Economic Globalization and Asia

By Rajan, Ramkishen S. | Journal of Southeast Asian Economies, April 2001 | Go to article overview
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Economic Globalization and Asia


Rajan, Ramkishen S., Journal of Southeast Asian Economies


Trade, Finance, and Taxation

I. Introduction

Economic globalization, broadly defined as the shrinkage of economic distances (i.e. costs of doing business) between nations, is more accurately seen as consisting of two separate but not necessarily mutually exclusive trends: globalization of production and trade, and globalization of finance and capital flows. Both aspects of globalization have been aided and abetted by three factors. First are the innovations and advances in transportation, information, and communications technologies such as the Internet (Baldwin and Martin 1999). Second is the push by the various international institutions towards global economic liberalization (i.e. reduced policy barriers to trade and investment) through the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) in the case of world trade in goods and services, and the International Monetary Fund (IMF) in the case of global finance and capital flows. Third is the shift in perceptions about the appropriate role of government and the near-global consensus on the need for extensive, albeit judicious use of market incentives for economic success.(1)

As we enter the new millennium, this special issue of the ASEAN Economic Bulletin brings together articles by various academics on specific aspects of economic globalization relating to trade, finance, and taxation, with reference to Southeast Asia and the larger Asian region.

The article, "Globalization, WTO, and ASEAN" by Kym Anderson, provides an overview of the general issue of economic globalization, a process that, though having intensified since World War II, is by no means unprecedented. In fact, the world economy is no more, and, in some instances, is actually less integrated than it was at its peak in 1913, at a time when cross-border transactions costs were significantly reduced by the advent of the railroad, steamship, and the telegraph in the nineteenth century, and by the automobile and airplane in the early twentieth century. However, while technological progress continued unabated, the "triple whammy" of World War I (1914 to 1918), the Great Depression (1929 to the mid-1930s), and then World War II (1939 to 1945) effectively halted the initial upward trend in economic globalization that took place under the gold standard until the 1970s. In other words, an index of the intensity of globalization over the last century would reveal a U-shape, with a trough -- an elongated one -- being the period from about 1914 to 1960. Anderson also discusses the GATT's/WTO's roles in facilitating the process of globalization of production and international trade.

II. Globalization of Production and Trade

An analysis of the globalization of production and trade should take into account not merely rising trade-to-GDP ratios -- as the growth of world trade has consistently outpaced the growth of global output (Table 1) -- but, more so, the type and rationale for this increased trade. Specifically, international trade is increasingly characterized by "intraproduct specialization", broadly defined as the fragmentation of the process of production of a good into its sub-component parts and processes, which in turn are distributed across countries on the basis of comparative advantage.(2)

TABLE 1
World Trade and Output Growth, 1971-96
(Annual average in percentage)

                       1971-85   1986-90   1991-93   1994-96

Trade Growth(a)          3.7       6.1      4.1       8.7
Output Growth            3.2       3.3      1.1       2.9
Trade Elasticity(b)      1.2       1.8      3.7       3.0

NOTES:

(a) Refers to merchandise export plus imports.

(b) Trade elasticity = (trade growth/output growth)

SOURCE: Otsubo (1996).

In his article, "Production Networks in an Economically Integrated Region", Sven Arndt stresses how intraproduct specialization enables cross-border production networks to develop.

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