Economic Integration in Asia

Towards the Delineation of a Sustainable Path

B. Andreosso-O'Callaghan, J. Jaussaud, B. Zolin, B. Andreosso-O'Callaghan, J. Jaussaud, B. Zolin, B. Andreosso-O'Callaghan, J. Jaussaud, B. Zolin

• Publisher: Palgrave Pivot
• Year: 2014
• ISBN:
  9781137432933
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This study assesses the current state of economic integration in Asia - in particular in East and South East Asia- and analyzes the prerequisites for a sustainable path of economic integration, using the background of the EU experience as a benchmark.

Part I

An Integrated Approach to the Concept of Economic Integration

1

Introduction: Sustainable Economic Integration in the Asia Context

Bernadette Andreosso O’Callaghan, Jacques Jaussaud and Maria Bruna Zolin

Abstract: The present introductory chapter discusses what makes economic integration sustainable and what are the prerequisites for sustainable economic integration. A financial safety net is without any doubts an important prerequisite, as it would allow crisis-stricken European Union (EU) countries to rely on financial resources for recovery. Other prerequisites are the more even distribution of the gains arising from high growth rates, in particular of wages, and the introduction of clean energy and innovation. Other aspects analyzed include: the focus on food security and investment in land; the transfer of human resources and the impact of non-tariff barriers between the EU and Asian countries.

Keywords: export-led growth; global financial crisis; sustainable development; sustainable economic growth

Andreosso-O’Callaghan, Bernadette, Jacques Jaussaud, and Maria Bruna Zolin, eds. Economic Integration in Asia: Towards the Delineation of a Sustainable Path. Basingstoke: Palgrave Macmillan, 2014. DOI: 10.1057/9781137432933.0008.

The current unprecedented level of economic integration at the world level (globalization), with a better integration of East Asian countries – in particular China – in the world trading and investment systems, implies both positive spillover effects between these different countries as well as risks of contagion, should major economic disturbances occur. The example of the US-born 2008 Global Financial Crisis (GFC), sweeping across the Atlantic, jeopardizing monetary integration in Europe, and leading to a slow and new type of economic growth pattern in China, is a case in point. Taking some of its inspiration from the unique and advanced case of the European Union (EU), economic integration in Asia has proceeded along, although this has been rather on an ad hoc and de facto basis. This is visible through the greater inter-connectedness in trade and investment links existing between the different Asian countries, if only because of the constitution and consolidation of regional systems of production stimulated by the expensive yen after 1985.

However, in both regions, namely Asia and the EU, the GFC can somewhat be seen as a critical juncture in the economic trajectory of the various countries. Given the turmoil caused since 2008 in the euro-area, with weakening peripheral euro-area countries, and given the more independent stance proffered by some governments in Asia, in particular by China and Japan, a natural question that comes to mind is whether the level of economic integration achieved today in both regions is sustainable. We define ‘sustainable economic integration’ as a form of economic integration in time t₁ that is not compromised by adverse trends such as economic crises in the future (i.e. in time period t_n). More specifically, if an integrated economic area M comprises m individual countries, and by letting g_it1 be the real growth rate of a member country i at time period t₁, this form of economic integration is sustainable if and only if ∀ i ∈M, g_itn > .... > g_it2 > g_it1, in spite of any major structural breaks (financial crises) occurring at any point between time t₁ and t_n. The concept of ‘sustainable economic integration’ in this volume encompasses socio-economic and environmental dimensions as argued by Andrea Mairate and Tatsuyuki Ota in Chapter 2 and 6 respectively. Slower growth rates in Asia, given the high dependency of Chinese coastal regions on US consumer demand at the time of the crisis, have prompted a thorough rethinking of the economic growth model, with the idea of ‘Sustainable Industrial Development’ (SID) becoming part of today’s official discourse. What we mean by ‘sustainable economic integration’ is consequently very close to the Chinese idea of SID.

Corollary questions become: what makes economic integration sustainable and what are the prerequisites for sustainable economic integration? It is clear that in the context of the GFC, a financial safety net such as the much awaited European Stability Mechanism (ESM) is one important prerequisite as it allows crisis-stricken EU countries to avail of readily available funding so that they can go back to a growth path. In some other work (Andreosso-O’Callaghan and Lenihan, 2011) we have discussed the necessity of a steady and strong manufacturing base as another prerequisite for economic sustainability. It follows therefore that the aim of the present book is primarily to analyze sustainable economic development in the Asian case, by assessing the current state of economic integration, particularly in East and South-East Asia and by analyzing some of the prerequisites for a sustainable path of economic integration in the region. Prior to that, the EU experience in terms of economic integration is very illustrative and used as a starting point (Chapter 2 by A. Mairate).

Turning to the case of East Asia, already in the Chinese 12th Five Year Plan (adopted in October 2010), the priorities were to distribute more evenly the gains arising from higher growth rates, in particular: allowing wage growth to be more in line with productivity growth, implying an emphasis on domestic consumption-led growth, and therefore a more balanced growth (i.e. a new balance between the different variables on the expenditure side of GDP); the development of services (in particular of financial services), the introduction of clean energy with an emphasis on technology-driven industrial activities and innovation; and a decreased reliance on inward investment, reiterating the main objectives of the 2000 ‘go global strategy’ reiterated. Stimulating Chinese-led growth as opposed to an export-led growth generated mostly by foreign direct investment in the past does not necessarily imply decreased inter-connectedness of China with other countries in the regions. This is discussed in the two chapters by Bernadette Andreosso-O’Callaghan & Qin Tang (Chapter 4) and by Françoise Nicolas (Chapter 3) who push the argument further by looking at the long-term viability of the cross strait relationship (in the former case) and of the Greater China relationship (in the latter case).

