Trade Patterns and Exchange Rates in East Asia

Trade Patterns and Exchange Rates in East Asia : Research Monograph

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In his Testimony on June 23 2005 before the U.S. Senate Committee on Finance, Alan Greenspan, Chairman of the Federal Reserve Board, remarked, "The enhanced integration of China into the world trading system is having notable effect on Asia's trade with the rest of the world and on trade within Asia. After having risen rapidly through the 1990s, U.S. imports from Asia excluding China have flattened since 2000. This has occurred as production within Asia has evolved, with the final stages of assembly and exporting to the United States and elsewhere becoming increasingly concentrated in China." The phenomenon is called East Asian production networks whereby production processes are fragmented across national borders in the region. This development is undeniably related to the global imbalance problem. Several studies showed that the build-up of an unsustainable payment imbalance in the U.S. was substantially mirrored in the reserve accumulation by East Asian countries including China notably. These studies predicted that unless "coordination and shared responsibility" led to a gradual adjustment of it, the world economy would move toward a major crisis. Some authors even predicted an imminent collapse of the U.S. dollar, and a global financial meltdown. A global financial crisis indeed began in 2008. The crisis has accompanied a prolonged economic slowdown across the developed and developing world. An unwinding of the imbalance has progressed but in a disorderly way. The moral of this research is that real exchange rate changes and redistribution of world expenditures will continue to play key role in the process of international adjustment. However, our focus would be on how it would affect East Asian exports within the region and between East Asia and the rest of the world. We apply an empirical framework that essentially incorporates the fact that production within Asia has evolved. The consideration has an important implication. It is that exports by country are recorded on a gross basis rather than as value added and therefore the domestic value added is only a part of the gross value of the exports. An appreciation by the exporting country per se will affect only the domestic value added but not the gross value. But a joint appreciation of countries supplying intermediate goods will increase the dollar cost of intermediate goods imported into the exporting country from the rest of Asia, which represents a significant share of the gross value. This was the conjecture of Alan Greenspan. He argued that such a coordinated exchange appreciation would have larger effect on East Asian exports. In fact, East Asian exchange rates are now on a path of real appreciation but in an environment of no explicit coordination. The question is how changes in intra-regional real exchange rates will affect trade along the production networks and final exports from East Asia to the world. This study defines two channels of this effect. The first is the production linkage effect through fragmented value chain and the other is the competitive effect. A real appreciation of one East Asian country against the others will imply an adverse competitiveness effect but a favorable linkage effect. We further examine in this research the evolving trade patterns of East Asian countries. We do it by analyzing composition as well as comparative advantage of East Asian exports by stages of production and across geographic locations. The purpose is to see how production specialization has evolved across the core and peripheral countries within the region. We conduct the analyses for all East Asian countries and over 1985-2008 period. They include Japan, South Korea, and Taiwan comprising the core region and China and seven ASEAN countries comprising the peripheral region. The ASEAN countries are Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam.show more

Product details

  • Paperback | 98 pages
  • 152 x 229 x 5mm | 141g
  • Createspace
  • United States
  • English
  • black & white illustrations
  • 1514305941
  • 9781514305942

About Mizanur Rahman

Masahiro Kawai is Dean and CEO of the Asian Development Bank Institute. He was previously special advisor to the ADB president in charge of regional economic cooperation and integration. Before that he was in the academia, first as an associate professor of economics at The Johns Hopkins University and later as a professor of economics at the University of Tokyo. He also served as chief economist for the World Bank's East Asia and the Pacific Region and as deputy vice minister for international affairs of Japan's Ministry of Finance. His recent publications focus on economic regionalism. He holds a BA in economics from the University of Tokyo and a PhD in economics from Stanford University. Mizanur Rahman is an associate professor of Accounting & Public Policy in the University of Dhaka. He got his undergraduate and graduate degrees in accounting from the same university. Later he obtained Master's and Ph.D. degrees in accounting & public policy from National Graduate Institute for Policy Studies (GRIPS), Tokyo. Rahman worked as a research scholar at the Research Institute of Economy, Trade and Industry (RIETI) in 2006-07. Then he worked as an economist at the Asian Development Bank Institute (ADBI) in 2008-09. Rahman is an expert of UN ESCAP for private sector development in Asia and the Pacific. He is the director of Accounting for Capital Market Development, a research initiative funded by the World Bank in the University of Dhaka. He has widely published in ISI journals. In January 2010, the Global Development Network (GDN) awarded him 'GDN Medal for Research on Development.' Rahman has been working as a focal point for strengthening academic and research collaborations between Bangladesh and Japan and represented the University Grants Commission of Bangladesh to this end. The U.S. Department of State has recently awarded him a senior fellowship to participate in EducationUSA Leadership Institute for the promotion of University-Industry linkages. He often appears in electronic media and writes op-eds in print media on issues of public policy relevance.show more