Distinguished Speaker Seminars

Peter Drysdale, Emeritus Professor of Economics and Visiting Fellow in Policy and Governance in the Crawford School of Economics and Government, Australian National University, addressed guests on 25 October 2007. His lecture, “The Effects of Politics on Trade and Trade on Politics,” focused on the relationship between Japan and the People’s Republic of China (PRC).

Professor Drysdale pointed out the importance of looking at the huge Japan-PRC relationship in both political and economic aspects. The PRC is Japan’s largest trading partner, measured in terms of the sum of trade flows both ways, and Japan is the PRC’s third largest partner, after the United States and Europe. Although the probability of war or high-intensity conflict between Japan and the PRC is low, occasional flash points in the relationship have the potential to escalate. The Japan-PRC relationship is expected to be different from both the United States-PRC and the United States-Japan relationships, the latter of which is much more politically stable.

Professor Drysdale reported empirical analysis by his colleague Shiro Armstrong that showed how an increase in positive sentiment in the PRC towards Japan is associated with an increase in Japanese exports to the PRC. In the period 1990–1997, growth in Japan’s importance to the PRC was associated with a rise in positive Japanese sentiment towards the PRC; and in the period 1998–2004 an increase in positive Japanese sentiment towards the PRC was associated with an increase in Japanese exports to the PRC. Growing PRC exports to Japan and the United States are causing a rise in the measure of negative sentiment towards the PRC, but the growth of Japanese trade to the PRC dampens this effect.

The Figure tracks the development of sentiment in Japan toward China and China towards Japan over the period 1990-2004.

View a more detailed summary of Peter Drysdale's presentation.

Hugh Patrick, Director, Center on Japanese Economy and Business, and Professor Emeritus of International Business, Columbia University discussed his views on the Japanese economy and the roles of Japan, the PRC and the US in Asia’s regional economic integration, as well as the recent initiatives by ASEAN+3 and the East Asia Summit (or ASEAN+6). Patrick delivered this seminar on 31 October 2007 via a panel discussion with Thanong Bidaya and Iwan Azis, ADBI visiting fellows.

Professor Patrick introduced a range of issues affecting Japan’s current economic well-being such as its recent economic performance; the decoupling of growth and inflation; macroeconomic policy; corporate restructuring, control, and governance; and external economic relations. He pointed out that the combination of economic expansion with mild deflation is the idiosyncrasy of Japan’s economic performance. This idiosyncrasy could be due primarily to the ongoing structural transformation of the labor market. Because wage stagnation will likely persist and consumption’s share of GDP will likely continue to decline, inadequate aggregate demand will probably pose a major constraint on Japan’s growth.

Thanong commented that economic and political relationships between Japan and East Asia have developed in a way that has satisfied East Asia. Thanong cited the development of integrated production hubs as a good sign of regional integration in East Asia.

Azis was more concerned with the issue of aggregate supply rather than aggregate demand, in particular, long-term productivity growth and structural reform. He also mentioned that Japan has successfully handled the increasing economic interdependence within Asia, and that both Japan and Asia as a whole must take care in managing relationships with the PRC.

Finally, Patrick stated that the most appropriate regional framework for Asia would take an outward-looking, supportive, and nondiscriminatory approach, taking into consideration the region’s interests. Yet, political relationships and political institutions are very important for Asia because underlying these is a global economic system that was driving the changes in the political side, and the last fifty years have witnessed massive economic progress.

View a more detailed summary of Hugh Patrick's presentation.

Todd Sandler, the Vibhooti Shukla Professor of Economics and Political Economy at the University of Texas, gave a seminar on regional public goods (RPGs) for regional economic development on 12 November 2007. His paper aimed to apply modern analysis of public goods and collective action to assess the effectiveness of the support for RPGs, as well as analyze the role of institutions and other participants in funding RPGs.

RPGs provide benefits to two or more nations cross-border flows that include goods, services, financial capital, labor, and benefit spillovers from public goods.

Regional development banks and regional trade pacts play a pivotal role in coordinating donors and fostering the supply of RPGs necessary for development. These regional institutions are in a well-defined region. RPGs have the following public good characteristics: nonrivalry of benefits, nonexcludability of benefit recipients, and the aggregation technology. The latter indicates how the provisions of individual countries affect the total amounts of the RPGs. Sandler developed a taxonomy of RPGs and assessed whether they are adequately or inadequately provided.

