Thu, 28 Mar 2024 Today's Paper

Is Asia’s growth independent of the West?

By

31 March 2017 11:43 am - 0     - {{hitsCtrl.values.hits}}

A A A

 

By Cyn-Young Park
Asia’s integration has been reshaping the global economic landscape. The emerging economies in the East and Southeast Asia (grouped together as emerging East Asia) now account for about 25 percent of total global trade and 21 percent of global gross domestic product (GDP), compared with about 10 percent and 5.8 percent, respectively, in 1985. Is this formidable growth of integrated Asia now independent of growth rates in major developed economies?
The idea that emerging East Asia is economically independent of shocks in major industrial countries is sometimes called the ‘decoupling hypothesis’. It’s based on the observation that the region’s sustained high growth in the early 2000s was seemingly unaffected by the ups and downs of major advanced economies. Emerging East Asia’s economic performance has been solid despite visible slowing in most advanced economies since the global financial crisis (GFC). This performance has been underpinned by dynamic growth in China.
Emerging East Asia has achieved rapid economic expansion underpinned by strong export performance over the past few decades. The region’s high reliance on exports has been accompanied by a significant diversification of its export base: the G3 economies (the European Union (EU), Japan and the United States) collectively accounted for 29 percent of emerging East Asia’s total exports in 2015, down from almost 50 percent in 1990. This greater diversification in the destination of Asian exports suggests that an idiosyncratic demand shock from a single market may be mitigated by stronger growth in others. At the same time, the share of intraregional trade in emerging East Asian economies’ total exports has risen dramatically. China, in particular, now accounts for around 30 percent of intraregional exports. Strong growth in intraregional trade — including with China — could constitute evidence for emerging East Asia’s greater resilience to cyclical fluctuations in the major extra-regional trading partners.
But the changing demand conditions in the world’s major economies — particularly the United States — still seem to represent a dominant driver behind East Asia’s export growth. Underlying this strong linkage between emerging East Asia’s growth and old industrial country growth is the nature of intra-Asian trade: the final output is often destined for markets outside the region. The growth of intraregional trade share in total emerging East Asian exports does not automatically imply its independence from an external demand shock. Emerging Asian exports remain highly sensitive to economic shocks from outside 
the region.
As the region’s main production base, China has been at the centre of this growing intra-industry and intraregional trade. China has recently emerged as a major importer of primary commodities, while processed intermediate and capital goods, rather than consumer goods, are leading its exports. Research has suggested that China has increasingly internalised the manufacturing input supply in the global value chain. It also exports a large and growing share of capital goods, suggesting that Chinese manufacturing production has become more sophisticated and higher value-added.
Strong trade and foreign direct investment (FDI) linkages can be channels for transmitting economic shocks. As China has emerged as an important hub for intra-industry and intraregional trade and investment in Asia, it is likely that economic interdependence between China and the rest of Asia has also increased.
Effects of international finance 
on decoupling
What are the effects of international finance on ‘decoupling’? In theory, financial integration offers many benefits, such as risk-sharing, more efficient allocation of capital for investment and enhanced macroeconomic and financial discipline. In practice tighter financial linkages also generate a higher risk of cross-border financial contagion, as illustrated by the episodes of the financial crisis in 1997–98 and 
2007–08.
With greater capital account openness, international portfolio assets and liabilities held by Asian economies have increased. The United States and EU also comprise the major share of emerging East Asia’s financial liabilities, which makes the region vulnerable to changes in their financial conditions. For example, during the global financial crisis, tightening credit conditions in the United States and EU prompted repatriation of their investment funds in emerging East Asia. The relationship between emerging East Asian and G3 equity returns strengthened after the Asian financial crisis of 1997–98 and has continued since then, weakening slightly during the GFC.
These deepening trade and financial linkages will likely influence the degree of macroeconomic interdependence. The recent trends in Asia’s global and regional trade and financial linkages suggest a stronger impact of both global and regional components in driving its business cycle.
Business cycles in emerging East Asia and the G3 became more closely correlated during times of financial crisis, with the largest spikes occurring around the Asian financial crisis between China and the rest of EEA. Outside periods of crisis, these relationships have been much weaker.
Business cycle synchronicity might increase during crisis periods because the economies are more exposed to common shocks. But shocks that originate in one economy could also transmit to others. Our findings also support the growing importance of a regional component — especially of China — in business cycle synchronicity.
Intraregional trade and financial linkages are indeed strengthening, and China’s moving up in the global value chain may lead to a more independent source of global growth. The progress of regional trade, financial integration and regional institution building — especially in Asia — could also facilitate business cycle synchronisation more at the regional than global level. But Asia does not yet appear to be decoupling from the world economy yet. The expansion of Asia’s trade and investment links is still driven by the region’s global demand-linked production network. Emerging East Asia has become more, not less, integrated with the global economy and as a result the impact of a global shock, whether related to trade or financial markets, has become greater. (Courtesy East Asia Forum)
(Cyn-Young Park is Director of Regional Cooperation and Integration at the Economic Research and Regional Cooperation Department, Asian Development Bank) 


Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

  Comments - 0

Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment





Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

VAT increase: SOUNDs death knell for publishers, readers

Though the Government imposed VAT (Value Added Tax) on vegetables and other e

How female change-makers are driving Sri Lanka’s energy saving platform

Saving energy has become more of a responsibility than a habit in today’s c

A dull Ramadan awaits Muslims amidst the Soaring Cost of Living

In the coming days, Muslims across the world will welcome the Holy Month of R

New wildlife underpass to curtail HEC

As of February 2024, Sri Lanka lost another 38 elephants as a result of the H

MIRROR CRICKET

More