W11 - Trade, Investment and Finance in East Asia Flashcards
What has been the story of trade and investment in East Asia?
East Asia has benefitted enormously under the global rule based trading system with international trade and FDI providing the main vehicle for growth across the period. Post-1985, Japan’s outward FDI played an important role in the region
What are the determinants of the size of FDI?
- Production costs: Labour and capital
- Market size
- Tax incentives
- Regulation
What are the effects of FDI on trade balance?
Export substitution effect (negative)
Export increase effect
Import increase (Boomerang effect) (negative)
What has been the driver for infrastructure investment in EA?
Interregional FDI was a major driving force here
What is Hecksher-Ohlin theory?
States differences in factor endowments explain why trade occurs. Factor endowments means some countries are resource intensive. China was labour intensive but not anymore, the theory is now outdated
What was observed regarding dyanmic comparative advantage?
- Increased intra-industry trade
- Expanding market access and increased role of MNCs
- Shifts away from WTO multilateralism towards more regional and bilateral trades
When did Bilateral FTAs take-off in Asia?
1997, Japan Singapore followed by Japan ASEAN
Why did Bilateral FTA rise in popularity in the 90s?
Dissatisfaction in multilateralism from the WTO, ease of negotiation, fear of exclusion from major markets, attraction of FDI to the region
What is the spaghetti bowl effect?
Too many FTAs don’t know what to do in the event of a dispute
Why is multilateralism becoming less appealing across the world?
Nationalism (eg. Brexit)
What principle is employed for economic co-operation in East Asia?
Open regionalism
What are the two impacts of a regional trade agreement?
- Trade creation effect (new trade in region)
- Trade diversion effects (now buy from someone in region instead of elsewhere)
When was China allowed into the WTO?
2001
What is the name of the regional trade agreement for the pacific?
CPTPP
What does CPTPP stand for?
Comprehensive and Progressive Agreement for Trans-Pacific Partnership
What is RCEP?
A multilateral trade agreement led by ASEAN countries
How do CPTPP and RCEP differ?
CPTPP has a strong set of binding rules
Why did India pull out?
Because they had a conflict with China, Indian manufacturing was at a disadvantage to Chinese manufacturing so India pulled out
What does CPTPP not allow?
State owned enterprises that may receive subsidies
What is the global value chain?
A global value chain breaks up the production process across countries. Firms specialise in a specific task and do not produce the whole product
What is the best way for countries to escape the Middle income trap?
Best way to escape the middle income trap is to move up the smiling curve because all developed countries have certain advantages up the smiling curve
What did the 2016 Trump election do to regional trade in Asia?
Accelerated intra-regional trade in Asia with China as a hub
What is ‘friend shoring’?
This means that they only trade with allies politically
What are the four themes of friend shoring?
- Fair and resilient trade
- Supply chain resilience
- Infrastructure, clean energy, and decarbonisation
- Tax and anti-corruption
How many times does the semi-conductor production process cross international borders?
70 times
Who is part of the Chip 4 alliance?
The US, Japan, South Korea and Taiwan (restricts shipments of chips to china)
How did the US get around the WTO regarding limiting chips sent to China?
Used a national security clause
What is financial integration?
The process by which segmented markets become open and unified. Occurs through removal of domestic and international control on trade in assets and intangible capital
What does financial integration require?
Structural reform and liberalisation of the capital account
What is the main tool for financial integration measures post AFC?
The Chiang Mia initiative Multilateral (CMIM)
What is a key precondition for the CMIM swaps?
That member countries should show similar output responses to supply and demand shocks
How much is the Renmibi used for international transactions?
Less than 5%, only 8th most traded currency
What percentage of foreign transactions are done with the USD?
88%
What are the benefits of an international currency?
Facilitate trade and finance, lower borrowing costs, reduced exchange rate risk, domestic monetary policy can be more independent and carry influence
Why is an open capital account important for a reserve currency?
Must be easily acceptable and tradable without capital controls
What 3 criteria must a currency fulfill for it to become a reserve currency?
- Open capital account (no capital controls)
- Financial market development (liquid)
- Flexible (market determined) ERs (credible)
