Economic Theory and Regional Economic Integration of Asia

Economic Theory and Regional Economic Integration of Asia

HlROSHI KlTAMURA*

The problems and prospects of regional economic cooperation or integration in Asia are today a hotly debated subject, discussed at very different levels in different quarters. In an ECAFE paper entitled "The . Scope for Regional Economic Cooperation in Asia and the Far East",1 the view was advanced that cooperation implying coordination of economic policy as a whole is already on Asia's agenda of practical politics. After the economic rationale of cooperation in varied forms had been considered in a general way, an appeal was directed to policy-makers in the Asian region to establish a suitable framework for cooperation within which concrete blueprints of cooperative schemes could be worked out. It is significant that, at the Conference of Asian Economic Planners which discussed that paper among others, there was no disagreement in principle about the need for increased economic cooperation among the countries in Asia and the Far East. There was disagreement only as to what extent of cooperation in relation to the time perspective and what practical forms of it were most desirable—matters concerning which the Conference was by its nature prevented from making a decision and into which further exploration could be made through intergovernmental consultation.

The present paper is concerned primarily with the relevance of economic theory to the problems of regional economic cooperation and integration in Asia. Theory is not able to settle disagreements motivated by practical interests or by non-economic and political factors. However, it can at least shed some light on what should be expected as a consequence of a certain action or non-action and pave the way towards reaching desirable decisions by clearing away some misconceptions and making the implications of such decisions explicit.

♦Professor Kitamura is Chief, Economic Development Branch, United Nations Economic Commission for Asia and the Far East, Bangkok, Thailand. The present paper is written by the author in his personal capacity, and the views expressed therein are not necessarily those of the United Nations Economic Commission for Asia and the Far East.

i. The paper was submitted to the first session of the Conference of Asian Economic Planners, held September 26-October 3, 1961, at New Delhi as document E/CN.ll/ CAEP-1/L.4; and appears in December-1961 issue of ECAFE's Economic Bulletin for Asia and the Far East.

Trade Cooperation Within the ECAFE Region

D. T. Lakdawala*

The idea of regional economic cooperation has gained strong support during the post-War period. The geographical proximity of different countries in the same region has often led to similar resource bases, common historical experience, and similar cultural and social evolutions. They have more common problems among themselves than with outsiders and a more common outlook, and, therefore, have greater scope for fruitful interchange of views and experiments, and a larger field of productive cooperation and collaboration. If individually many of them feel small and helpless, they can seek solace and support among themselves. The United Nations has recognized the role of regional cooperation by setting up various regional bodies—Economic Commissions, as they are called—and these bodies have done valuable work in bringing out the special features and problems of the regions with which they are concerned. The regional commissions have conducted regional studies, organized seminars and discussions on important problems of the region, and fostered regional understanding and cooperation. Now they are turning to a very important and controversial sphere, viz., the sphere of trade cooperation for the region or its important parts. The trade cooperation contemplated has a distinct preferential and discriminatory ring. This has given rise to some competition and anxiety, and led to plans for defensive action in other regions, and sometimes even within the region itself. The leadership has come from the most developed region, viz., Europe where the habit of regional cooperation was developed earlier for post-War rehabilitation, and had taken many organizational forms like the Organization for European Economic Cooperation (OEEC), the European Payments Union (EPU), the European Coal and Steel Community (ECSC), etc., and where common defence and political problems are a powerful cementing force. Two strong trading bloc arrangements have sprung up in Europe, viz., the European Common Market for six countries—France, Italy, Western Germany and the Benelux Union, i.e., the three countries of Belgium, the Netherlands and Luxemberg,1

*Professor Lakdawala is Head, Department of Economics, University of Bombay, Bombay. He is greatly indebted to his colleague, Mr. S. Dave, for help at every stage in the preparation of this paper and to his fellow-student, Mr. J. Rosario, for valuable assistance in collecting the data.

'• In addition, the associated countries and territories overseas, and Algeria and the French overseas departments are planned to be included in the arrangement.

Regional Trade Cooperation Among Asian Countries

Lim Tay Boh*

TRENDS TOWARDS REGIONAL TRADE COOPERATION

The group of Asian countries which are discussed in this paper covers a region which is generally known as South, Southeast and East Asia, and may be conveniently referred to as the ECAFE region, since it falls within the area covered by the Economic Commission for Asia and the Far East. The developments in Southeast Asian countries are discussed in more detail than those in the rest of the region.

Recent trends towards trade cooperation among the Southeast Asian group of countries are a striking contrast to the autarkic policies pursued, during the greater part of the 'fifties' by most of the newly independent countries of the region. A consequence of such policies is the fragmentation of trading areas, and this has tended to reduce the scope and volume of intra-regional trade and to restrict the size of markets for each country's exports.

The protectionist policies of most of the newly independent governments of Asia spring from their interest in the industrialization of their respective national economies.1 The Federation of Malaya, after it became independent in 1957, embarked on a policy of protectionism to foster the development of its industries. The raising of tariff barriers against imports affected adversely the trade between Singapore and the Federation, and split up the pan-Malayan market into two fragments since Singapore was regarded as a foreign territory. Indeed, the political separation of Singa-

•The author is Chairman, Department of Economics, and Dean, Faculty of Arts, University of Malaya, Singapore.

*• The theoretical justification of protective measures for the promotion of economic development in underdeveloped countries is found in the writings of some contemporary economists, e.g., see, G. Myrdal, An International Economy, (London: Routledge and Kegan Paul, 1956); G. Myrdal, Economic Theory and Underdeveloped Regions, (London: Gerald Duckworth, 1957); R. Prebisch, "Commercial Policy in Underdeveloped Countries," American Economic Review, May 1959. See also, S.J. Patel, "Export Prospects and Economic Growth: India," Economic Journal, September 1959 (also comments by A. Kreuger and P. T. Baur and rejoinder by S. J. Patel in June-1961 issue), for arguments for a development policy supported by import restrictions.

