oda in flying geese pattern: thailand’s experience pp.pdfoda in flying geese pattern: thailand’s...

ODA in Flying Geese Pattern: Thailand’s Experience

Chuta ChinruksaGraduate School of Economics, Kyoto University

日本国際経済学会第４５回関西支部総会 2003 June 7

Objective

To study about the role of Japanese yen loan as a policy tool to promote

Flying Geese Pattern formationin the context of bilateral economic relations

between Thailand and Japan

Questions of the paper

What is the pattern of Japanese ODA in Asia and Thailand? motives and objectivesIs there relationship between ODA-Trade-Investment? How have J-ODA contributed to the performance of the Thai economy? How can the relation pattern be explained by Flying Geese Model?

Main Argument

Regional economic relations in form of Flying Geese pattern shiftODA-led trade and investment originated from JapanDiversion from original model, particularly in domestic industrialization

Presentation Outline

Part I: Flying Geese Pattern: Japan for Asia and Asia for Japan

Part II: Thailand and Japan: Partners for Growth

Part I: Flying Geese Pattern: Japan for Asia and Asia for Japan

1. FG pattern: a discussion2. Japan in wild geese flying3. Asian economy under Japanese leadership:

benign or malign guidance?4. Conclusion

Flying Geese Pattern: a discussion

Leading nations

Newly rising nations

Followers

Technological advanceDynamic hierarchical relationship

Accumulation of capital and technology to more technological sophistication

International trade and Investment as means of transfer

Creation of International Division of Labor

Industrial transformation of the FG Pattern

Source: M. Ezaki (1995). “Growth and structural changes in Asian countries,” Asian Economic Journal 9, No.2, pp.113-115

Part I: Flying Geese Pattern: Japan for Asia and Asia for Japan

1. FG pattern: a discussion2. Japan in wild geese flying3. Asian economy under Japanese leadership:

benign or malign guidance?4. Conclusion

Asia enjoys the largest share of J-ODA

ODA to the World

0%

20%

40%

60%

80%

100%

1978-79

1988-89

1998-99

Year

Shar

e (%)

Oceania

Far East Asia

S. and C. Asia

Middle East

South America

N. and C. America

South of Sahara

North of Sahara

Europe

Economic needs is not the main criteria for J-ODA giveaway.

Investment to Asia increases as Asia becomes Japanese overseas production base.

Investment to Asia

0

5

10

15

20

1985 1986 1987 1988 1989 1990 1991 1992

Year

Share

(%) China

Asean

Asian NIEs

Source: Ministry of Finance, Japan

Regional division of labor is created by J-FDI.

Trade with Asia increases over years

Japan's trade w ith Asia

05

10152025303540

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Year

Shar

e (%

of T

otal

trad

e )

Export Share

Import Share

…..but with increasing export share

Widening trade gapJapan's Trade with Asia

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Year

Val

ue (

mill

ionU

SD

)

Export Import

Technological Dependence

Increasing FDI creates a Japan-dependent trade structure.More sophisticated production structure leads to wider trade gap.

Unit: Percentage of total license fees

Supplier Korea Thailand

Japan 47.9 53.0 USA 28.2 19.8 UK 3.8 5.0 Germany 5.7 2.7

Part I: Flying Geese Pattern: Japan for Asia and Asia for Japan

1. FG pattern: a discussion2. Japan in wild geese flying3. Asian economy under Japanese leadership:

benign or malign guidance?4. Conclusion

FG Pattern in AsiaTypical sequence of Asian industrial production

Source: C.H. Kwan (2002), The Rise of China and Asia’s Flying Geese Pattern of Economic Development: An Empirical Analysis Based on US Import Statistics.

