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341. Regional and Multilateral Trade Liberalization: The Effects on Trade, Investment and Welfare

Author:
Warwick McKibbin
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
This paper explores the impact on economies of trade liberalization under alternative regional and multilateral arrangements: unilateral liberalization; liberalization as part of the ASEAN regional grouping; liberalization as part of the APEC regional grouping; or liberalization as part of a multilateral trade liberalization regime. The paper is based on a Dynamic Intertemporal General Equilibrium model (DIGEM) called the Asia-Pacific G-Cubed Model. It is shown that the long run gains from a country's own liberalization tend to be large relative to the gains from other countries liberalizing although this varies across countries. It is also shown that there is a significant difference between the effects on GDP (production location) and the effects on consumption per capita of the alternative liberalization approaches across countries. The timing of liberalization is also shown to matter. With open capital markets the gains from credibly announced trade liberalization are realized before the reforms are put in place because there is a rise in global investment which raises the global capital stock. In addition there is a reallocation of capital via financial market adjustment. This paper also demonstrates that for some economies, there can be short run adjustment costs to trade liberalization because resources cannot be instantly reallocated across sectors in an economy. These adjustment costs from own liberalization can be reduced if more countries also liberalize. The nature of the dynamic adjustment suggests that other macroeconomic policies may play an important role during the early period of phased-in trade liberalization.
Topic:
Economics, Emerging Markets, and Globalization
Political Geography:
China, Israel, East Asia, and Asia

342. Rapid Economic Growth in China: Implications for the World Economy

Author:
Warwick McKibbin and Yiping Huang
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Rapid growth of the Chinese economy in the past decade and its potential for strong growth into the foreseeable future have caused anxieties in the rest of the world. Some commentators see Chinese growth wholly in terms of competition for trade and investment opportunities with other developing economies and a major cause of structural adjustments in the advanced industrialized economies. In particular there have been warnings of severe consequences for international agricultural markets. In this paper we use a dynamic general equilibrium model called the G-CUBED model (developed by McKibbin and Wilcoxen) to explore possible future paths of the Chinese economy based on projections of population growth, sectoral productivity growth, energy efficiency and technical change in the Chinese economy. This model captures not only the composition of the direct trade impacts of developments in the Chinese economy but also the implications of the endogenous flows of financial capital on macroeconomic adjustment in the world economy. The study focuses on the period from 1990 to 2020. Rather than being a problem for the world economy, we find strong growth in China is beneficial for the world economy directly through raising world incomes.
Topic:
Economics, Emerging Markets, and Globalization
Political Geography:
China, Israel, East Asia, and Asia

343. The Transmission of Productivity and Investment Shocks in the Asia Pacific Region

Author:
Warwick McKibbin
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
An important aspect of macroeconomic interdependence in the Asia Pacific region is the adjustment of trade and current account balances in response to changes in saving and investment rates in individual economies. Greater trade flows, reliance on imported intermediate goods as well as more integrated capital markets imply that shifts in private or public saving and investment rates in an economy in the region can potentially have large impacts on other economies. This paper explores the quantitative nature of these linkages by focusing on a number of shocks within the context of a new dynamic multi-sector global model called the Asia-Pacific G-Cubed Model (AP-GCUBED). This model integrates sectoral adjustment with macroeconomic interdependence including explicit treatment of capital flows to explore the implications of a variety of productivity and investment shocks in the Asia Pacific Region. The first shock considered is a permanent decline in private investment in Japan. The second shock is a temporary rise in total factor productivity growth in China. The fall in Japanese investment is found to have a significant effect on trade flows and financial flows in the region whereas the rise in Chinese productivity has a quite different effect on the region.
Topic:
Economics, Emerging Markets, and Globalization
Political Geography:
China, Israel, East Asia, and Asia

