It has been argued that “… trade adjustment in East Asia…will be rapid and sizable, lifting aggregate growth in these economies even as the domestic non-tradable sectors continue to suffer a decline (as in Mexico)” (World Bank, 1998, p.5). Much hope has been pinned on the electronics industry to come through with rapid growth through expanding exports. Two arguments appear to bolster such an expectation: the severity of the region´s currency depreciations has lowered the cost of much of its electronics supply base relative to its competitors; and the electronics industry´s proven track record as an engine of export-led growth shows that it can be quickly started and accelerated in response to changes in the market. However, no export boom in electronics has (as yet) materialized. The paper analyzes what explains this puzzle. We first introduce a taxonomy of East Asia´s electronics firms and market segments to distinguish different capacities to ride out the crisis. We then discuss three barriers to an East Asian export boom in electronics: i) supply-side constraints that result from limited access to trade finance, and from the cost-increasing impact of local currency depreciations in highly import-dependent countries; ii) demand-related constraints, resulting from deteriorating growth perspectives in East Asia´s electronics export markets; and iii) deflationary pricing pressures, resulting from a narrow specialization in high-tech commodities that are characterized by periodic surplus capacity and price wars. Combined, these barriers have produced a vicious circle: once exports increase, net volume gains are likely to be offset by pricing losses.
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Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number
99-2.
Find related papers by JEL classification: O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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