FG pattern in AsiaShift of FG pattern production in Asia

In line with FG hierarchy ….but relying on Japanese Capital and Technology

Part I: Conclusion

1. Hierarchical Relations originated from Japan2. ODA as facilitator in doing business3. Over-reliance on J-capital and technology:

Ignorance of self-reliant domestic industrialization Fundamental weakness

4. Difference btw model and actual shift5. Successful FG development requires HOST

country’s effort to be independent from Japanese dominance

Comparative FG models on Asian economic development pattern

Prof. Akamatsu model:Import Domestic production (self-reliance) Export

Prof. Kojima model:Import Pro-trade FDI (inflow) Domestic production

Export FDI (outflow)

Proposed model: Import FDI (inflow) Imported-domestic production

Export [as (Japanese) overseas production base]

Part II: Thailand and Japan: Partners for Growth

1. Thailand in Int’l Economy2. Path of Development3. Japan as the Economic Partner4. Case Study: the Eastern Seaboard Project5. Conclusion

National Economic and Social Development Plans

Government for public investment “Free Hand Policy”Industrialization and exports for development More reliant on int’l economy: Import > Export

Openness to TradeExports/Imports 1962 1972 1978 1983 1985Exports/GDP (%) 14.6 13.5 17.5 15.8 18Imports/GDP (%) 17.1 18.9 23.4 26.1 24.2(EX+IM)/GDP (%) 31.7 32.4 40.9 41.9 42.2Source: Wisarn Pubbawesa, (1989) "Review of Economic Development in Thailand"

Part II: Thailand and Japan: Partners for Growth

1. Thailand in Int’l Economy2. Path of Development3. Japan as the Economic Partner4. Case Study: the Eastern Seaboard Project5. Conclusion

From agriculture to industrial-based economy

Structure of Production of Thailand

44

32

28

23

12.6

10.3

18

24

27

30

38.740.5

0

5

10

15

20

25

30

35

40

45

50

1960 1970 1980 1985 1991 2000

Year

% o

f G

DP

Agriculture Industry

Thailand: Food Textiles MetalManufacturing exports of Thailand

1970-1997

-5

0

5

10

15

20

25

30

35

40

45

50

1970

Year

Perc

enta

ge o

f to

tal va

lue

Food/Bev./tabacco

Textiles

Wood&woodproduct

Paper&products

Chemical

Non metalmineral

Basic metalindustry

Metalmanufacturing

Othermanafacturing

Originally, Thai exports were food processed. Then, textile starts torise in 1970s until 1990. Meanwhile, in 1980s metal productionincreases significantly and takes the lead from ’90~.

As Thailand is more industrialized….trade gap is widening

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1986 1987 1988 1989 1990

Year

Thou

sand

s U

SD

Export Import

Imports are mostly intermediate and capital goods.

• Capital goods and intermediate goods=70-80%• Imported industrialization• production fundamental weakness

Foreign Capital Flows as the growth engine ….with large share of ODACapital flows to Thailand, 1960-1984

0%

20%

40%

60%

80%

100%

1960 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984

Year

perc

enta

ge

ODA Non-ODA Grant Private investment

Increase of FDI

1988~ FDI boom, mainly dominated by JapanAfter 1997: Return of American and European investors

Part II: Thailand and Japan: Partners for Growth

1. Thailand in Int’l Economy2. Path of Development3. Japan as the Economic Partner4. Case Study: the Eastern Seaboard Project5. Conclusion

Bilateral Interdependence

1960s 1970s 1980s 1990sJAPAN ODA Export boom FDI Export Mkt

THAI Infrastructure Import Export BoomDevelopment Substitution PromotionFlying Geese

ODA: Japan as the largest donor

Source of aid flows to Thailand, 1960-1984

-200.00

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1960 1965 1970 1975 1980 1984

Year

Val

ue, m

illio

ns

USD

France Germany Japan UK US World Bank ADB

ODA

Political economic relationship: strategic relations/trade compensation/ domestic policyJapan as endless ODA resort: favorable condition and Non-interference freedomInfluence over other economic activities

Yen Loan for basic infrastructure

Yen Loan to Thailand classified by Sector

Electric power and Gas, 46

Transportation, 65

Telecommunications, 13

Irrigation and Flood control, 13

Agriculture, Forestry andFisheries, 8

Mining and Manufacturing, 10

Social services, 26

Financial-Intermediary Loans,25

Others, 1

Electric power and Gas Transportation Telecommunications

Irrigation and Flood control Agriculture, Forestry and Fisheries Mining and Manufacturing

Social services Financial-Intermediary Loans Others

-1,000

0

1,000

2,000

3,000

4,000

5,000

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 p

Year

Value (M

illio

n U

S D

olla

rs)

Japanese FDI USA EU ASEAN Hong Kong Taiwan

J-FDI outnumbers other countries’ investment

J-FDI jumps 1987-88 and reaches peak in 1990

Industry: the main destination of J-FDIInflow of FDI from Japan

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Mill

ions

$U

S

1. Financial Institutions

2. Trade

3. Construction

4. Mining & Quarrying

5. Agriculture

6. Industry

7. Services

8. Investment

9. Real estate

10. Others

Total

Industrial FDI is close to 70% of total J-FDI.