344. North Korea: How Much Reform and Whose Characteristics?

Author:
Heather Smith
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
This paper is the first of a three part project on economic reform on the Korean Peninsula. In this first paper, I focus on the question which has been subject to considerable recent debate, namely whether collapse of North Korea is imminent. In accessing this question the paper discusses the three structural bottlenecks now thought to be severely constraining the North Korean economy following a series of external shocks in the late 1980s, food shortages, energy constraints and a limited capacity to earn foreign exchange. Much speculation has focused on the deterioration in the food economy and that a prolongation of current food shortages will see North Korea collapse. One contribution of this paper lies in its attempt to analyze North Korean agricultural production and food consumption patterns using data made available by North Korea to the United Nations Food and Agricultural Organization. Several anomalies are found between this data and recent World Food Program assessments of food conditions and estimates of nutritional requirements which suggest caution in drawing a too deterministic link between current food shortages and collapse. The paper then discusses the role of international and regional players in prolonging North Korea's economic survival. In particular, the terms under which North Korea signed onto the 1994 Agreed Framework, a return to favorable trading terms with China, and North Korea's attempts aimed at expanding economic ties with the international community, could sustain North Korea at subsistence levels for the next 5 years at least. If collapse is not imminent in the short to medium term, then the policy implications that emerge from such a scenario are clear: that the international community will need to continue to pursue a policy approach of managing tension reduction and the integration of North Korea into the international community. Whether the North Korea regime will embrace fundamental reforms needed to ensure longer term survival remains difficult to judge. In the final section of the paper, several reasons are advanced as to why the window of opportunity for North Korea to embrace reform is now greater than at any time in the past.
Topic:
International Relations and Economics
Political Geography:
Israel and East Asia

345. The Macroeconomic Experience of Japan Since 1990: An Empirical Investigation

Author:
Warwick McKibbin
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
This paper outlines the macroeconomic experience of the Japanese economy since 1990. The MSG2 multi-country model is used to determine the extent to which the strong yen and growth experience of Japan over this period was due to underlying trends in the Japanese economy and to what extent shocks such as changes in the settings of monetary and fiscal policies in Japan and overseas, as well as the Kobe earthquake, played a role. It is shown that many of the key features of the Japanese economy over this period can be attributed to inappropriate macroeconomic policy settings in Japan as well as reflecting long term trends due to population changes and a maturing of the Japanese economy. In particular, it is shown that announcing expansionary fiscal policy in advance of implementation and exaggerating the extent of actual stimulus, tended to appreciate the yen and raise long term real interest rates which further reduced real GDP growth over the period. The extent to which macroeconomic policy rather than entrenched structural problems can explain the experience suggests that future prospects for the Japanese economy are not as bleak as sometimes predicted. Growth is unlikely to return to the high levels experienced in previous decades because of the maturing of the Japanese economy and low future population growth in Japan. This paper projects growth to be sustainable at around 2.5% per year over the next decade and a continual appreciation of the yen in both real and nominal terms.
Topic:
Economics and Political Economy
Political Geography:
Japan, Israel, and East Asia

346. Adjusting America's Two Alliances in East Asia: A Japanese View

Author:
Takashi Inoguchi
Publication Date:
07-1999
Content Type:
Working Paper
Institution:
Walter H. Shorenstein Asia-Pacific Research Center
Abstract:
The alliances of the United States in East Asia are in a process of profound change (Okimoto 1998). The treaties with Japan and Korea are undergoing distinctive metamorphoses. These changes are the result of a number of forces that unfolded over the decades of the twentieth century, most notably the Cold War, globalization, and democratization (Inoguchi 1993, 1995; and Archibugi, Held, and Koehler 1996).
Topic:
Security
Political Geography:
United States, America, East Asia, and Asia

