(Reprinted from HKCER Letters, Vol.48, January 1998)
The Composition Of U.S.-East Asia Trade
and the East Asian Miracle
Terrie Carolan, Nirvikar Singh and Cyrus Talati
A major debate over the so-called "East Asian miracle" has been the relative roles of capital accumulation and technological change in promoting sustained high rates of growth in the region. To some extent, the answer to this controversy is that both have been important in an intertwined manner, and there is considerable agreement that international trade has been significant in facilitating both capital accumulation and technological change, through foreign investment and technology transfer. In the research we report here, we examined bilateral trade data for the United States and several Asian economies on the Pacific rim in order to discover what commodity trade data can tell us about the role of trade in the region's growth. Following the World Bank study, The East Asian Miracle, we looked at U.S. bilateral trade with Hong Kong, Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan and Thailand, and map out changes in trade patterns for these trading partners. Our work departs from previous analyses of such trade by being more comprehensive and using more disaggregated data. We find that both capital accumulation and technological change have been reflected in dramatic changes in these trade patterns.
The data in our study consist of comprehensive annual, bilateral commodity trade flows disaggregated to the four-digit SITC level. The years cover 1962 through 1992, with some exceptions (Malaysia and Singapore) where the data begin in a later year. Examples of goods at this level are "trucks and buses", "television receivers", "plastic polymers", and "porcelain or china household ware". With some missing observations excepted, nominal dollar values of exports and imports are available for each year and each of several hundred categories of goods at this level of disaggregation. Of course, the value of international trade grew substantially from 1962 to 1992 as a result of economic growth, inflation, and the growing relative importance of trade. We removed such effects, by dividing exports and imports for each good and each year by total exports and imports, respectively, for the same year. Multiplying by 100 gives us export and import shares as percentages. The difference of these is the "normalized trade balance" (NB), and their average is the "normalized trade volume" (NV).
Given the stylized facts of the NICs as developing by export-led growth, we searched for commodities that changed to deficit in later years (from a U.S. perspective). The goal is to highlight those areas where the NICs have developed a comparative advantage. We categorized the selected commodities according to factor intensity, using a scheme devised by Lawrence Krause. He created four groups: natural resource intensive, unskilled labor intensive, technology intensive, and human capital intensive, based on an initial aggregation of the United Nations trade data into 105 commodity groups. Physical capital was dropped as a category because "it is so internationally mobile as to provide little guidance to the location of production". While this procedure is not perfect, it does provide a useful way of classifying commodities in order to examine changes in the pattern of trade.
We looked at the year-to-year time series behavior by proceeding as follows. First, we eliminated commodities for which there was no data for either exports or imports in all the five years 1988 through 1992. Then we focused on possible product cycles or other trade dynamics in one direction only, changes from U.S. surplus to U.S. deficit. We identified those commodities for which the normalized trade balance was strictly positive in at least one year before 1988, respectively, and nonpositive in the following five years. Then we examined the time series graphs of the normalized trade balances for these commodities. If the graphs showed no clear pattern in the movement of the normalized trade balance (NB), we eliminated those goods. The remaining graphs showed commodities moving from predominantly surplus (for the U.S.) to deficit by 1988. We present these results in Table 1, reporting the normalized trade balance (NB) and normalized trade volume shares (NV) for the commodities selected, aggregated by factor intensity groups, for the years 1962 and 1992.
Table 1 shows that the commodities selected became substantially more important over time in East Asian trade with the U.S., and that they represented sizeable proportionate surpluses for the economies studied. Japan's U.S.-surplus-to-deficit commodities are almost all in human capital- and technology-intensive sectors. Korea, Malaysia, Singapore and Taiwan's U.S.-surplus-to-deficit commodities also emphasize human capital- and technology-intensive commodities relative to their individual natural resource- and unskilled labor-intensive commodities. Singapore's biggest contributor is actually the group "statistical machines", making up over half of the overall dynamic trade volume. Hong Kong shows a lack of dramatic trade reversals (to a U.S. deficit), although the biggest category for such reversals is human capital-intensive goods. Indonesia and Malaysia show the biggest increases overall in share of new trade volume surpluses, while Thailand leads both these economies in total NV that has switched from US surplus to deficit. Indonesia and Thailand rely on natural resource- and unskilled labor- intensive goods for the new surpluses, while Malaysia relies on unskilled labor-, technology-, and, most of all, on human capital-intensive goods. The poorest economy in our sample is Indonesia. Its export growth has come in natural resource-intensive products and, even more so, in unskilled labor-intensive products. The figures for Indonesia present a picture of a resource-abundant economy experiencing recent development as well as trade liberalization. Malaysia's increase in the human capital-intensive category is mostly due to two commodities, "radio broadcast receivers" and "sound recorders, phonographs, and parts" (not shown). The concentration of growth in particular commodities is similar to that noted for Singapore. Both economies are not only geographically close but have also shared a policy of encouraging direct investment by multinational firms. These two economics come closest to illustrating the operation of the product cycle, with new products originating in the advanced economy and then production moving offshore under control of the advanced-economy firms.
