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The Consequences of China's WTO Accession on its Neighbors

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  • Warwick J. McKibbin

    ()

  • Wing Thye Woo

    ()

Abstract

Southeast Asian industrial exports are facing intense competition from Chinese industrial exports. How much more will competition increase as a result of China's recent accession to the World Trade Organization? Will Indonesia, Malaysia, the Philippines, and Thailand (the ASEAN-4) de-industrialize and return to the roles they had in the 1950s and 1960s as primary commodity exporters? Or will there be sufficient lucrative niches within the manufacturing production chains in which the ASEAN-4 could specialize? Our simulations of a range of scenarios using a dynamic multisector and multicountry macroeconomic model suggest that, beyond the underlying international repercussions generated by China's emergence into the international economy, China's WTO accession per se is likely to generate additional substantial benefits for China and have little additional impact on the OECD economies. Furthermore, the simulations indicate that the full integration of China's huge labor force into the international division of labor might create significant welfare losses in the ASEAN-4, but only if foreign direct investment is significantly redirected away from these countries to China and, even in this case, only if the ASEAN-4 countries fail to absorb new foreign technologies quickly and to engage in indigenous technical innovations. If the ASEAN-4 do not fall behind technologically, then they will be able to find lucrative niches within the international manufacturing production chains. The ASEAN-4 must therefore give the highest priority to deepening and widening their pools of human capital by speeding up the diffusion of new knowledge to their scientists and managers and by providing appropriate retraining programs for the displaced workers. It is, however, important to emphasize that the growth rate of a country depends on several other critical factors besides technological capacity. For market economies, factors such as economic openness, a meritocracy, adequate infrastructure, efficient and incorruptible government, high-quality financial institutions, and astute macroeconomic management are of fundamental importance in economic growth. The general low ranking of the ASEAN-4 in these other dimensions, along with their low ranking in technological capacity, help explain why these countries have performed poorly in the final index for growth competitiveness computed by the World Economic Forum for 59 countries.

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Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2003-17.

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Length: 71 pages
Date of creation: 14 Feb 2003
Date of revision:
Handle: RePEc:pas:papers:2003-17

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  1. W. J. McKibbin & P. J. Wilcoxen, . "The Theoretical and Empirical Structure of the G-Cubed Model," Discussion Papers 118, Brookings Institution International Economics.
  2. Wing Thye Woo, . "Chinese Economic Growth: Sources And Prospects," Department of Economics 96-08, California Davis - Department of Economics.
  3. Warwick J McKibbin & K K Tang, 1998. "The Global Economic Impacts of Trade and Financial Reform in China," Departmental Working Papers 1998-08, The Australian National University, Arndt-Corden Department of Economics, revised Sep 1998.
  4. McKibbin, Warwick J & Vines, David, 2000. "Modelling Reality: The Need for Both Inter-temporal Optimization and Stickiness in Models for Policy-Making," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 106-37, Winter.
  5. Ianchovichina, Elena & Martin, Will, 2001. "Trade liberalization in China's accession to the World Trade Organization," Policy Research Working Paper Series 2623, The World Bank.
  6. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  7. Wing Thye Woo, 1999. "The Economics and Politics of Transition to an Open Market Economy: China," OECD Development Centre Working Papers 153, OECD Publishing.
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Cited by:
  1. Ramkishen S. Rajan & Sadhana Srivastava, 2010. "Implications Of The Economic Rise Of The PRC For Asean and India: Trade and Foreign Direct Investment," Working Papers id:2680, eSocialSciences.
  2. Matthieu Bussière & Bernd Schnatz, 2009. "Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark," Open Economies Review, Springer, vol. 20(1), pages 85-111, February.
  3. Chan, Tze-Haw, 2011. "A structural modeling of exchange rate, prices and interest rates between Malaysia-China in the liberalization era," MPRA Paper 32955, University Library of Munich, Germany.
  4. Eichengreen, Barry & Tong, Hui, 2007. "Is China's FDI coming at the expense of other countries?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 153-172, June.
  5. Eichengreen, Barry & Tong, Hui, 2006. "Fear of China," Journal of Asian Economics, Elsevier, vol. 17(2), pages 226-240, April.
  6. Elisha Houston & Julia Minty & Nathan Dal Bon, 2008. "Investment in East Asia since the Asian financial crisis," Economic Roundup, Treasury, Australian Government, issue 2, pages 13-34, July.
  7. Rammal, Hussain Gulzar & Zurbruegg, Ralf, 2006. "The impact of regulatory quality on intra-foreign direct investment flows in the ASEAN markets," International Business Review, Elsevier, vol. 15(4), pages 401-414, August.
  8. Benoît Mercereau, 2005. "FDI Flows to Asia," IMF Working Papers 05/189, International Monetary Fund.
  9. Elena IANCHOVICHINA & Will MARTIN, 2006. "Trade Impacts of China's World Trade Organization Accession," Asian Economic Policy Review, Japan Center for Economic Research, vol. 1(1), pages 45-65.

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