347. U.S. Policy Toward North Korea: A Second Look

Author:
Michael J. Green, James T. Laney, and Morton I. Abramowitz
Publication Date:
07-1999
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
In May, former Secretary of Defense William Perry traveled to North Korea with a comprehensive proposal to increase outside assistance for its isolated and declining Stalinist regime in exchange for steps by the North to reduce its threatening military posture. The Perry proposal was designed to test North Korea's intentions not only to abide by the 1994 Agreed Framework, which aimed to cap Pyongyang's nuclear ambitions, but also to stop further missile tests and military provocations. It is unlikely that North Korea will respond positively. The regime has survived for five decades only by maintaining a belligerent stance. Pyongyang has rebuffed South Korean President Kim Dae Jung's unprecedented efforts to improve North-South relations and has continued to produce military tensions, even in the wake of the Perry visit. But it is too soon to give up on a comprehensive package to reduce tensions with North Korea. Despite the illusion of self-sufficiency, or juche, the North is increasingly dependent on outside help to sustain itself. It is possible that over time Pyongyang will find no alternative to greater interaction with the outside world. Barring an increase in threatening North Korean actions, the United States should keep the Perry proposal on the table and continue to support Kim Dae Jung's policy of engagement. A second Taepodong missile test by North Korea would not violate any existing North Korean commitments, but it would significantly change the situation in Northeast Asia. We should make every effort to deter a launch, but if one takes place, the United States, Japan, and South Korea will have to examine ways to enhance defense against a different North Korean threat. South Korea should suspend new investment in North Korea and Japan should impose new sanctions and consider restrictions on financial transfers to the North. The United States should lower its diplomatic activity toward Pyongyang, keeping channels open, but forcing North Korea to provide incentives for greater dialogue. A missile launch should not end our attempts at diplomacy or cause us to forget that North Korea's relative military capabilities are in decline, but if a test is conducted business cannot continue as usual. Although a North Korean missile launch would do great damage to political support for the Korean Peninsula Energy Development Organization (KEDO) in the United States, Japan, and South Korea, it should not be a reason for us to abandon our commitments under the Agreed Framework. The Agreed Framework stands as the major bulwark against a return to the kind of calamitous military steps the United States was forced to consider in 1994 to stop North Korea's nuclear program. Inspections of suspicious underground facilities at Kumchangri in May revealed no North Korean violation of the Agreed Framework. Although we cannot assume from this that Pyongyang has forsaken its nuclear ambitions, we do know that implementation of the Agreed Framework remains the best approach to preventing nuclear weapons development in the North. In the end, there is no easy solution to the intractable North Korean problem. Efforts to reduce tensions and build North-South reconciliation have yielded little. We are strong enough to test inducements for change in the North, but our policy must be based on robust deterrence and close defense cooperation with our allies.
Topic:
Security, Foreign Policy, and Arms Control and Proliferation
Political Geography:
United States, Japan, East Asia, South Korea, North Korea, and Korean Peninsula

348. Transcript: North Korea Task Force

Author:
James Laney and Michael J. Green
Publication Date:
07-1999
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Good morning. Thank you for coming. I'm Michael Green, senior fellow at the Council on Foreign Relations here in Washington, and the director of this independent task force on Korea policy, which is sponsored by the Council on Foreign Relations. We are here today to release and explain our recent study on policy towards North Korea. This is, in many ways, the culmination of a two-year effort by the Council.
Topic:
Security, Foreign Policy, and Arms Control and Proliferation
Political Geography:
United States, Washington, East Asia, North Korea, and Korea

349. Transcript: Mock National Security Council Meeting on North Korea

Author:
Arnold Kanter, Donald A. Baer, Donald P. Gregg, Bernard E. Trainor, and Robert L. Gallucci
Publication Date:
04-1999
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Ambassador Robert L. Gallucci (Dean, School of Foreign Service, Georgetown University; Former Ambassador-at-Large, Department of State): Looking at the situation with respect to domestic stability in the north, we judge their regime as stable, which is to say, that we do not see a near-term deterioration in the ability of Kim Jong Il to maintain power, notwithstanding this economic situation that he confronts.
Topic:
Foreign Policy and Arms Control and Proliferation
Political Geography:
United States, East Asia, and North Korea

350. Contested State and Competitive State: Managing the Economy in A Democratic Taiwan

Author:
Xiaoming Huang
Publication Date:
02-1999
Content Type:
Working Paper
Institution:
International Studies Association
Abstract:
An assertive and effective state is seen as instrumental in Asian development. This study, focusing on the post-Cold War Taiwan, investigates the changed nature of the polity and, at the same time, the persistent manipulation of market forces by the government, and explains why the state is still a preferred and capable institution in an environment of democratic politics and market economy and even more so in Taiwan; and how the new state activism should be understood in relation to its earlier form in the controlled politics and corporatist society of the Cold War and what it says abut the emergent political economy in East Asia.
Political Geography:
East Asia