soft budget constraint problem of the SEEs. While the installation of a new government in March 2011 has increased prospects for economic development, sustainable growth still requires full-scale structural reform of the SEEs and institutional infrastructure building. Myanmar can learn from the gradual approaches to economic transition in China and Vietnam, where partial reforms weakened further impetus for reforms.

Is the Vietnamese garment industry at a turning point? : upgrading from the export to the domestic market

Vietnam’s garment industry has been loosely characterized by the duality based on market orientation: export and domestic. Export-oriented garment suppliers were typically SOEs and foreign invested firms, while those producing for the domestic market have been mostly small, private companies. With a booming economy, other industrial sectors have emerged, and the garment industry is no longer the sector most favored by workers. Wage rates have been increasing, and a supplier’s ability to cope with this through successful upgrading has been the key determinant of whether it can further grow and flourish. Those who fail to cope are finding themselves in an increasingly difficult position. This paper looks at both the export- and domestic-oriented garment suppliers, and attempts to highlight how the industry can further develop by examining the bottlenecks that vary depending on the type of supplier. It suggests that in the long run, upgrading and value addition in the domestic market will be the key strategy.

Is FTA/EPA effective for a developing country to attract FDI? : simulation analysis based on an extended knowledge-capital model

To prepare an answer to the question of how a developing country can attract FDI, this paper explored the factors and policies that may help bring FDI into a developing country by utilizing an extended version of the knowledge-capital model. With a special focus on the effects of FTAs/EPAs between market countries and developing countries, simulations with the model revealed the following: (1) Although FTA/EPA generally ends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labor becomes higher as the size of the country declines; (2) Because the additional implementation of cost-saving policies to reduce firm-type/trade-link specific fixed costs ends to depreciate the price of skilled labor by saving its input, a developing country, which is extremely scarce in skilled labor, is better off avoiding the additional option; (3) If a country hopes to enjoy larger welfare gains with EPA, efforts to increase skilled labor in the country, such as investing in education, may be beneficial.

Impacts of foreign exchange auctions on the informal market rate in Myanmar

Since the abolition of the official peg and the introduction of a managed float in April 2012, the Central Bank of Myanmar has operated the daily two–way auctions of foreign exchange aimed at smoothing exchange rate fluctuations. Despite the reforms to the foreign exchange regime, however, informal trading of foreign exchange remains pervasive. Using the daily informal exchange rate and Central Bank auction data, this study examines the impacts of auctions on the informal market rate. First, a VAR analysis indicates that the official rate did not Granger cause the informal rate. Second, GARCH models indicate that the auctions did not reduce the conditional variance of the informal rate returns. Overall, the auctions have only a quite modest impact on the informal exchange rate.

Simulation analysis of the EU ELV/RoHS directives based on an applied general equilibrium model with Melitz-type trade specification

This paper explores the potential usefulness of an AGE model with the Melitz-type trade specification to assess economic effects of technical regulations, taking the case of the EU ELV/RoHS directives as an example. Simulation experiments reveal that: (1) raising the fixed exporting cost to make sales in the EU market brings results that exports of the targeted commodities (motor vehicles and parts for ELV and electronic equipment for RoHS) to the EU from outside regions/countries expand while the domestic trade in the EU shrinks when the importer's preference for variety (PfV) is not strong; (2) if the PfV is not strong, policy changes that may bring reduction in the number of firms enable survived producers with high productivity to expand production to be large-scale mass producers fully enjoying the fruit of economies of scale; and (3) When the strength of the importer's PfV is changed from zero to unity, there is the value that totally changes simulation results and their interpretations.

Energy efficiency standard and labeling program and consumer welfare : a case of the air conditioner market in China

Improving energy efficiency is an unarguable emergent issue in developing economies and an energy efficiency standard and labeling program is an ideal mechanism to achieve this target. However, there is concern regarding whether the consumers will choose the highly energy efficient appliances because of its high price in consequence of the high cost. This paper estimates how the consumer responds to introduction of the energy efficiency standard and labeling program in China. To quantify evaluation by consumers, we estimated their consumer surplus and the benefits of products based on the estimated parameters of demand function. We found the following points. First, evaluation of energy efficiency labeling by the consumer is not monotonically correlated with the number of grades. The highest efficiency label (Label 1) is not evaluated to be no less higher than labels 2 and 3, and is sometimes lower than the least energy efficient label (Label UI). This goes against the design of policy intervention. Second, several governmental policies affects in mixed directions: the subsidies for energy saving policies to the highest degree of the labels contribute to expanding consumer welfare as the program was designed. However, the replacement for new appliances policies decreased the welfare.