Ita Tano and Gonzales

EMILIO AGUINALDO COLLEGE
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QUALITY MANAGEMENT SYSTEMS
FINAL EXAMINATION
In Partial Fulfillment of the

Requirements for International Trade and Agreements
The Rise of Middle Kingdoms: Emerging

Economies in Global Trade
Gordon H. Hanson
Presented by:
Tano, Juliet Sofia P.
Gonzales, John David S.
Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Abstract
Gordon Hanson examines the changes in international trade brought on by the inclusion of
low- and middle-income countries in the global economy in this 2012 journal. Between 1994 and
2008, the proportion of developing economies in global exports, led by China and India, more
than doubled. Greater South-South trade is one characteristic of new trade patterns. The demand
for imported raw materials, which are used to construct cities and factories, is booming in China
and India. The South has experienced widespread industrialization, which has strengthened
international production networks and increased trade in intermediate inputs. The reemergence of
comparative advantage as a major force in international trade is a second characteristic of new
trade patterns. Growth in low- and middle-income countries increases the importance of
specialization according to comparative advantage for the global trade composition as North-
South and South-South flows of trade overtake those from the North. China's export
specialization changes quickly over time, demonstrating the country's ability to advance the
product ladder quickly. Most developing nations specialize intensely in a small number of export
goods. Significant knowledge gaps regarding the fundamental empirical drivers of export
specialization, the dynamics of specialization patterns, and the differences between South-South
and North-North trade are revealed by the emergence of low- and middle-income countries in
trade.

The Author
At the Harvard Kennedy School, Gordon Hanson holds the Peter
Wertheim Chair in Urban Policy. A research associate at the National
Bureau of Economic Research, a member of the Council on Foreign
Relations, and the chair of HKS's Social and Urban Policy Area are
additional positions he holds. He served as the Review of Economics
and Statistics, the Journal of Development Economics, and the Journal of Economic
Perspectives' previous co-editors. Hanson earned his BA in economics from Occidental College
in 1986 and his PhD in economics from MIT in 1992. He held the Pacific Economic Cooperation
Chair in International Economic Relations at UC San Diego and served as the Center on Global
Transformation's founding director before moving to Harvard in 2020. Prior to this, Hanson
taught economics at the University of Texas and the University of Michigan. Hanson researches
the effects of globalization on the labor market in his academic work. He has authored numerous
articles for prestigious economics journals, received numerous citations for his work from
academics in other social sciences, and is widely mentioned in the press. Hanson's current
research focuses on the origins of regional economic divides, the causes, and effects of
international migration, and how the China trade shock has affected local labor markets in the
US. (Harvard Kennedy School)

Big Picture
This research aims at how the inclusion of low- and middle-income countries through into
global economy has changed international trade. And since they accounted for most of the global
GDP and because so many developing nations maintained high import tariffs, trade flows among
both high-income countries heavily dominated. However, the main purpose of this research
discussion is to emphasize the analysis. This research tends to move forward a world in which
South-South commerce, and the North-South commerce are overtaking North-North flows. Here,
using models based on product segmentation and economies of scale, it is intended to
demonstrate these trade flows. Concepts that attribute differences in trade to variations in
national factor supplies or in sectoral labor productivities. This study primarily discusses the role
of comparative advantage among nations, concentrating on the growth in South-South trade, and
demonstrating the ability to accelerate product ladders. For other nations, specializing in primary
commodities—long associated with underdevelopment—has been a means of achieving
economic development.

Problem Description
The author emphasizes the changes in the global economy and global trade due to a more
integrated economy. The author explores the changes in the global economy and their effects on
the international trade scene. He mentioned that the integration of low-income and middle-
income economies has resulted in a shift in terms of international trade. This phenomenon has
been examined by comparing and analyzing the growth and trade between developing countries
(South-South) and developed countries developing countries (North-South) to the growth and
trade in developed countries (North- North). He uses China and India's (booming economies
during the span of the study) economies to examine these changes. He pointed out that low and
middle-income countries have gained the power to dictate the movement, flow, and changes in
terms of production and distribution of trade gains across trading countries.

Technical Content and Results

Growth in South-South Trade
The analysis will be discussing the growth in trade between countries by income level at this
point in the research. According to their level of development at the start of the recent global
trade boom, some countries are assigned to income categories based on their per capita GDP in
1990.

