2003 East Asian Seminar on Economics Focused on International Trade.

The NBER's Fourteenth Annual East Asian Seminar on Economics (EASE), sponsored jointly with Hong Kong University of Science and Technology (HKU), Korea Development Institute (KDI), Tokyo Center for Economic Research (TCER), Chung-Hua Institution for Economic Research (CIER), and the Australian Productivity Commission, took place in Taipei, Taiwan on September 5-7. The organizers were NBER Research Associates Takatoshi Ito, of Tokyo University, and Andrew K. Rose, of University of California, Berkeley. The following papers were discussed:

Kyoji Fukao, Hitotsubashi University, and Keiko Ito, ICSEAD, "Vertical Intra-Industry Trade and the Division of Labor in East Asia" Discussants: Chin Hee Hahn, KDI, and Ho-Mou Wu, National Taiwan University 

Carolyn L. Evans, Federal Reserve Board, and James Harrigan, Federal Reserve Bank of New York, "Tight Clothing: How the MFA Affects Asian Apparel Exports" Discussants: Leonard Cheng, HKU, and Philippa Dee, Australian Productivity Commission

Mitsuyo Ando and Fukunari Kimura, Keio University, "Unprecedented Formation of International Production/Distribution Networks in East Asia" Discussants: Hong Hwang, National Taiwan University, and Somkiat Tangkitvanich, Thailand Development Research Institute 

Chin Hee Hahn, "Exporting and Performance of Plants: Evidence on Korea" Discussants: Kyoji Fukao and James Harrigan

Shin-Horng Chen and Meng-Chun Liu, CIE, "International R and D Deployment and Developing Countries' Locational Advantage: A Case Study of Taiwan" Discussants: Thomas J. Prusa, NBER and Rutgers University, and Somkiat Tangkitvanich

Philippa Dee and Jyothi Gali, Australian Productivity Commission, "The Trade and Investment Effects of Preferential Trading Arrangements" Discussants: Bih-Jane Liu, National Taiwan University, and Erlinda Medalla, Philippine Institute for Development Studies 

Kozo Kiyota, Yokohama National University , and Shujiro Urata, Waseda University, "The Impacts of Free Trade Agreements on Foreign Trade in East Asia" Discussants: Dukgeun Ahn, KDI, and Erlinda Medalla

Deng-Shing Huang, Academia Sinica, "Trading Blocs in East Asia: Empirical Evidence from Gravity Models" Discussants: Keiko Ito and Andrew Rose

Leonard K. H. Cheng and Zihui Ma, HKU, "The Effects of Financial Crises on International Trade" Discussants: Chin Hee Hahn and Kozo Kiyota

Edgar Cudmore and John Whalley, NBER and University of Western Ontario, "Border Delays and Trade Liberalization" (NBER Working Paper No. 9485) Discussants: Francis Lui, HKU, and Chong-Hyun Nam, Korea University

Tain-Jy Chen and Ying-Hua Ku, CIER, "The Effect of FDI on Domestic Employment" Discussants: Keiko Ito and Francis Lui

Thomas J. Prusa, "The Growing Problem of Antidumping Protection and What It Means for the Asia-Pacific Region" Discussants: Takatoshi Ito and Chong-Hyun Nam

Dukgeun Ahn, "WTO Dispute Settlements in East Asia" Discussants: Da-Nien Liu, CIER, and John Whalley

Ito and Fukao investigate the deepening international division between labor and factor intensifies in Japan, focusing mainly on the manufacturing sector. First they analyze the factor contents of trade; they find that Japan's factor content of net-exports of capital and non-production labor grew rapidly, while its net-exports of production workers fell by a large amount. Interestingly, the decline in the factor content of net-exports of production workers was almost entirely caused by Japan's trade with China and Hong Kong. However, most of the macroeconomic change in the capital-labor ratio and the skilled-labor ratio are attributable to a "within-industry" shift, rather than a "between industry" shift. The empirical analysis provides only weak evidence that the deepening international division of labor contributes to the change in factor intensifies in each industry. These results suggest that specialization in the export of skilled-labor-intensive products may have contributed to the increase in the relative demand for skilled (professional, technical, managerial, and administrative) labor within industry. However, at the same time, these results imply that changes in trade patterns (specialization in capital-intensive production) did not offset the excess supply of capital in Japan. That is, Japan is not specializing adequately in the export of capital-intensive goods, despite the fact that the price of capital is low and capital is abundant.

