Analogous Cycles with Lagged Co-movement: U.S. and East Asian Business Cycles

In selected East Asian economies, the behavior of detrended macroeconomic variables was found to be similar to that observed in the postwar U.S. economy. Consumption and investment are highly procyclical while the balance of trade and the price level are counter-cyclical in most of them. Labor productivity is procyclical in general. The high coherence between U.S. GDP and that of the East Asian economies suggests that business cycles in terms of frequency are also similar between the United States and East Asia. However, the GDP and consumption of East Asian countries do not necessarily co-move well with current U.S. and Japanese GDP and consumption, while East Asian consumption tends to co-move more with lagged U.S. and Japanese consumption.

East Asia's Economic Development cum Trade "Divergence"

This paper addresses some salient features of how some of "successful" East Asian economies have been faring in terms of enhancing their export competitiveness. That export becomes more divergent in terms of its unit price as more technology-enhancing economic activity is undertaken within an economy, is the primary message that this study conveys. This is indeed what Schumpeter had addressed in conjunction with his "creative destruction" thesis. From this perspective, East Asia's export-led industrialization has been attained through a particular policy focus upon high "trade divergence" sectors underpinned by a generally high level of manufacturing flexibility. The experience of Malaysia's development serves as the strong case in point. As an East Asia-wide FTA is expected to facilitate "divergent" export-led industrialization through enhanced knowledge interaction, this dynamic or "divergent" impact that knowledge creation could exert should come to the fore of relevant policy arguments, together with static consideration of trade creation and diversion. A formal statistical test of the "divergence hypothesis" above is called for with a view to building upon this preliminary study.

Evaluating the Effectiveness of GMS Economic Corridors: Why is There More Focus on the Bangkok-Hanoi Road than the East-West Corridor?

Since the inauguration of the Greater Mekong Sub-region (GMS) Economic Cooperation Program in 1992, road infrastructure projects have played a very important role. Their economic significance, especially, has become a focal point after the introduction of the concept of the three economic corridors in 1998: the East-West Economic Corridor; the North-South Economic Corridor; and the Southern Economic Corridor (Figure 1). The completion of the Second International Mekong Bridge between Mukdahan, Thailand and Savannakhet, Laos was an epoch-making event in the development of the East-West Economic Corridor. The business community, however, has paid more attention to the Bangkok-Hanoi Road than the East-West Economic Corridor. This study examines the reasons why the former has received more focus than the latter, by using criteria such as population density and the economic scale at a provincial or state level. Thereafter, the effectiveness of other economic corridors is examined, by applying the same criteria.

The role of home and host country characteristics in FDI: firm-level evidence from Japan, Korea and Taiwan

There is a large and growing empirical literature that investigates the determinants of outward foreign direct investment (FDI). This literature examines primarily the effect of host country characteristics on FDI even though home country characteristics also influence the decision of firms to invest abroad. In this paper, we examine the role of both host and home country characteristics in FDI. To do so, we constructed a firm-level database of outward FDI from Japan, Korea, and Taiwan. Our empirical analysis yields two main findings. First, host countries with better environment for FDI, in terms of larger market size, smaller fixed entry costs, and lower wages, attract more foreign investors. Second, firms from home countries with higher wages are more likely to invest abroad. An interesting and significant policy implication of our empirical evidence is that policymakers seeking to promote FDI inflows should prioritize countries with higher wages.

Chapter 4 The Challenges in Developing Realistic NEG Simulation Models for East Asia

This chapter attempts to identify some important issues in developing realistic simulation models based on new economic geography, and it suggests a direction for solving the difficulties. Specifically, adopting the IDE Geographical Simulation Model (IDE-GSM) as an example, we discuss some problems in developing a realistic simulation model for East Asia. The first and largest problem in this region is the lack of reliable economic datasets at the sub-national level, and this issue needs to be resolved in the long term. However, to deal with the existing situation in the short term, we utilize some techniques to produce more realistic and reliable simulation models. One key compromise is to use a 'topology' representation of geography, rather than a 'mesh' or 'grid' representation or simple 'straight lines' connecting each city which are used in many other models. In addition to this, a modal choice model that takes into consideration both money and time costs seems to work well.

Location choice in low-income countries : evidence from Japanese investments in East Asia

Unlike most existing studies, this paper examines the location choices of MNEs in developing countries. Specifically, we investigate the location choices of Japanese MNEs among East Asian developing countries by estimating a four-stage nested logit model at the province level. Noteworthy results of location elements are as follows. As is consistent with the mechanics of cheap labor-seeking FDI, Japanese MNEs are more likely to invest in locations with low income and low tariff rates on products from Japan. Also, accessibility to other locations and/or ports matters in attracting Japanese MNEs because it is crucial in importing materials and exporting their products. In addition, WTO membership and bilateral investment treaties are important because these contribute to the settlement of trade and investment disputes, which is more likely to be necessary in developing countries.

Did Japanese direct investment in Korea suppress indigenous industrialization in the 1930s? : evidence from country-level factory entry patterns

Foreign direct investment (FDI) can deliver both positive and negative spillovers to the local economy. Negative effects such as crowding-out or entry-barrier effects might outweigh the positive ones when the technological gap between foreign and local firms is significant. This paper examines the impact of Japanese direct investment into Korea under colonization in the 1930s on the entry of Korean-owned factories. By using the census of manufacturing factories in Korea, we exploit variations in the share of Japanese factories and their entry rates across counties within the same subsectors. We find that within a subsector, entry rates of Korean factories were higher in counties with higher presence and entry of Japanese factories. Positive correlations are also found between subsectors. The results imply that Japanese direct investment did not suppress the entry of Korean factories and that FDI could exert positive entry spillovers on indigenous firms, even at a very early stage of industrialization.

Effects of RoHs and REACH regulations on firm-level production and export, and the role of global value chains : the cases of Malaysia and Vietnam

This paper uses firm-level data to examine the impact of foreign chemical safety regulations such as RoHS and REACH on the production costs and export performance of firms in Malaysia and Vietnam. This paper also investigates the role of global value chains in enhancing the likelihood that a firm complies with RoHS and REACH. We find that in addition to the initial setup costs for compliance, EU RoHS (REACH) implementation imposes on firms additional variable production costs by requiring additional labor and capital expenditures of around 57% (73%) of variable costs. We also find that compliance with RoHS and REACH significantly increases the probability of export and that compliance with EU RoHS and REACH helps firms enter a greater variety of countries. Furthermore, firms participating in global value chains have higher compliance with RoHS and REACH regulations, regardless of whether the firm is directly exporting, when the firm operates in upstream or downstream industries of the countries' supply chain.