W11 - Trade, Investment and Finance in East Asia

Question 1

What has been the story of trade and investment in East Asia?

Answer 1

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

Question 2

What are the determinants of the size of FDI?

Answer 2

• Production costs: Labour and capital
• Market size
• Tax incentives
• Regulation

Question 3

What are the effects of FDI on trade balance?

Answer 3

Export substitution effect (negative)
Export increase effect
Import increase (Boomerang effect) (negative)

Question 4

What has been the driver for infrastructure investment in EA?

Answer 4

Interregional FDI was a major driving force here

Question 5

What is Hecksher-Ohlin theory?

Answer 5

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 China was labour intensive but not anymore, the theory is now outdated

Question 6

What was observed regarding dyanmic comparative advantage?

Answer 6

• Increased intra-industry trade
• Expanding market access and increased role of MNCs
• Shifts away from WTO multilateralism towards more regional and bilateral trades

Question 7

When did Bilateral FTAs take-off in Asia?

Answer 7

1997, Japan Singapore followed by Japan ASEAN

Question 8

Why did Bilateral FTA rise in popularity in the 90s?

Answer 8

Dissatisfaction in multilateralism from the WTO, ease of negotiation, fear of exclusion from major markets, attraction of FDI to the region

Question 9

What is the spaghetti bowl effect?

Answer 9

Too many FTAs don’t know what to do in the event of a dispute

Question 10

Why is multilateralism becoming less appealing across the world?

Answer 10

Nationalism (eg. Brexit)

Question 10

What principle is employed for economic co-operation in East Asia?

Answer 10

Open regionalism

Question 11

What are the two impacts of a regional trade agreement?

Answer 11

• Trade creation effect (new trade in region)
• Trade diversion effects (now buy from someone in region instead of elsewhere)

Question 12

When was China allowed into the WTO?

Answer 12

2001

Question 13

What is the name of the regional trade agreement for the pacific?

Answer 13

CPTPP

Question 14

What does CPTPP stand for?

Answer 14

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

Question 15

What is RCEP?

Answer 15

A multilateral trade agreement led by ASEAN countries

Question 16

How do CPTPP and RCEP differ?

Answer 16

CPTPP has a strong set of binding rules

Question 17

Why did India pull out?

Answer 17

Because they had a conflict with China, Indian manufacturing was at a disadvantage to Chinese manufacturing so India pulled out

Question 18

What does CPTPP not allow?

Answer 18

State owned enterprises that may receive subsidies

Question 19

What is the global value chain?

Answer 19

A global value chain breaks up the production process across countries. Firms specialise in a specific task and do not produce the whole product

Question 20

What is the best way for countries to escape the Middle income trap?

Answer 20

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

Question 21

What did the 2016 Trump election do to regional trade in Asia?

Answer 21

Accelerated intra-regional trade in Asia with China as a hub

Question 22

What is ‘friend shoring’?

Answer 22

This means that they only trade with allies politically

Question 23

What are the four themes of friend shoring?

Answer 23

• Fair and resilient trade
• Supply chain resilience
• Infrastructure, clean energy, and decarbonisation
• Tax and anti-corruption

Question 24

How many times does the semi-conductor production process cross international borders?

Answer 24

70 times

Question 25

Who is part of the Chip 4 alliance?

Answer 25

The US, Japan, South Korea and Taiwan (restricts shipments of chips to china)

Question 26

How did the US get around the WTO regarding limiting chips sent to China?

Answer 26

Used a national security clause

Question 27

What is financial integration?

Answer 27

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

Question 28

What does financial integration require?

Answer 28

Structural reform and liberalisation of the capital account

Question 29

What is the main tool for financial integration measures post AFC?

Answer 29

The Chiang Mia initiative Multilateral (CMIM)

Question 30

What is a key precondition for the CMIM swaps?

Answer 30

That member countries should show similar output responses to supply and demand shocks

Question 30

How much is the Renmibi used for international transactions?

Answer 30

Less than 5%, only 8th most traded currency

Question 31

What percentage of foreign transactions are done with the USD?

Answer 31

88%

Question 32

What are the benefits of an international currency?

Answer 32

Facilitate trade and finance, lower borrowing costs, reduced exchange rate risk, domestic monetary policy can be more independent and carry influence

Question 32

Why is an open capital account important for a reserve currency?

Answer 32

Must be easily acceptable and tradable without capital controls

Question 32

What 3 criteria must a currency fulfill for it to become a reserve currency?

Answer 32

1. Open capital account (no capital controls)
2. Financial market development (liquid)
3. Flexible (market determined) ERs (credible)