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The Consequences of China's WTO Accession on its Neighbors

  • Warwick J. McKibbin

    ()

  • Wing Thye Woo

    ()

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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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2003/wp-econ-2003-17.pdf
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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. Ianchovichina, Elena, 2001. "Trade Liberalization in China’s Accession to WTO," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 421-445.
  2. 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.
  3. McKibbin, Warwick J. & Wilcoxen, Peter J., 1998. "The theoretical and empirical structure of the G-Cubed model," Economic Modelling, Elsevier, vol. 16(1), pages 123-148, January.
  4. Wing Thye Woo, 1999. "The Economics and Politics of Transition to an Open Market Economy: China," OECD Development Centre Working Papers 153, OECD Publishing.
  5. Wing Thye Woo, . "Chinese Economic Growth: Sources And Prospects," Department of Economics 96-08, California Davis - Department of Economics.
  6. 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.
  7. Warwick J. McKibbin & K. K. Tang, 2000. "Trade and Financial Reform in China: Impacts on the World Economy," The World Economy, Wiley Blackwell, vol. 23(8), pages 979-1003, 08.
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