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ADB 2007 Uncoupling Asia

ADB 2007 Uncoupling Asia

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Published by chorpharn4269
The myth of Asia's decoupling from the G3 is exploded by this wonderful report from the Asian Development Bank
The myth of Asia's decoupling from the G3 is exploded by this wonderful report from the Asian Development Bank

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Published by: chorpharn4269 on Feb 25, 2009
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09/09/2014

 
Uncoupling Asia: Myth and reality
Introduction
raditionally, developing Asia has been viewed as a region that reliesheavily on exports or growth. As an important corollary o this, it hasbeen considered vulnerable to external demand shocks. DevelopingAsia—more precisely the economies o East and Southeast Asia  —haveregistered average growth o 6.% a year over the last decade. Teseeconomies now account or 9.9% o world gross domestic product(GDP) measured in real US dollar terms, compared with 0.6% or theUnited States (US), 1.0% or Japan, and .9% or the  countries o the European Union (EU-). (Te US, Japan, and EU are reerred tohenceorth as the G economies or simply G.)Te ast-growing Asian region and its potentially large spendingpower raise the hope that its own growing demand may help it bothweather the adverse consequences o a US slowdown and ease the impacto a global downturn. Indeed, the visible slowing in the US economy inthe second hal o 006 notwithstanding, the continued strength o Asianexports has been marked. Tis has set o heated debate on whether or notthe Asian economy is uncoupling rom the global business cycle on theback o its rapidly growing domestic economy and the strengthening o intra-Asian economic ties.“Uncoupling” can be dened as the emergence o a business-cycledynamic that is relatively independent o global demand trends and thatis driven mainly by autonomous changes in internal demand. Proponentso the “uncoupling Asia” view base their arguments on the emergence o astrong regional economy that is increasingly independent rom changingeconomic conditions in the world’s major industrial countries.A major reason, some believe, that Asia’s business cycle isuncoupling is the emergence o the People’s Republic o China (PRC)with a consumer market o 1. billion. rade growth between the PRCand the countries o East and Southeast Asia has been extremely rapidin the last decade and this is also seen as possibly replacing industrialcountry 
 
consumer demand. (See the chapter,
rade and structural change in East and Southeast Asia: Implications for growth and industrialization
, also in Part 1.)Despite the emergence o the PRC economy and the increase in theAsian region’s share in global production and trade, evidence presentedin this chapter o 
 Asian Development Outlook 2007 
indicates that therise in intra-Asian economic interdependence through investment andtrade is being
driven
by the globalization process. For example, much
 
Uncoupling Asia: Myth and reality 67 
intra-Asian trade is conducted by multinational corporations (MNCs)and their aliates in the orm o intrarm and intra-industry trade thatinvolves ragmentation o production. Te production networks in Asiarespond to global demands rom consumers outside the region ratherthan being independent o them. Tereore, the G economies are stillan important source o external demand or Asia, and so the regionremains vulnerable to shocks coming rom this quarter. Analysis o business-cycle co-movements, both within Asia and between G and Asia,generally arms the linkage between growth in G and Asia, indicatingthat the regional integration process in Asia is intimately linked to globaleconomic activity.Te ollowing sections investigate the structure o Asian trade bothin terms o inter- and intraregional trade linkages. In the next section,
Is intra-Asian trade growth driven by independent regional demand? 
, aclose relationship between Asian exports and nal demand rom the Geconomies is demonstrated. Although Asia’s direct exposure to G is ona decline, nal demand rom G plays an important role underneath thesurace o rising intra-Asian trade. Much o this trade is dominated by intra-industry and intrarm shipments o intermediate goods that areeventually consumed outside the region. Although production sharingarrangements across Asia have given a strong push to regional economicand trade integration since the 1990s, such integration is structurally linked to the international business networks o MNCs.Te PRC has a special role to play. At the center o MNCs’regional supply networks, it is important in boosting both intra-and interregional trade. But this nexus role has deepened economicinterdependence between the PRC and the rest o Asia as well asbetween the PRC and G.Te penultimate section,
Is Asia’s business cycle gaining independence? 
,examines whether, and to what extent, ongoing regional integration hasaected the degree o dependence o the Asian economy on G businesscycles. Te patterns o Asian business cycles changed quite signicantly beore and aer the Asian crisis o 1997–98, reecting structural changesin the regional economy. Evidence based on correlation analysis o business cycles supports the view that Asia’s increasing trade opennessand economic integration, within itsel and with G, have led to higherdegrees o both inter- and intraregional business cycle synchronization.Tere is clear evidence pointing to increasing business cycleco-movements among Asian economies, particularly between the PRCand the rest o Asia. But there is no mutual exclusivity between inter- andintraregional economic integration—it is not one or the other. In act,deepening regional integration appears to reinorce Asia’s integrationinto the world economy. For this reason, Asia remains exposed to cyclicaldownturns in the G economies.In
Conclusions
, some policy issues are discussed in light o theglobal nature o Asia’s regional integration. Te Asian economy remainssensitive to business cycles in the G economies, giving rise to animportant policy agenda or Asia’s economies, both at the regional andnational level. o the extent that regionalization is tied to globalization,Asia’s economic activity is also exposed to global competition.Globalization o MNCs’ production networks underlines the region’s need
 