Source: UN COMTRADE, (http://Comtrade.un.org/)

This table illustrates the trade flows between country income groups from 1994 to 2008,
normalized by GDP (based on the data of UN COMTRADE). More even larger South-South
flows are a part of the evolving global trade pattern. As you can see, between 1994 and 2008,
low- and middle-income markets, such as China and India, received a larger share of exports
from low-income countries. The gravity model of trade, a mainstay of empirical research on
trade flows, articulates exports through one country to another as a mechanism of the GDPs of
the countries, the costs of bilateral trade, and the relative prices. This same consider sharing of
low- and middle-income countries in international trade should rise roughly proportionally to
their share of global income, as can be seen above using the gravity logic. But even so, Southern
trade has expanded much more quickly than Southern GDP.
A whole other interpretation is that the expansion of multistage global production networks is
what has led to the growth in Southern trade. And a significant portion of the recent growth in
trade appears to be the result of offshoring, in which businesses divide manufacturing across
borders by placing individual production stages in the regions where they can be carried out for
the least amount of cost.
The Return of Comparative Advantage
Finding the comparative advantage offered by the various models in terms of international
trade was the focus of the study's analysis. International economists created models that
explain trade as the result of growing returns to scale and monopolistic competition in
differentiated products in response to the dominance of high-income countries in international
trade. Furthermore, a significant role for comparative advantage seemed to defy the gravity

model's robust success, in which country size and trade costs are the main determinants of trade
flows. Given its predispositions to foretell extreme patterns of industry specialization, the model
—the Ricardian Model—here is based on sectoral labor productivities where it has remained
little more than an intellectual integrity. The differences between nations, whether it be in terms
of their technological prowess or their supply chains, are what spur trade, according to both sets
of theories. Other models benefit from comparative advantages brought about by nation-to-
nation variations in factor supplies, which lead to trade in intermediate inputs linked to the
development of global networks of production.
International Specialization
The pattern of net exports through sector all over country income groups shows the importance
of comparative advantage in trade. At least in a broad sense, international specialization follows
patterns of perceived comparative advantage.


Source: Author’s calculation using (World Bank) World Development Indicators and UN COMTRADE.
 The three resource- or labor-intensive sectors of agriculture, raw materials, apparel, and
shoes are where low-income countries in Figure A have net positive exports, while other
sectors have negative net exports.
 In Figure B, China and India's net exports are positive in three industries that require a lot
of labor (apparel and shoes, electronics, and other manufactures), but they are negative or
insignificant in all other industries.
 Figure C shows that the three capital-intensive sectors of chemicals, machinery, and
transportation equipment have negative net exports for middle-income countries, while
other exports are positive.
 Figure D's high-income nations have positive net exports there in three capital-intensive
industries but negative net exports in all other industries.

Dynamics in Specialization
In this section of dynamics in specialization, a straightforward statement denotes the
changing content specialization. The last section's cross-sectional trade data analysis reveals
what would seem to be specialization based on comparative advantage. Specialization in low-
and middle-income countries can change quickly over time, according to a dynamic view of
trade.
Hyper-specialized Exporters
And now that we are aware of dynamics in specialization:
1. Country specialization through wide sector appears to be in accordance with established
comparative advantage models at any given time.
2. Specialization patterns change quickly over time, possibly in tandem with the
accumulation of factors.
In many product categories, developing nations have no exports at all. We tend to notice more
clearly that exports from low- and middle-income countries are focused primarily in a relatively
small number of products due to a fine degree of specialization. Additionally, the majority of
nations export a limited range of products. It is not enough for developing nations to produce a
relatively small range of goods due to their small economies and consequent specialization in a
tiny proportion of exports. Even the biggest middle-income economies have high levels of
specialization.

Conclusion and Related Work

The research result showed that the inclusion of low and middle-income economies in
the global economy has resulted in changes and transitions in production, distribution, and
international trade. It includes global export and import, supply, and trade growth. By
analyzing China and Indian economies, the author observed that the aggressive/rapid growth of
these countries and other low and middle countries combined have dominated and out-performs
those high-performing countries such as the US, European Union, and Japan. The GDP and
annual growth of these low and middle-income countries have massively increased. The study
also gave emphasis on the comparative advantage which tackles different ways in which these
countries boost their economic capabilities. Specialization was the most evident. Significant
information gaps regarding the fundamental empirical drivers of export specialization, the
dynamics of specialization patterns, and the differences between South-South and North-North
trade are revealed by the development of low- and middle-income nations in trade.

