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Can We Count on
Intra-regional Trade as a
Source of Growth?
Topics
East Asia in the world Economy and
Linkages within the Region
Intensification of Intra-regional Trade in
East Asia
Final Demand and Trade Linkages within
East Asia
Potential and Trends of Intra-regional
Trade
Policy Implications for Thailand
Export of Thailand and East Asian
East Asia in the world
Economy and Linkages
within the Region
East Asia in the world Economy and
Linkages within the Region
Four new aspects of Modern world trade
1. The rise of the intra-trade.
2. Trade in similar goods between similar
countries.
3. The ability of producers to slice up the
value chain.
4. Breaking the production process into
many geo-graphically seperates steps.
Intra-regional Trade in East Asia
Intensification of
Intra-regional Trade
In East Asia
We spread the argument into 2 topics :
1.)Disaggregation by Countries
2.)Disaggregation by Products
Disaggregation
by Countries!
Disaggregation by Countries
The 5 major players in the East-Asia intra-region trade :
1.) China
2.) Hong Kong
3.) Taiwan
4.) Korea
These 5 countries account
for 78% of the intra-regional
exports and 72% of imports.
5.) Singapore
Disaggregation by Countries
Disaggregation by Countries
•2 Group of trading area by geography
1.) North East Asia : China, Korea, Hong Kong,
and Taiwan
2.) South East Asia : Thailand, Malaysia, Indonesia,
Singapore, and Philipines
Disaggregation by Countries
$240
$240
billion
billion
$87
$87
billion
billion
Disaggregation by Countries
Disaggregation by Countries
Disaggregation by Countries
Why Chinese trade lines keep rising?
1)
It’s new market with population of more than 1200
millions.
2) Low-cost of labor which can help lower costs of the
total production.
The US market share of East Asian
countries are declining, except
China that its share grows rapidly.
Disaggregation by Countries
Disaggregation
by Products!
Disaggregation by Products
After 1989, there was a “changing of
production structure” from less
sophistcated products to more
sophisticated products.
Disaggregation by Products
Account
for 45%
Increase
14-17% per
year
Disaggregation by Products
“Moving Up the Product Ladders”
The export production will be shifted
from more advanced countries to less
advanced countries.
Disaggregation by Products
Disaggregation by Products
ASEAN-4s is moving up product ladder
by producing more sophisticated products such
as machinery products ,and reducing the
productions of less sophisticated. Especially
year 1998(after the crisis).
Disaggregation by Products
Thailand was constantly moving up the
product ladders over time, especially
after the financial crisis and sharp
depreciation of the Baht.
Disaggregation by Products
Disaggregation by Products
“The rise of international division
of labor and intra-industry trade”
The growing “internationalization” of production system,
which increasingly involve vertical trading chains
spanning a number of countries, each specializing in a
particular stage of production, is an important feature
behind the changing nature and the increasing scale of
the trade…
Disaggregation by Products
Disaggregation by Products
Final Demand and Trade
Linkages within East Asia
Interpretation
Disaggregate by country suggests that
intra region trade may be driven by
Demand from outside East Asia.
Disaggregate by type of product suggests
that intensified intra-regional trade may
change supply side (especially
manufacture product).
Demand structure for Exports
The estimation equation is in this form
ex _ volit   i  G3 _ gt 1  EA _ gt  Pxit 1   it
ex _ volit
= export volume growth of country i at time t
G3 _ g t 1
= lagged G3 economic growth using manufacturing
EA _ g t
= weighted average of domestic demand growth of
production index as a proxy
East Asian countries
Pxit 1
= lagged export price of country i at time t
Demand structure for Exports
Total exports depend on final demand in both region
Demand structure for Exports
Demand structure for Exports
Trade Cycle Synchronization and Intra-regional
Trade as a Buffer to Demand Shocks from G3
Trade Cycle Synchronization and Intra-regional
Trade as a Buffer to Demand Shocks from G3
Trade Cycle Synchronization and Intra-regional
Trade as a Buffer to Demand Shocks from G3
Trade Cycle Synchronization and Intra-regional
Trade as a Buffer to Demand Shocks from G3
Potential and Trends of
Intra-regional Trade
Gravity Equations
Exportij    dist ij  GDPhi  GDPd j  
We use this model to predict the potential
and trends of intra-regional trade.
Gravity Equations
 We can see that, trade or export is depending
on distance and GDP in both two countries.
 Income level of both countries as measured
by GDP.
