Globalisation and its Economic Consequences

Looking at APEC Economies

Shujiro Urata, Ha Thi Thanh Doan, Shujiro Urata, Ha Thi Thanh Doan

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000432329
• Edition: 1
• Topic: Economia
• Subtopic: Economia dello sviluppo

Given the rising criticisms of and growing doubts about globalisation, this timely edited volume looks at globalisation and its economic impact on eight countries in Asia and the Pacific region, namely Australia, China, Indonesia, Japan, Malaysia, Thailand, the United States (US), and Vietnam. The eight selected countries are members of the Asia-Pacific Economic Cooperation (APEC) forum and yet the economies of these member countries have benefited differently from globalisation.

This book summarises findings from existing academic literature in a coherent framework and reviews them critically to provide a balanced analysis. It also identifies the mechanisms through which globalisation impacts economies and explains how understanding of such mechanisms can be useful for formulating policies, which would benefit from globalisation while achieving inclusive economic growth in the context of rising nationalism and protectionism.

The Open Access version of this book, available at http://www.taylorfrancis.com/books/10.4324/9781003138501, has been made available under a Creative Commons Attribution-Non Commercial-No Derivatives 4.0 license.

1 Introduction and overview

Shujiro Urata and Ha Thi Thanh Doan

DOI: 10.4324/9781003138501-1

1 Introduction

In 2020, the coronavirus disease (COVID-19) pandemic changed the world so remarkably that few believe a return to the pre-COVID-19 economic and social situation is possible. Since January 2020, when the first COVID-19 infection was officially detected in Wuhan, China, more than 49.0 million cases – including more than 1.2 million deaths – have been reported worldwide as of 7 November 2020. The economic impacts of the COVID-19 pandemic have been devastating; various lockdown and stay-at-home policies, implemented by many countries to deal with the situation, have virtually stopped economic activities for several months. Indeed, the International Monetary Fund (IMF) projected global economic growth rate for 2020 is –4.4%, down from 2.8% for 2019 (IMF, 2020). This marks the worst economic situation since the Great Depression of the 1920 and 1930.

A view has emerged that globalisation, which brought high economic growth before the pandemic, will be reversed. Indeed, governments around the world have intervened in the market to secure sufficient supplies of medical and health products, such as face masks and medical gowns, by restricting exports and by promoting domestic production of these goods, against the recommendations of international organisations such as the World Trade Organization (WTO) and international fora such as the G20. Moreover, it is undeniable that the rapid and sizeable movement of people, which became possible thanks to globalisation, has contributed to the spread of the coronavirus.

Anti-globalisation views did not emerge as a result of the COVID-19 pandemic, however; protectionist movements began to trend after the Global Financial Crisis in 2008 and 2009. The pace and magnitude of protectionism then grew after United States (US) President Donald Trump began to apply such measures mainly by raising import tariff rates. It has been argued that an increasing number of his constituents, such as unemployed workers who did not benefit from globalisation, are supporting this trend.

It has been well-established, however, that globalisation, which had been propelled by the liberalisation of trade and foreign direct investment (FDI) policies as well as technological progress that reduced trade and FDI costs, has contributed to rapid global economic growth – especially in East Asia, which has grown more rapidly compared to the rest of the world. Protectionism, therefore, could have serious impacts on this region, as important engines of economic growth (i.e. trade and FDI expansion) could be slowed or stopped.

In light of protectionist policies resulting from the growing anti-globalisation sentiment, the Japan Institute of International Affairs (JIIA), with financial assistance from the Economic Research Institute for ASEAN and East Asia (ERIA), conducted a study of the economic consequences of globalisation for eight selected members of the Asia-Pacific Economic Cooperation (APEC) – Australia, China, Indonesia, Japan, Malaysia, Thailand, the US, and Vietnam – in 2018–19. As there are many lessons to be learned from these countries that have experienced globalisation through trade and FDI liberalisation, the study aimed to deepen the understanding of the benefits and costs of globalisation to provide insight for policy makers in formulating foreign economic policy. Today, as many countries are rapidly adopting protectionist policies in response to the COVID-19 pandemic, it is hoped that this study brings about new insights that will help overcome the economic crisis spurred by the pandemic as well as achieve economic growth in the post-pandemic era.

As many studies already exist on this subject, it was decided that this study would collate and analyse important findings and lessons from past literature rather than conduct original research. The authors of each chapter have aimed to draw policy implications from examining past studies, focusing on impacts on productivity, employment, inequality, and innovation.

This chapter is organised as follows. Section 2 presents a brief overview of globalisation, with a focus on the study’s sample countries. Section 3 reviews previous studies on the economic impacts of globalisation in the forms of trade and FDI. Section 4 presents major findings from this study, while Section 5 provides policy implications. Section 6 presents a synopsis of each chapter.

2 Economic globalisation: an overview

Several indicators can be used to examine the extent of economic globalisation, a phenomenon in which economic activities, such as trade and investment, are conducted on a global basis to result in active cross-border movement of goods, services, capital, people, and data. The most popular indicators are trade and FDI, because they have been important international economic activities for decades, and data on these activities are generally collected. The international movement of people, labour, capital other than FDI, services, and data are also important activities contributing to globalisation, but they suffer from a lack of reliable data.