Hong Kong stands out in this sample of eight economies. It ended the period lowest among all eight in trade volume share that has shifted from U.S. surplus to deficit. These results may reflect its role as an entrepot for China's merchandise trade and Hong Kong's own increasing importance as a trader of financial services instead of goods.
To summarize, all eight East Asian economies in our sample show marked increases in the volume share of U.S.-surplus-to-deficit trade for the selected commodity groups, over the 1962-92 period. Since much of the change for the richer economies in the group is concentrated in the technology-intensive category, the evidence is at least suggestive of a product cycle view of trade dynamics. Establishing this firmly would mean distinguishing changes in the production process (technology) from changes in the quantity or quality of capital and labor (inputs), which is beyond our data's capabilities. Our results also provide solid evidence for changing comparative advantage, with human capital accumulation being highlighted for several economies. Thus, our data analysis shows how capital accumulation and technological change, the drivers of the "East Asian miracle", have been reflected in dramatic changes in the pattern of East Asian trade with the United States. The case of Hong Kong, which has developed as more of a financial center and less of a manufacturing base, shows that there are alternative paths for sustained growth. However, the general lesson for countries like Malaysia, Thailand and Indonesia - currently struggling with financial upheaval - remains that technological change, capital accumulation and trade are together the pillars of long run growth.
Mr. Terrie Carolan is with the Civic Education Project, Mendel University, Czech Republic; Mr. Nirvikar Singh teaches at the University of Santa Cruz, California, USA; and Mr. Cyrus Talati is with the World Bank. The views expressed in this article are the authors', and do not necessarily represent those of their affiliated institutions.
Hong Kong Indonesia Malaysia Singapore #Commodities 35 43 39 21 Year 1962 1992 1962 1992 1964 1992 1966 1992
Natural Resource NB -0.01 -0.35 0.08 -10.91 0.73 -0.31 -0.01 -0.01 Natural Resource NV 0.43 0.38 0.05 5.54 0.61 0.17 0.01 0.01 Unskilled Labor NB 0.62 -1.12 0.20 -39.56 3.29 -7.27 1.13 -0.47 Unskilled Labor NV 1.16 1.05 0.10 20.27 1.67 4.14 0.57 0.68 Human Capital NB 1.36 -10.54 0.39 -1.12 0.65 -20.89 1.94 -6.93 Human Capital NV 1.18 7.02 0.19 0.78 0.33 10.72 1.01 4.39 Technology NB 0.60 -2.11 0.10 -0.70 2.11 -8.24 3.32 -43.95 Technology NV 0.45 1.75 0.05 0.45 1.05 7.05 1.66 33.47 SUM NV 3.00 10.20 0.40 27.04 3.67 22.08 3.25 38.56
Japan Korea Taiwan Thailand #Commodities 41 55 64 76 Year 1962 1992 1962 1992 1962 1992 1962 1992 Natural Resource NB 0.01 -0.20 5.29 -0.06 0.04 -0.18 0.39 -10.40 Natural Resource NV 0.03 0.12 2.65 0.05 0.03 0.20 0.36 5.54 Unskilled Labor NB 0.00 -0.16 0.03 -0.92 0.11 -4.20 2.35 -25.65 Unskilled Labor NV 0.04 0.13 0.11 0.77 0.13 2.34 1.39 14.48 Human Capital NB 0.81 -26.79 2.36 -15.15 3.27 -6.24 1.14 -1.54 Human Capital NV 1.01 16.82 1.09 5.40 1.69 5.07 0.57 1.37 Technology NB 12.37 -18.75 1.50 -5.43 6.05 -20.39 3.39 -8.15 Technology NV 7.54 20.03 0.75 8.23 3.03 17.34 2.23 4.68 SUM NV 8.62 37.11 4.60 14.44 4.88 24.94 4.55 26.08