Inflow of Japanese Industrial FDI

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Mill

ions

US$

Food

Textiles

Metal base & non-metallic

Electricalappliances

Machinery&transport equipment

Chemicals

Petroliumproducts

Constructionmaterials

Other industry

After 1987, increase in J-FDI resulted in a boom in Thai

manufacturing sector, particularly electrical appliance.

Trade: Unbalanced trade structure

Thai Export: primary products Import from Japan: Intermediate and capital goods

FDI Trade gap

Bilateral Trade with Japan

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

16,000.0

18,000.0

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Year

Mill

ion

BH

T

Exports Imports

Close link between FDI and Trade

More intermediate goods imports have followed the increase of FDI in late 1980s.

Part II: Thailand and Japan: Partners for Growth

1. Thailand in Int’l Economy2. Path of Development3. Japan as the Economic Partner4. Case Study: the Eastern Seaboard Project5. Conclusion

JDA

PAILIN

BONGKOT

SONGKHLA

♦♦

♦

SBK

YALA

SRC

UDONTHANI

CHAIYAPOOM

ESB IESB IESB I

J-ODA= US$1.5 Billion (as of 1997, =10% of accumulative Yen Loan)

Thailand new industrial baseJapan overseas investment base, esp. for SMEs

Natural gas locationNatural gas locationNatural gas location

MaptaputMaptaputMaptaput

SattahipSattahip

Gulf of ThailandGulf of Thailand

RayongRayong

ChonburiChonburi

BangkokBangkokBangkokChachoengsaoChachoengsao

PatumthaniPatumthaniNakonnayokNakonnayok

SaraburiSaraburi

PracheenburiPracheenburi

LopburiLopburi

304

34

3331

344

36

3

3

317

304

305305

1

3232

11 22

3333

304304

Eastern Seaboard (I)Eastern Seaboard (I)Eastern Seaboard (I)

New Economic &industrial baseNew Economic New Economic

&industrial base&industrial base

Initiated 1981Initiated 1981Completed 1995Completed 1995

Two Development poles: Two Development poles: 1. 1. LaemLaem ChabangChabang2. 2. MaptaphutMaptaphut

Total areaTotal area 13,26613,266 KmKm22

LCBLCB

MTPMTP

ChanthaburiChanthaburi

Major indicators

220,000 bahtRayong ranked country’s 1st

4. Average Annual Per Capita Income3.8 times3. Economic expansion700,0002.2. Indirect employment318,9112.1. Direct employment

1,018,9112. Employment

1,220,121 (92.26%)632,000 (52.7% of total)

1.2. Private sectorJapanese private investment

102,414 (7.74%)63,520 (62% of Govt investment)

1.1. Government sectorJ-ODA

1,322,535 1. Total Investment (million baht)

Contribution to Thai economy

Three core industries to be ASIAN industrial base1. Petro-chemical industry = 44%, concentrated in MTP2. Electronics and electrical appliance = 10%, with growing

investment value after 1997.3. Transportation & auto mobile equipment = 9%, 71% of

total automobile investment in Thailand

Contribution of ESB to Thai economyYear 1981 1988 1995 1999% of GDP 5.60% 9% 9.80% 10.40%

Part II: Conclusion

Close bilateral economic relationsLinkage between ODA-Trade-InvestmentInterdependence within Flying Geese formationThe mission piece: inadequate role of Thai business weak domestic industrialization

Japanese Business

Thailand

Japanese Govt.

Conclusion

Regional economic relations in form of Flying Geese pattern shift, including Thai economic development patternODA-led trade and investment originated from JapanDiversion from original model, particularly in domestic industrialization which could lead to over-external dependence, evident in trade balance.

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