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What Lessons can be Learned from the Experience of Asia and the Pacific. Kenichi Kashiwagi Alliance for Research on North Africa (ARENA), University of Tsukuba, Japan 19 February, 2007. 1. Introduction. ☆The key to success in economic development of emerging East Asian economies:
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What Lessons can be Learned from the Experience of Asia and the Pacific Kenichi Kashiwagi Alliance for Research on North Africa (ARENA), University of Tsukuba, Japan 19 February, 2007
1. Introduction ☆The key to success in economic development of emerging East Asian economies: Application and implication of the advanced foreign technology ☆The purpose: ・to test the effect of FDI on economic growth from comparative perspective. ・to find implications from the experience of Asia & Pacific to the Mediterranean countries (MED).
“Market Friendly Approach” Fundamental Policies ・Macroeconomic stability ・Human Capital Formation ・Openness to international trade “Market-Enhancing View” Selective Interventions ・Export Promotion ・Financial Repression ・Industrial Policy East Asian policy makers went beyond the fundamentals. 2. East Asia: Invisible hand → visible
3.1. MED: Stabilization & S.A. 1970s: Two oil shocks 1980s: Stagnation of developed economies Negatively affected Balance of payment & Foreign Debt in MED Stabilization and Structural Adjustment Conditionality: deregulation & linearization
3.2. EU-enlargement towards East & South of Europe Enlargement towards East ・Re-integration of Europe ・Bulgaria & Romania (2007.1) ・Candidate: Croatia & Turkey Enlargement towards South ・Regional Security & Stability ・Association Agreement (FTA) with MED from the mid-90s ・ENP (European Neighborhood Policy) ・Strategic partnership with Africa (2005) EU (source) European Union, Wikipedia
3.3 Openness to International Trade is Inevitable ・Multilateral Trade Process: WTO (1995) ・Abolition of Multi-fiber Agreement (2005) ・Ratification of IMF Article XIII Policy choices are getting constrained Enhance MED’s competitiveness ?
4. Theoretical model “Endogenous growth theory” Technology diffusion ☆Import if High-technology Products ☆Adoption of Foreign Technology by FDI ☆Accumulation of Human Capital to test empirically the effect of FDI on economic growth: 1992-2004 ・Asia &Pacific ・Mediterranean (MED) ・East &Central Europe
5. Empirical Model To test empirically, g = g( M, FDI, Mt, L ) g: Real growth rate, M: volume of import, FDI: foreign direct investment, Mt: import of technology, L: a specific condition git = β0 + β1X1it+ β2X2it+ γ1D1+ γ2D2+ uit X1it: Export/GDP, Import/GDP, X2it: FDI/GDP D1: East Central Europe,D2: East and South Asia
6. Empirical Estimation & Results • Pooled data: 15 countries (1992-2003); N=180 • Pooled OLS • Empirical Results (brackets: t-values) git = 2.609–0.018X1it(trade) + 0.375X2it(FDI) (3.784) (–2.600) (2.304) – 0.075D1+ 1.899D2R2 = 0.071 (–0.076) (2.470) Adj-R2 = 0.050 git = 2.373–0.029X1it(import) + 0.322X2it(FDI) (3.483) (–1.972) (1.894) + 0.227D1+ 1.91D2R2 = 0.056 (0.230) (2.452) Adj-R2 = 0.035
7. Four Implications 1. FDI inflow is an important vehicle of economic growth. 2. Diffusion of technology and knowledge spillover was effective through FDI inflow rather than import of capital goods. 3. Effect of trade and export expansion on economic growth is not always positive. 4. Effect of FDI on economic growth was remarkable in East and South Asia, compared with East Central Europe and MED.
8. What Lessons can be Learned? 1. It is important to shift from the policy of protection of domestic industries to industrial policy to encourage the attraction of FDI from EU. 2. Positive cycle of trade and investment i.e. attract FDI to promote export is necessary for the MED to deepen the regional integration. 3. Transformation towards the international division of production between EU and the MED is necessary to encourage the linkage of trade and investment.