68 Asian Development Outlook 2007 
or greater economic exibility to maintain strong productivity growthand global competitiveness.
Is intra-Asian trade growth driven byindependent regional demand?
The nal destination o intra-Asian trade
Asia is undergoing a process o rapid economic expansion accompaniedby growing regional trade, investment, and nancial linkages. Since the1990s in particular, growth in intra-Asian trade has been remarkable(Figure 1..1). rade is oen an important channel through whicheconomic shocks can be transmitted rom one country to another, but itmay not be the whole story. Indeed, export-driven growth tends to makea country’s economy vulnerable to the cyclical movements in economicactivity o major trading partners. Te rapid expansion o intraregionaltrade may indicate that Asian countries are strengthening their mutualeconomic ties. At the same time, the relative decline in Asia’s trade withthe rest o the world suggests Asia’s reliance on external trading partnersmight be diminishing.Overall, Asia’s reliance on external demand remains strong. Teexport-to-GDP ratio has continued to trend upward, reaching nearly %o GDP in 00 (Figure 1..) compared with the world average o 8.%.Te incremental export-to-GDP ratio, measured by the year-on-yearincrement in exports over that in GDP, has also been on an upward trend.Steady increases o both ratios illustrate the importance o the exportsector as the engine o growth in developing Asia.Asia’s increasing trade openness has been accompanied by signicantprogress in the diversication o its export base. Figure 1.. shows thecomposition o Asian exports by destination. Te share o intraregionaltrade in total exports rose rom 6.% in 198 to 7.% in 00. Tegeographic composition o Asia’s export market has become much lessconcentrated, with the share o the single largest market, the US, at only 17.6% in 00, down rom .% in 198. Japan and the EU- now accountor .8% o Asia’s total export market, much larger than the US share.But taken together, the G economies (the major export destination o global exports) account or only .% o Asia’s total exports, down rom.% two decades ago.Greater diversication in the geographic composition o Asian exportssuggests that an external demand shock stemming rom a downturn inG could be mitigated to some extent by stronger growth in the rest o Asia’s export markets, including Asia itsel. Tis increasing degree o trade diversication, along with strong growth in intra-Asian trade, isoen taken as evidence o an increase in Asia’s resilience to a slowing o growth in the world’s major economies.However, changing demand conditions in these economies—particularly the US—appear to remain a dominant actor in Asia’sexport growth. Figure 1.. demonstrates a close relationship between USnon-oil import growth and that o Asian exports. G non-oil importsare also included or the period where data are available. US non-oil
1.5.1 Destinations or Asian exports
0.00.51.01.52.0Rest of the worldAsia05200095901985 $ trillion
Note:
Asia comprises People’s Republic o China; HongKong, China; Indonesia; Republic o Korea; Malaysia;Philippines; Singapore; and Thailand.
Source:
International Monetary Fund,
Direction of TradeStatistics
CD, January 2007.
1.5.2 Asian export ratios
050100150Incremental export/GDPExport/GDP0520009590851980 %
Note:
Asia comprises People’s Republic o China; HongKong, China; Indonesia; Republic o Korea; Malaysia;Philippines; Singapore; Taipei,China; and Thailand.
Source:
Oxord Economics,
Quarterly Model 
, February 2007.
1.5.3 Composition o Asian exports
19852005
Asia26.2%US23.2%ROW20.6%EU11.9%Japan18.1%Asia37.3%US17.6%ROW19.4%EU15.9%Japan9.9%
ROW = rest o the world.
Note:
Asia comprises People’s Republic o China; HongKong, China; Indonesia; Republic o Korea; Malaysia;Philippines; Singapore; and Thailand.
Source:
International Monetary Fund,
Direction of TradeStatistics
CD, January 2007.

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