Effects of Industrial Growth on Hong Kong Trade

Ronald Hsia*

Industrial growth with its increasing demand for capital equipment and raw materials and consequent diversification of products is bound to affect the trade-pattern of an economy. The extent of such effects depends on a host of conditions, the more important of which include 1) the size, geographical location, and resource endowments of the economy, 2) the relative importance of external trade, 3) the level of economic development, 4) the motivation and model of industrial development, and 5) the institutional framework. These factors operate, in the case of Hong Kong's industrial growth, to generate greater effects on external trade.

Hong Kong, with a total land area of less than 400 square miles, is endowed with negligible natural resources for industrial purposes, while economic development remains at a stage of almost complete reliance on imported capital equipment. On the other hand, it is favoured by a sheltered deepwater harbour and a geographical location at the south gate of Mainland China with easy accessibility to all parts of the Far East. Consequently, entrepot trade flourished and predominated in the Hong Kong economy prior to the rapid industrial growth in the 1950's. The development of this trade and the necessary facilities (such as banking, insurance, shipping, shiprepairing and warehousing services) has been, to a large extent, responsible for the entrepreneurs' global outlook and the export-oriented industrial development. Such a course is faciUtated by government policy under which trade, industry and foreign exchange are subject to minimal controls, and duties are levied only on a very few commodities for revenue purposes.

This paper analyses how industrial growth affected the pattern of Hong Kong trade between the years 1953 and 1960. More specifically, it examines 1) the effect of growing demand on the behaviour of capital equipment and raw-material imports, 2) changes in the pattern of retained imports, 3) growth of domestic manufacture exports, 4) shifts in the relative importance of export markets, and 5) the effect of growth on the balance of trade.

* Dr. Hsia is Senior Lecturer in Economics, Department of Economics and Political Science, University of Hong Kong, Hong Kong.

Problems of Philippine Foreign Trade

Amado A. Castro*

The problems of Philippine foreign trade include those of the nation's trade as a whole as well as those specific to its different exports. These problems have been the result not only of natural endowment but also of economic history, especially in the first half of this century. A brief sketch of this history might, therefore, be useful.

SECTION I: HISTORICAL BACKGROUND

By the Treaty of Paris, signed December 10, 1898, the control of the Philippines passed from Spain to the United States; thus begins the modern economic history of the country. In the period of its incumbency, the United States was not a colonial power in the usual model, for almost from the start it promised the Filipinos eventual self-government and carried out a political programme pointed towards that goal. But while separation was the aim in the political sphere, in the economic field American policy actually led to the opposite. The Philippine economy was gradually linked with that of the political suzerain. In 1903 a gold exchange standard, the first such currency system to be set up on a formal basis, was established. In 1902, a 25-per-cent tariff preference was accorded to Philippine products entering the United States; in 1909, substantial free trade was decreed between the two countries with limitations on only a few Philippine products, such as sugar, tobacco and rice; and in 1913, trade was made completely free.

Under the impact of such measures, Philippine foreign trade expanded, especially with the United States, and new products were developed—sugar, gold, and so on. To be sure, material living standards rose till (using M. K. Bennett's rankings) consumption levels in 1934-1938 were the highest in Asia excluding Japan.1 But the economic integration meant dependence: Philippine foreign trade was highly vulnerable to movements or legislation in the United States, as became increasingly clear in the depression of the thirties. The trade was also colonial in character, that is, the exchange of raw materials for finished goods. As in other colonial economies, though perhaps less than in Indonesia, the Philippines was becoming but an exten-

*Dr. Castro is Director, Institute of Economic Development and Research,, University of Philippines, Manila.

*. M. K. Bennett,"International Disparities in Consumption Levels," American Economic Review, September 1951, pp. 632-649.

Structure of Japan's Export Trade and its Problems

Shigeru Fujh*

SECTION I: INTRODUCTION—CHARACTERISTICS OF JAPAN'S ECONOMY

The fact that Japan started capitalization and industrialization much later than advanced countries has imparted considerable peculiarities to her economy.

Japan has had to establish her manufacturing industries amidst competition from advanced countries. This was the case when she first succeeded in establishing her light industries as export industries; so it has been in recent times with the exportation of chemicals and machinery, and will be in the future with the exportation of manufactured goods newly developed.

On the other hand, there are many young rising nations which are speeding up their industrialization. Some of them have already succeeded in establishing their light industries as export industries, replacing the imports from Japan in their domestic markets and competing with Japanese goods in world markets.

Situated midway between the advanced and the young rising countries, Japan is sometimes called a "halfway advanced" country, and this characteristic is reflected in the structure of her production and export trade, as will be examined in this paper.

Moreover, owing to the shortness of the time of Japan's economic development, there are many sectors that remain yet to be sufficiently modernized. There still lingers precapitalist agriculture at the back of highly capitalized manufacturing industries. And even in the manufacturing industries, there remains some part not yet modernized in technique, management, organization and so on. Most of the so-called small- and medium-scale manufacturing industries have made remarkable improvements in technique and productivity, keeping pace with the development of Japan's economy as a whole. Nevertheless, there are conspicuous differences or gaps in productivity between the advanced sector and the less advanced.

Table 1 illustrates this by showing the differences between agricultural and non-agricultural productivities.

*The author is Professor in the Department of Economics, Kobe University, Kobe, Japan.