 The distance between two countries, the
closer will trade much more because of
transportation costs, cultural barrier, and the
other trade barriers.
Gravity Equations
Gravity Equations
Gravity Equations
Exportij,t    dist ij  GDPhi ,t  GDPd j ,t  VARi ,t  
Export is not depending on only distance
and GDP but also another variable. The
other variables are FDI, currency and
tariffs.
Gravity Equations
Potential for Trade
We use the coefficients from gravity
equation and actual data on GDP and
distance between two countries to get the
predicted level of trade.
The difference between the predicted level
of trade and the actual level of trade is
potential trade.
Potential for Trade
Potential for Trade
Future Trend
We can predict the future trend by
coefficients from gravity equation and
possible growth different between G3 and
East Asia region.
Future Trend
Future Trend
G3 countries
G3 countries are the highest countries
which have high technological and high
labor productivities in the world.
For increase their GDP, these countries
must depend on their technological
capability.
Future Trend
East Asia region
East Asia is still young region.
They still have much to catch up to G3
countries by transfers of production
techniques and knowledge from the west.
Future Trend
Future Trend
Year
2022
Future Trend
Intra-regional trade will be more
important for expanding East Asian
economies.
In short run, Thailand gain export growth
to China.
In the long run, Thailand can grow faster
than G3 because they will have more
prosperity which could be the power of
growth.
Future Trend
The countries in region are still behind G3
countries in term of development with
GDP per capita.
If we together as a region manage to
repeat catching up experience by Japan
and NIES, intra-regional export will serve
as a new resource of growth for Thailand
for the medium-term.
Policy Implications
for Thailand
Bilateral Free Trade Agreements and
Regional Integration
Bilateral Free Trade Agreements and
Regional Integration
 Example of Free Trade Agreements in East Asia
 ASEAN Free Trade initiative with China in 2001
 Singapore VS
 New Zealand (2000)
 Japan (2002)
 European Free Trade association (2002)
 Australia (2003)
 The US (2003)
 Canada, India, Korea, Mexico, and Taiwan
(currently under negotiations)
Bilateral Free Trade Agreements and
Regional Integration
Arguments against Trade Arrangements
 FTA can create “trade diversion”
Trade Diversion: DWL occurred because
of what should be traded with country
outside the block but due to the reduction in
tariff via the FTA, it has been instead
produced by members of the group at higher
costs
Arguments against Trade Arrangements
 Renato Guggierro, the former WTO Director General (2003)
(Regional agreements) might become a
substitute for -rather than a complement tomultilateral liberalization at the WTO”
Leading to a fragmentation of the world trade
system rather than freer global trade
Arguments against Trade Arrangements
 Renato Guggierro, the former WTO Director General (2003)
“competitive regionalism” (defensive, or
even hostile, regional blocs)
In any case, regional and bilateral deals are a
poor second-best to global free trade.
Preferences granted to some are handicaps
imposed on others. Countries that are excluded
from such agreements suffer.
Implications for Thailand
Policy direction
Priorities for free trade agreements
The supply structure within the region
The demand structure of South East
Asia
Priorities for Free Trade Agreements
Priorities for Free Trade Agreements
 Groups of East Asian, based on Kwan (2002)
methodology (according to their export
structure)
Japan
Newly Industrialized Asian Economies (NIES)
ASEAN-4 (Thailand, Malaysia, Indonesia and
the Philippines)
China and India
Japan
Newly Industrialized Asian Economies
(NIES)
ASEAN-4
China and India
Priorities for Free Trade Agreements
Presently, the Royal Thai government has
made much progress on this front with the
FTA between China and ASEAN signed
FTA with India to be signed later this year
as well as any more in the negotiation
process.
The supply Structure within the Region
In the 1990s;
how to use the region as a platform for the
world market.
Now;
the internationalization of the production
process and how countries in the region can
come together as one part of the assembly line
The Demand Structure of South East Asia
Demands within ASEAN are quite
fragmented compared with China and
India.
Creating a more integrated market
The Demand Structure of South East Asia
List of possible regional preferential
trading arrangements to be considered
(Lloyd and Crosby; 2002)
Free trade area, custom unions, common
market, single market, economic union,
monetary union, and fiscal union
Fragmented ASEAN is not an option
SE Asia will be at the disadvantage with respect
to the neighbors with large markets.
Conclusion
Intra regional trade will become more and
more important in the external trade of East
Asia countries. This region will become one of
the largest trading areas in the world with the
largest consumers