Results

Table 6 [ PDF 17.5KB | 1 page ] presents the macro level results of lowering trade costs within the APEC Asian region by 25%. As expected, GDP expands across the region, as does welfare. Increases in welfare, as measured by equivalent variation income (Hertel 1997), range from US$1.25 billion in the Philippines to US$12.4 billion in the PRC. The PRC gains the most in absolute terms, given the initial size of current trade activity. However, as a percentage of GDP, the biggest winner is Viet Nam. Given that Viet Nam's time costs were consistently among the highest (Table 6) it has much to gain from their reduction. Other economies such as Malaysia and the Philippines also experience significant gains.

In terms of welfare gains, incomes across developed APEC Asia (i.e., Japan; Korea; Hong Kong, China; and Taipei,China) record strong increases, although again the larger dollar values reflecting the relatively larger starting points for these economies. Among the developing region, Malaysia and Thailand show substantial welfare gains. The pattern of gains reflects the relative size of trade costs for each economy, but also depends on sectors traded and relevant trade partners. So those countries within APEC Asia with predominantly intra-regional trade flows and high trade cost sectors will gain the most from the reductions applied.

For the majority of economies examined, exports expand, the notable exception being Thailand, and to a lesser extent, Viet Nam and the Philippines. In percentage terms, Thailand's exports decline the most. The details of these changes will be explored below when we examine changes in bilateral trade movements.

8.1 Trade Impacts

Examining the change in exports by sector, a general pattern of increases in manufactures and processed goods accompanied by a general trend of decreases in primary goods or more traditional exports, is apparent (Figure 4 [ PDF 18.1KB | 1 page ]). For example, Viet Nam and Thailand show significant decreases in animal product exports while Viet Nam's exports of electronics increases strongly and Thailand expands its export of vehicles. This pattern of reductions in trade costs leading to new patterns of export growth is consistent with results reported elsewhere. Dennis and Shepherd (2007) suggest that improvements in trade facilitation often lead to a diversification in a country's export base. Indeed, Strutt, Stone, and Minor (2008) found evidence of this effect in the Greater Mekong Subregion. Conversely, in the case of Sub-Saharan Africa, long delays in exporting result in decreased exports of higher value-added manufactures and increased dependence on basic commodities (Minor and Tsigas 2008).

We now turn to an analysis of bilateral trade patterns. Table 7 [ PDF 48KB | 2 page ] presents three panels identifying the resulting changes in the bilateral exports of three representative sectors. The columns indicate the exporter and the rows show the destination. First is the fruit and vegetable sector. In addition to being an important traded sector for many economies in the region, this sector has high time costs and thus benefits relatively more when these costs are reduced. The second sector represents a traditional manufacturing sector: textiles. Most of the economies in APEC Asia have significant levels of trade in textiles: it thus represents an important sector in their economies. Finally, we examine changes in exports for the electronics sector. This is an important sector in high income economies in the region and a potential growth area for others.

The pattern for fruits and vegetables shows an almost universal regional expansion at the expense of those countries outside APEC Asia. Singapore increases the fruits and vegetables exported to the close economies of Malaysia and Indonesia. Those countries with the highest trade costs—Viet Nam, Indonesia, Malaysia, and Philippines—experience the greatest expansion, especially to the high income economies of Korea and Japan, and the fast growing PRC. Japan and Korea show significant increases in their exports as well, but these are from a relatively low base. The same pattern is observed in textiles with developing APEC Asia economies increasing their exports of textiles to high-income Asia across the board, with the notable exception of Thailand. Thailand loses market share across all markets, both those within the region and those outside. It is this loss in market share that is driving the overall decline in Thailand's exports. However, the expansion of other export markets for Thailand in combination with declining import prices leads to a rise in GDP as well as income for the country (Table 6). Indeed, Thailand's GDP growth is one of the highest for the countries examined.

Indonesia, on the other hand, expands its textile exports across the board at a robust rate. Indeed, the highest export growth is within the region, specifically to Malaysia and Thailand, but Indonesia also expands its exports to the rest of Asia, EU15,¹² and the rest of APEC.¹³ The large relative increase in textile exports of Japan, and to a lesser extent Korea, are again off a fairly low export base.

A more diverse pattern is observed in the electronic sector. Again, intra-APEC Asian exports are expanding, but there is also growth in markets outside the region. Viet Nam and Indonesia are shown to have the greatest growth across the board with both countries expanding electronic exports in all markets. Malaysia, already a significant exporter of electronics, expands regional markets at the expense of those in the EU15 and the rest of world.

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