Another interesting reaction to the GFC in Asia has been that of the Abe Administration in Tokyo or ‘Abenomics’ since December 2012 with its fiscal stimulus and quantitative easing measures to boost Japan’s competitiveness. The aim is to strengthen the foothold of Japan’s integration to the world economy, as it had been eroded by a comparatively strong yen and two decades of low growth. The question however of the sustainability of such an approach may be considered, as it involves further increases in public debt, which is already skyrocketing in Japan, and in expensive oil and gas imports, as long as nuclear plants are not restarted.

Cross-country studies include Chapters 5 (Luzi and Zolin), 6 (Ota) and 7 (Amann et al.). The chapter by M. Bruna Zolin and Lucia Luzi highlights the paramount importance of food security and its connected strategy of land grabbing as an important prerequisite for undisturbed future growth. Even if a large portion of the literature on land grabbing refers exclusively to Africa, the study of the Asian situation is important for several reasons. First, Asia is the second most targeted continent after Africa. Second, it is informative to raise awareness about this distinct regional area, the extent of the problem and the role of intra-regional and transnational capital in large-scale land acquisitions, mainly in achieving the strategic goal of world food security. Third, the assessment of the impact of this phenomenon is crucial for people living in this part of the world. Furthermore, the Asian case is also interesting because it is both the source and the target of investment flows, thus posing relevant questions of sustainability in its broadest sense: opportunity or threat for the environment, the poorest social classes, and economic growth. Sustainability potential differs greatly from country to country, as the contribution by Ota in this book underlines. More specifically, looking at a number of indicators, and providing calculations for a relevant synthetic indicator, the author underlines that FDI in highly developed countries may be more compatible with sustainable development than FDI in major developing countries. However, most companies are incited to invest in the latter and the author wonders how to reconcile these two contrasted trends. Amann et al., on their side, consider how Japanese and European MNCs are looking for more sustainable ways to organize and manage human resources in their Asian subsidiaries. Expatriation suffers some limitation from this point of view. Relying more on local staff provides a stronger basis for long-term development in the area. However, a number of prerequisites are to be considered in order to transfer successfully high-ranking management positions to locals.

The Asian country that has perhaps most successfully embarked upon a path of sustainable economic growth and of sustainable economic integration with its neighboring countries is South Korea. South Korea has been relatively resilient to the GFC thanks to a number of lessons learned from the 1997 Asian Financial Crisis (Borthwick, 2012). Post 1997, reforms have dealt with the problem of the banks (which were undercapitalized, indulged in over-lending, weak prudential requirement enforcement, had non-performing loans, etc.), of highly leveraged chaebols, as well as of a relatively inflexible labor market. These reforms seemed to have drawn a new path toward sustainable economic growth as by the third quarter of 2009, growth resumed with rising exports, industrial output and investment in Korea. A second step in what we can term a sustainable economic growth strategy can for example be seen in the August 2008 innovation policy aimed, inter alia, at turning the Korean National System of Innovation from a catch up system to a more creative system of innovation. The chapter by Uprasen (Chapter 8) investigates the impact of non-tariff barriers in the European Union to China’s export. He finds that the effects considerably differ according to the category of products, negative for such products as leather, wood products, textiles and clothing, positive on exports of chemicals, ceramics and base metal products, and insignificant on machinery and transport equipment. The overall effect of non-tariff barriers in the European Union on Chinese export is insignificant. Uprasen provides convincing interpretation of these results, in line with previous literature, and precise implications for Chinese policy makers and negotiators when looking for smooth development of China’s external trade.

References

Andreosso-O’Callaghan, B. and Lenihan, H. (2011) ‘Responding to the Crisis: Are Policies Aimed at a Strong Indigenous Industrial Base a Necessary Condition for Sustainable Economic Growth?’ Policy Studies, 32(4): 325–345.

Borthwick, Orlaith (2012) ‘The Crisis and South Korea,’ in Andreosso-O’Callaghan, B. and Peter Herrmann (eds) The Transformation of Asia in a Global Changing Environment. New York: Nova Science, pp. 93–110.

2

Sustainable Economic Integration: The Experience of the European Union¹

Andrea Mairate

Abstract: Over the last half century, the European Union (EU) has been associated with close economic integration, resulting in increasing flows of goods, capital and finance, labour and services across countries. This has fuelled convergence in incomes and living standards, which led to a unique experience of the European economic model. This convergence process has slowed down and even gone into reverse in parts of Europe, notably the southern periphery.

The EU needs to make its model of growth and economic integration more sustainable in order to face emerging challenges in terms of competitiveness, better use of natural resources and poverty reduction.

Keywords: economic inequality; European integration; growth; sustainability

Andreosso-O’Callaghan, Bernadette, Jacques Jaussaud, and Maria Bruna Zolin, eds. Economic Integration in Asia: Towards the Delineation of a Sustainable Path. Basingstoke: Palgrave Macmillan, 2014. DOI: 10.1057/9781137432933.0009.

1Introduction

Contemporary problems in regional economic integration seem to be largely dominated by the need to combine growth and economic equality while tackling sustainability issues. During the last two decades, globalization has been a driving force for international trade and foreign investment, of which a large fraction of these movements occurred within large regional areas in Europe, Northern America and Southeast Asia. Simultaneously there has been a dramatic increase in income inequality in all parts of the world (Bourguignon, 2012; OECD, 2011). The sole focus on trade integration as a source of growth cannot thus be the only driver of economic integration, as shown by Southeast Asia’s recent experience where large development gaps exist among and within these countries.

As Keynes (1926) put it, ‘the political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty.’ A major achievement of the European integration process was to bring the institutions...

Table of contents

• Cover
• Title
• Part I  An Integrated Approach to the Concept of Economic Integration
• Part II  Assessing Economic Integration in Asia
• Index