Sandler noted that globalization and regionalization are associated with increased important not only in directing collective action for RPGs, but also in prompting efforts to finance RPGs, whose benefits affect a well-defined group of developing nations. In addition, new aid participants—networks, nongovernmental organizations, public-private partnerships, and charitable foundations—are essential supporters of RPGs in some sectors, especially in funding RPGs that provide no spillovers to donor countries. Such efforts lead to the provision of social overhead capital needed for sustained development.

Professor Sandler concluded that RPGs are complementary to national public goods and are necessary for developing countries to achieve sufficient economies of scale to compete internationally. Yet, RPGs are shown to confront more difficult funding problems than national public goods and global public goods. This situation underscores the need to support RPGs, which are vital for regional growth and development.

View Todd Sandler's paper.

Richard Baldwin, Professor of International Economics, Graduate Institute of International Studies, Geneva, and Policy Director, Centre for Economic Policy Research, presented his ideas for a WTO action plan on regionalism on 26 November 2007.

Professor Baldwin made the following observations:

1. the world trade system is marked by a motley assortment of discriminatory trade agreements, known as “spaghetti bowl” or “noodle bowl;”
2. more countries are now involved in free trade agreements (FTAs), so regionalism is here to stay; and
3. this tangle of trade deals is a bad way to organize world trade because it is inefficient and unfair.

The implication is that the spaghetti bowl’s inefficiencies and unfairness will increase as more countries establish FTAs. The spaghetti bowl, Professor Baldwin argued, makes trade unfair, especially for the small countries that, for lack of negotiation leverage, have to adopt the rules of origin (ROOs) created by the world’s trade hegemons.

Since regionalism does exist, the world must find a solution to work with it, not against it. Professor Baldwin argued that the solution is to make regionalism as multilateral-friendly as possible. He suggested using soft-law ideas for a WTO action plan on regionalism. That would entail negotiating voluntary best-practice guidelines for new regional trade agreements (RTAs) and modifications of existing RTAs. The WTO could organize a hierarchy of best-practice guidelines for North-North, North-South, and South-South RTAs.

Turning to Asia, Professor Baldwin noted the growing “noodle bowl” in the region. He argued that Asia’s problem is that it lacks regional coordination. In this regard, he suggested that the ASEAN Secretariat’s capacity should be strengthened. He also suggested forming an East Asian coalition to participate in talks on regional harmonization of ROOs and to make the system of Asian ROOs more development-friendly.

Baldwin concluded by suggesting that the WTO act as a coordinator to facilitate in multilateralizing the existing regionalism rather than do nothing. “Today’s new reality is regionalism, and WTO must adapt to it,” he asserted.

View a more detailed summary of Richard Baldwin's presentation.

Professor Justin Yifu Lin, Director of the China Centre for Economic Research at Peking University, presented his ideas on approaches to development and transition on 5 December 2007. He explored the reasons underlying both the dynamic economic growth of some countries and the lack of such success in many developing and transition countries.

After World War 2, industrialization, especially the development of big, heavy industries, was viewed as a key to economic prosperity and political independence. Many developing countries pursued development strategies focusing on advanced heavy industries, an approach Professor Lin terms a comparative advantage-defying (CAD) strategy. He contrasted the failure of this strategy with the comparative advantage-following (CAF) strategy that enabled sustained economic growth in Japan, the Republic of Korea, the NIEs, and some other countries. In the CAF strategy, firms are encouraged to follow the economy’s comparative advantage determined by the economy’s endowments. Professor Lin noted that limited natural endowments made the CAF strategy an obvious choice for East Asian economies.

With the CAD strategy discredited, countries made new efforts to build up the necessary institutions for a well-functioning market economy. In many socialist and developing countries, shock therapy was implemented. This therapy, however, ignored the existing distortions in the socialist and developing countries, and thus led to rampant inflation in many former Soviet republics. A different transition approach—a dual-track approach—was pursued by the People’s Republic of China (PRC), Viet Nam, and some other countries. They attempted to improve incentives by giving partial autonomy to farmers and stateowned enterprises (SOEs). This approach resulted in simultaneous stability and dynamic growth.

Professor Lin recommended pragmatism as the best approach for policy in transition economies. A gradual, piecemeal approach to reform and transition, he said, could enable countries to achieve stability and dynamic growth and allow them to complete the transition to a market economy.

View a more detailed summary of Justin Yifu Lin's presentation.