Critique
I. In the section of Growth in South – South Trade, there are:
Pros:
 In the table 1 (Exports and Imports Relative to GDP by Regional Trading Partner)
Offshoring, as observe from the recent increase in trade, appears to be occurring its
place.
• When businesses split the remaining industrial production across territorial frontiers
by locating distinct production phases in the nations where they can be carried out for
the least costs.
Cons:
 As a result, a consequence is that "gross trade flows" might overestimate "net trade
flows."
• The total exports might be inflated by intermediate inputs that are imported.
(If it were to appear, this would suggest that the growth of South-South trade is partially a
distribution technique. Each nation will add value to a product as it is shifted from raw
materials into a finished good across a production chain that passes international boundaries if
goods are produced in a sequential manner.)

Pros
 The paper was qualitative based research, which provides accuracy to its results.
 Insightful, the author has given relevant points and ideas about the different topics
and aspects that are relevant to the study.
Explored the return of comparative advantage and explained international specialization
 Supported by credible related studies.
Cons
 The research methodology and the research limitations were not clearly identified
by the author.
 The significance of the study was not clearly elaborated and explained.
 The author proceeds with the effects of the emerging market on global trade
without defining what an emerging market is. The author assumed that it is already
known what it is.

Critique
Future Research
The paper was relevant, especially today when trade and other related activities have rapidly
progressed and shown significant growth over the years. The author has achieved his goal in
making the paper where he wanted to examine how the inclusion of low- and middle-income
nations has affected changes in international commerce. The paper clearly states terminologies
that are relevant to the study, and it has shown data that supports its claims. Moreover, the author
has given his thoughts about the rise of emerging economies by observing and examining the
economic situation in China and India. All in all, the paper has achieved its main goal, though it
successfully fulfilled its goal, upon reading it we’ve also seen the limitation of the study.
It would be phenomenal to investigate how the Middle Kingdom's trade issues within its own
border affect its capacity to reach agreements with other nations for future analysis-related
research. It would be incredibly challenging to investigate the new generation of commerce
directly impacted by the pandemic as well as other current crises that each country is currently
facing since this research was conducted a decades ago.
Future research that is interesting to study in this area would help in understanding the
emergence of a low-middle-income economy. A study exploring export specialization would be
great for it will explain how different countries with low to high-income economies uses their
own specialization in terms of trade. A study that will reveal and have a comparative analysis of
why and how South-South trade differs from North-North trade. Lastly, A study exploring the

effects of emergence in the standard of living in a low and middle-income economy. For it will
also explore the microeconomics and social situation inside a low and middle-income country.

References and Citation:
Hanson, Gordon H. 2012. "The Rise of Middle Kingdoms: Emerging Economies in Global
Trade." Journal of Economic Perspectives, 26 (2): 41-64.
https://www.aeaweb.org/articles?id=10.1257/jep.26.2.41

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EMILIO AGUINALDO COLLEGE

In Partial Fulfillment of the

The Rise of Middle Kingdoms: Emerging

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

comparative advantage as a major force in international trade is a second characteristic of new

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Wertheim Chair in Urban Policy. A research associate at the National

Bureau of Economic Research, a member of the Council on Foreign

additional positions he holds. He served as the Review of Economics

US. (Harvard Kennedy School)

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

using models based on product segmentation and economies of scale, it is intended to

of comparative advantage among nations, concentrating on the growth in South-South trade, and

commodities—long associated with underdevelopment—has been a means of achieving

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

terms of production and distribution of trade gains across trading countries.

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Technical Content and Results

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Source: UN COMTRADE, (http://Comtrade.un.org/)

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

trade has expanded much more quickly than Southern GDP.

the least amount of cost.

The Return of Comparative Advantage

differentiated products in response to the dominance of high-income countries in international

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

development of global networks of production.

of comparative advantage in trade. At least in a broad sense, international specialization follows

patterns of perceived comparative advantage.

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

sectors have negative net exports.

insignificant in all other industries.

other exports are positive.

industries but negative net exports in all other industries.

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

In this section of dynamics in specialization, a straightforward statement denotes the

what would seem to be specialization based on comparative advantage. Specialization in low-

And now that we are aware of dynamics in specialization:

1. Country specialization through wide sector appears to be in accordance with established

comparative advantage models at any given time.

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Conclusion and Related Work

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

goods are produced in a sequential manner.)

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

and aspects that are relevant to the study.

Explored the return of comparative advantage and explained international specialization

 Supported by credible related studies.

known what it is.

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

research. It would be incredibly challenging to investigate the new generation of commerce

facing since this research was conducted a decades ago.

emergence of a low-middle-income economy. A study exploring export specialization would be

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

References and Citation:

Hanson, Gordon H. 2012. "The Rise of Middle Kingdoms: Emerging Economies in Global

Trade." Journal of Economic Perspectives, 26 (2): 41-64.

Journal of Economic Perspective-Volume 26, Number 2 – Spring 2012

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