Changing Patterns of Trade in Goods and Services in the Pacific Region: Market-Driven Economic Integration

By James, William E. | Business Economics, April 1994 | Go to article overview

Changing Patterns of Trade in Goods and Services in the Pacific Region: Market-Driven Economic Integration


James, William E., Business Economics


International trade expansion has been a prominent aspect of economic growth and development of East Asia and the Pacific Rim. Trade expansion has been accompanied by increasing cross-border flows of investment. The expanded role of foreign direct investment (FDI) has intensified intraregional trade and created increased demand for related services.

In examining changing patterns of trade in the Pacific region, both the direction and composition of trade are reviewed, including the role of interindustry and intraindustry trade. Finally the outlook for future trade growth is then evaluated.

FOR THE MEMBERS of APEC(1), international trade has increasingly been of an intraregional character. In the European Community (EC) internal trade expansion has been stimulated by the establishment of a common market. However, in the Pacific, intraregional trade expansion is driven by high economic growth and not by preferential trade arrangements. The rise in the share of intraregional trade within the APEC from 56 percent of exports and 62 percent of imports in 1970 to 70 percent of exports and 71 percent of imports in 1992 was accompanied by an expanded role of APEC members in global trade. In 1970, APEC members accounted for 30 percent of world exports and in 1992 the share rose to 43 percent. The APEC share of world imports rose from 35 percent in 1970 to 44 percent in 1992. The increase in the APEC's share is accounted for mainly by the sharp increases in the world trade shares of the NIEs, ASEAN-4 and China as well as Japan. These same economies have been among the fastest growing in the world over the period in question.

The increase in intraregional trade need not imply increasing exclusive "regionalism" in the Pacific. Clearly, if the Pacific Rim economies are growing faster than the average for the global economy, then one would expect that these economies should be trading more with each other, particularly if growth in these economies is based on an outward-looking development strategy.

PATTERNS OF COMPARATIVE ADVANTAGE: COMPOSITION OF MERCHANDISE TRADE

Pacific OECD

On the basis of comparative advantage, the developed economies have relatively strong exports of manufactured goods for which production processes are more human-capital (HC) and technology-intensive (TC). They tend to import unskilled labor-intensive manufactured goods (UL). Japan differs from the others because it has a much weaker natural-resource endowment. Hence, one would expect Japan to be a substantial net importer of natural-resource intensive manufactured (NR) and nonmanufactured goods (NM) and that the others would show more balanced trade in such goods.(2)

The pattern of Japan's trade conforms largely to the expected pattern. Exports (1990 data) were mainly in TC and HC sectors, which accounted for 87 percent of total exports.(3) Within these broad categories, however, exports were concentrated in automobiles, nonelectrical and electrical machinery excluding home electronic products. These items were about 60 percent of all exports. Imports were concentrated in NM, which made up over 36 percent of the total. Natural-resource intensive manufactures made up another 10 percent or imports in 1990. In 1985 only 40 percent of imports were composed of manufactures but by 1990 this class had risen to 64 percent, a rather dramatic structural change. Leading import sectors have been in UL, including clothing, footwear, and miscellaneous manufactures. However, import growth of office machinery parts, personal computers, audiovisual equipment and other manufacturers (OT) was quite strong. This change in import composition is related to the rapid and large appreciation of the yen that took place between 1985 and 1986, which was largely sustained thereafter.

The composition of Australia's trade has changed gradually, influenced by the significant liberalization of trade, chiefly through reducing tariff and nontariff barriers on imports, but also through deregulation of government marketing schemes for export commodities like wheat, wool and other agricultural products. …

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