Figures 1.1 and 1.2 show the changes in trade–gross domestic product (GDP) and inward FDI stock–GDP ratios for the world and APEC member economies from 1989 (i.e. the year of APEC establishment) to 2018 (i.e. the year for the most up-to-data available at the time of writing). The upward trend of these indicators shows the advancement of globalisation of the world economy and APEC member economies, because international economic activities indicated by trade and FDI increased faster than domestic economic activities indicated by GDP. Both indicators declined in 2008–09, however, because of the Global Financial Crisis. It should also be pointed out that the trade–GDP ratio did not increase after 2011, with only a slight increase after 2016. This was due to several reasons, including growing protectionism, the reshoring of Chinese production, the global shift in demand away from goods and towards less tradable services, and the possible saturation of the development of global value chains (GVCs) (Rodrik, 2018). Moreover, the level of globalisation for APEC member economies is lower compared to that of the rest of the world, because the three largest economies in the world – China, Japan, and the US – are APEC members and exhibited relatively low levels of globalisation. Generally speaking, dependence on international economic activities is low for large economies, although trade and FDI have made significant contributions to these countries’ economic growth.

Figure 1.1 Trade–GDP Ratios of Selected APEC Member Countries and the World (%).

Source: APEC, StatsAPEC, http://statistics.apec.org/ (accessed 7 November 2020).

Note: APEC = Asia-Pacific Economic Cooperation, GDP = gross domestic product.

Figure 1.2 Inward FDI Stock–GDP Ratios of Selected APEC Member Countries and the World (%).

Source: APEC, StatsAPEC, http://statistics.apec.org/ (accessed 7 November 2020).

Note: APEC = Asia-Pacific Economic Cooperation, FDI = foreign direct investment, GDP = gross domestic product.

In recent decades, there has been an active interaction amongst – and rapid expansion of – different types of international economic activities, especially regarding trade and FDI. A typical pattern of their interaction may be described as follows. Think of a multinational corporation (MNC) that is operating various activities, processes, or tasks in an integrated form in the same location. Faced with a reduction in transport and communication costs, it recognises the benefit of breaking up the operation into various tasks, putting them in different locations through FDI, and linking these production bases by trade in components to achieve efficient production systems. Adoption of such a fragmentation strategy leads to the formation of a GVC, promoting trade in components between the affiliates set up by FDI. Indeed, as noted earlier, the rapid economic growth of East Asian economies can be attributed to the remarkable expansion of trade and FDI.¹ Other international economic activities also interact with trade and FDI; for example, a Chinese student in Japan finds a business opportunity in exporting high-quality Japanese products to China, and sets up a trading company. This is a case where movement of people results in FDI and trade.

Several factors have contributed to the rapid expansion of globalisation. One was a sharp reduction in the cost of undertaking trade and FDI.² Many countries – especially developing countries – undertook trade and FDI liberalisation unilaterally during economic difficulty under the pressure of international organisations, such as the IMF and World Bank, to receive financial assistance. Some countries liberalised trade and FDI regimes bilaterally and regionally with like-minded countries in the form of free-trade agreements (FTAs) to promote economic growth. In addition, the members of the General Agreement on Tariffs and Trade (GATT) and WTO carried out trade and FDI liberalisation multilaterally by implementing commitments made under various international agreements. A reduction in trade and FDI costs occurred through decreasing transport and communication costs, which, in turn, resulted from rapid technological progress and deregulation in such services.

Most countries saw the acceleration of globalisation in the forms of trade and FDI, as trade–GDP and FDI stock–GDP ratios increased from 1989 to 2018 (Table 1.1). Two exceptions are Indonesia in its export–GDP ratio and China in its import–GDP ratio. Indonesia’s export–GDP ratio fell due to the declining value of oil exports, partly due to a drop in oil prices. In China, the import–GDP ratio did increase from 17.0% in 1989 to 28.9% in 2005 but then declined to 15.7% in 2018, due to a shift in the country’s development strategy from an outward to an inward orientation, reflecting the government’s attempt to reduce external dependence. Trade friction with the US also caused a substantial decline in imports from that country. It must be noted, however, that the presence of foreign companies increased in China from 1989 to 2018, indicating their growing importance in China’s economic activities. Based on these findings, it is not clear if external dependence declined for the Chinese economy.

Table 1.1 Trade and FDI for Sample Countries

	Exports/GDP		Imports/GDP		Outward FDI Stock/GDP		Inward FDI Stock/GDP
	1989	2018	1989	2018	1989	2018	1989	2018
Australia	12.4	17.9	15.0	16.4	11.3	34.1	24.0	47.4
China	15.1	18.3	17.0	15.7	0.8	14.3	3.8	12.0
Indonesia	23.5	17.3	17.4	18.1	0.1	6.9	6.4	21.7
Japan	9.0	14.8	6.9	15.1	5.1	33.4	0.3	4.3
Malaysia	64.5	69.0	57.9	60.7	2.5	33.6	20.8	43....