International trade in apparel and textiles is regulated by a system of bilateral tariffs and quotas known as the Multifiber Arrangement or MFA. Despite a long-standing interest in the effects of the MFA, Evans and Harrigan are the first researchers to assemble a time series of detailed product-level data from the United States on the quotas and tariffs that comprise the MFA. They analyze how the MFA affects the sources and prices of U.S. apparel imports, with a particular focus on the effects on East Asian exporters during the 1990s. They show that, while a large fraction of U.S. apparel is imported under binding quotas, there are many quotas that remain unfilled. They also show that binding quotas raise import prices substantially, suggesting both quality upgrading and rent capture by exporters. In contrast, tariffs reduce import prices. Finally, the authors argue that the substantial shift of U.S. apparel imports away from Asia in favor of Mexico and the Caribbean during the 1990s is due only partly to discriminatory trade policy: the other reason is an increasing demand for timely delivery that gives a competitive advantage to nearby exporters.

Ando and Kimura claim that the international production/distribution networks in East Asia are "unique," at least at this moment in time, in their significance in the regional economy, their geographical extensiveness involving a large number of countries in the region, and their sophistication of both intra-firm and arm's length relationships across different nationalities. The authors begin by reviewing crucial changes in the policy framework in the developing East Asian countries a decade ago, and then sketching the theory behind the mechanics of international production/distribution networks. In the empirical part of the paper, the authors analyze overall trade patterns of the major East Asian countries in order to confirm the importance of international trade to machinery parts and components. Then they examine the micro data on Japanese corporate firms to look closely at the nature of networks through the pattern of FDI. The authors also quantify the magnitude of economic activities of Japanese firms through different channels of transactions, using the firm nationality approach.

Using the annual plant level panel data on Korean manufacturing during 1990 to 1998, Hahn examines the relationship between exporting and various performance measures, including total factor productivity. In particular, he asks whether exporting improves productivity (learning) and whether more productive plants export (self-selection). The evidence supports both self-selection and learning-by-exporting effects, although the latter seems only short-lived. Both effects have a role in explaining positive cross sectional correlations between exporting and TFE Similar effects are observed when shipments or employment is considered as the performance measure. These results are broadly in line with previous studies on other countries, but contrast sharply with Aw, Chung, and Roberts (2000) who do not find any strong evidence of self-selection or learning in Korea. Hahn suggests that the benefits from exporting have been realized not only through resource reallocation channel but also via the TFP channel.

Liu and Chen examine the R and D internationalization of a newly industrializing country--Taiwan being a prime example--with a special focus on the factors underlying locational advantage for attracting multinationals' offshore R and D. They begin with an examination of the literature on R and D internationalization and globalization, emphasizing the significance of "first-tier supplier advantage" in the Taiwanese context. The authors take advantage of an official database to reveal the patterns of foreign corporate R and D in Taiwan and to examine the determinants of foreign affiliates' R and D intensities at the industrial level. The empirical results show that foreign affiliates in Taiwan with a higher R and D-intensity tend to be more export-oriented, localized in Taiwan in terms of sourcing of materials and capital goods, and to belong to sectors with a larger pool of the R and D labor force.

Dee and Gali quantify the impact of traditional and "new age" provisions of preferential trading arrangements (PTAs) on merchandise trade and investment. The), estimate gravity models of bilateral trade and investment and find that recent and some past PTAs are not as benign as some contemporary empirical assessments have suggested. A careful consideration of the analytical issues--including controlling comprehensively for other observable and unobservable factors, and resting explicitly for whether the trade and investment effects are significantly different after PTA formation than before--accounts for the less favorable findings in this study. It is also possible for PTAs to have adverse effects on investment flows. If investment responds in "beachhead" fashion to the trade provision of PTAs, then the trade carried out from those beachheads could constitute traditional trade diversion. The investment provisions of PTAs also could create investment diversion. However, Dee and Gali find little evidence of beachhead investment, but rather of net investment creation in response to the "new age," non-trade provisions of PTAs. Thus, the finding on investment is more positive than for trade, but not without qualifications.

Urata and Kiyota examine the impact of East Asia Free Trade Area (FTA) on trade patterns in East Asia. They use a multi-sector computable general equilibrium model and a data base developed by Hurtle (1997) and his colleagues at Purdue University. There are four major findings in this paper. First, the impacts of FTA on GDP and the welfare of member countries are generally positive. Second, and surprisingly, an East Asia FTA does not seem to affect the pat terns of comparative advantage or intra-industry trade very much. Third, one would expect that output would decline for the protected sectors as a result of FTA, but that expectation is not really found. Finally, an East Asia FTA will promote regionalization in East Asia, but it will not necessarily promote regionalization in an Asian Free Trade Area.

Huang applies a gravity model in order to find empirical evidence on trading blocs in East Asia for the era following 1980. Special attention is paid to the role of openness on the part of mainland China in shaping East Asia's trade pattern. There is significant evidence of a trading bloc within a Chinese circle, including Taiwan, Hong Kong, and mainland China. Although the trade flows between Taiwan and mainland China were severely suppressed before 1987, the Chinese circle as a whole is highly integrated in terms of trade, indicating the important role that Hong Kong plays as a trading agent in the Chinese circle. The empirical results from after 1990 show that mainland China's openness in trade is empirically supported. On the other hand, East Asia as a whole is fostering a trading bloc, in the empirical sense.

Ma and Cheng study the effects of financial crises on international trade, both theoretically and empirically. Their major findings are that banking crises had a negative impact on imports but a positive impact on exports in the short term, whereas currency crises decreased both imports and exports in the short term but increased exports in the long term.

Delays at the border for customs clearance are seemingly a central feature of the trade regime in the CIS states. Cudmore and Whalley argue that, with queuing costs being determined endogenously in such circumstances, tariff liberalization (even in the small economy case) can worsen welfare, since tariff revenues are replaced by resource-using queuing costs. On the other hand, corruption can improve welfare if queuing costs are replaced by resource-transferring bribes. The authors also show how added distortions between perishable and non-perishable, or between light and heavy, goods also can arise. They show these outcomes using a simple general equilibrium model, and explore the numerical implications using Russian data. The orders of magnitude are both significant and opposite in sign to conventional analyses.

Chen and Ku study the effects of FDI on domestic employment by examining data on Taiwan's manufacturing industry. Treating domestic versus overseas production as two distinctive outputs from a joint production function, they first estimate the effect of overseas production on the demand for domestic labor. They find that overseas production generally reduces the demand for domestic labor as overseas products substitute for primary inputs in domestic production (substitution effect). But overseas production also allows the investor to expand domestic output through enhanced competitiveness. The expanded domestic output leads to more employment at home (output effect). The net effect of FDI on domestic employment is a combination of substitution and output effects. For Taiwan, the net effect is positive in most cases but it differs across groups. Technical workers tend to benefit most from FDI, followed by managerial workers, and blue-collar workers benefit the least; indeed they may even be adversely affected. This suggests that after FDI, a reconfiguration of the division of labor within a firm tends to shift domestic production toward technology and management-intensive operations.

Prusa examines trends in antidumping (AD) use with particular focus on the Asia-Pacific region, the traditional source for much of the rhetoric justifying AD actions. He shows that AD is the world's biggest trade impediment primarily because of its use by countries that previously did not use AD ("new" users). Twenty years ago, the top four users accounted for 98 percent of AD actions; nowadays these traditional AD users account for only about 40 percent of the disputes. After controlling for size, it becomes apparent that new users are filing at prodigious rates, five, ten, and even twenty." times the rate of the traditional users. The proliferation has not affected the propensity for Asia-Pacific countries to be targeted by AD actions. Over the past decade, Asia-Pacific countries are subject to over 40 percent of both new and traditional user AD actions. Interestingly, there are differences in the industry composition of trade complaints between new and traditional users. Traditional and new users both tend to target industries where they are losing comparative advantage. Since this pattern varies across countries, though, AD complaints differ across source countries. In other words, the pattern of AD use says as much about the filing country as it does about the target countries.

East Asian countries have become much more active in using the WTO dispute settlement system to assert their legal rights. The dispute settlement experience for these countries so far has shown a strong tendency of domestic governments to defend the economic interest of major industries. Their primary counterparts for trade disputes are still the major developed countries, including the United States and the European Communities. In some sense Thailand is peculiar in that it brought disproportionately many complaints to the WTO dispute settlement system while it was hardly challenged by other Members. In contrast to the GATT era, Korea has become legally very aggressive under the WTO system. Ahn also notes that Japan rarely has been challenged since October 1998. Except for China, most East Asian countries lack the national procedure to link private economic interests to the WTO dispute settlement procedures. The next question for these Members may be how to establish a domestic system to properly represent their private economic interests in a more balanced manner and to make the WTO dispute settlement system a benign instrument for the entire economy, not a captive tool of a particular segment of industries.