The economics of the pacific rim

THE EC ONOMICS

OF THE

PACIFIC RIM

T H E OX F O R D HA N D B O O K O F

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Michael Szenberg

Lubin School of Business, Pace University

Lall Ramrattan

University of California, Berkeley Extension

CONSULTING EDITORS

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1

the oxford handbook of

THE

ECONOMICS

OF THE

PACIFIC RIM

Edited by

INDERJIT KAUR

AND

NIRVIKAR SINGH

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It furthers the University’s objective of excellence in research, scholarship,

Oxford University Press is a department of the University of Oxford.

3

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Library of Congress Cataloging-in-Publication Data

Th e Oxford handbook of the economics of the Pacifi c Rim / edited by

Inderjit N. Kaur and Nirvikar Singh.

pages cm

Includes bibliographical references.

Summary: “A survey of the economy of the Pacifi c

Rim region”— Provided by publisher.

ISBN 978–0–19–975199–0 (alk. paper)

1. Pacifi c Area—Economic conditions. 2. Pacifi c Area—Economic integration.

3. Asia—Economic conditions. 4. Asia—Economic integration. I. Kaur, Inderjit N.,

editor of compilation. II. Singh, Nirvikar, editor of compilation.

HC681.O94 2013

330.9182’3—dc23

2013004669

1 3 5 7 9 8 6 4 2

Printed in the United States of America

on acid-free paper

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Contents

Acknowledgments ix

List of Contributors xi

Introduction 1

Inderjit Kaur and Nirvikar   Singh

PART I THE NATUR AL WORLD: HISTORY,

CLIMATE, AND RISKS

1. The History of Biological Exploitation on the Pacific Rim 35

Eric   Jones

2. Climate Risk and Response in the Pacific Rim 54

David Roland-Holst

3. Natural Disasters and Economic Policy for the Pacific Rim 82

Ilan   Noy

PART II PEOPLE: MIGR ATION,

DEMO GR APHICS, AND HUMAN CAPITAL

4. International Labor Migration in the Pacific Rim 105

Philip   Martin

5. Age Compositional Shifts and Changing Intergenerational

Transfers in Selected Asian Countries 124

Naohiro   Ogawa

6. Human Capital Trends in the Pacific Rim 147

Anne   Goujon

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vi CONTENTS

PART III PERSPECTIVES ON EC ONOMIC

GROW TH AND DEVELOPMENT

7. Economic Growth and Performance on the Pacific Rim 169

Barry Bosworth and Susan M. Collins

8. The New Structural Economics and Strategies for Sustained Economic

Development in the Pacific Island Countries 198

Hinh T. Dinh and Justin Yifu   Lin

9. The Evolution of Fiscal Developments and Policies in the Pacific Rim 230

Manmohan Singh Kumar , Nirvikar Singh, and Jaejoon   Woo

PART IV REGIONAL GOVERNANCE

AND TR ADE LINKAGES

10. Asia in Global Economic Governance 261

Wendy Dobson and Peter A. Petri  

11. Geoeconomics versus Geopolitics: Implications for Asia 290

Devesh Kapur and Manik   Suri

12. The Political Economy of Asia-Pacific Trade Agreements 314

John Ravenhill

13. Global Production Sharing and Trade Patterns in East Asia 333

Prema-chandra Athukorala

14. Foreign Trade of the Pacific-Rim Economies 362

Kar-Yiu   Wong

PART V INDUSTRY, POLICY,

AND INNOVATION

15. Are the Geese Still Flying? Catch-up Industrialization in a Changing

International Economic Environment 395

Inderjit   Kaur

16. Multinational Enterprises, Foreign Direct Investment, and the East

Asian Economic Integration 415

Tzu-Han Yang and Deng-Shing   Huang

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CONTENTS vii

17. The Impact of Industrial Policy on Asian Growth: An Example

from Taiwan 441

Howard   Pack

18. Creative Industries: Socio-Economic Transformation as the

New Face of Innovation 464

F. Ted Tschang

19. The Road to Innovation in East Asia 490

Shahid   Yusuf

PART VI MACROEC ONOMICS

AND FINANCE

20. Asian Financial Crises 537

Anne O. Krueger

21. The “Impossible Trinity,” the International Monetary

Framework, and the Pacific Rim 551

Joshua Aizenman and Hiro   Ito

22. Rethinking Capital Account Liberalization 587

Maria Socorro Gochoco-Bautista and Noli R. Sotocinal

23. Asian Currencies in the Global Imbalance and Global

Financial Crisis 605

Eiji Ogawa and Chikafumi Nakamura

24. Rebalancing of the World Economy and Asia 625

Menzie D. Chinn and Hiro   Ito

25. China’s Financial Openness and Asset Return Linkages in East Asia 656

Reuven Glick and Michael Hutchison

26. The Offshore RMB Market in Hong Kong and

RMB Internationalization 681

Yin-Wong Cheung and Hui   Miao

Author Index 699

Subject Index 707

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Acknowledgments

The conceptualization of the Pacifi c Rim as an economic entity has emerged only in

the past few decades, but the importance of this way of looking at the world will only

increase. Th erefore, we think this volume has great potential signifi cance, and that

underlies our acknowledgment of the hard work of many people who together made

this possible. Th e scope and sweep of the Pacifi c Rim as a region made the project a long

and challenging one, as we sought to cover a wide range of important issues and include

diverse perspectives from a range of infl uential scholars.

We wish to fi rst thank the consulting editors of the Oxford Handbook series, Michael

Szenberg and Lall Ramrattan, as well as OUP Executive Editor Terry Vaughn, for the

opportunity to undertake this important project. We are grateful to Catherine Rae, for￾merly of OUP, for her initial help, and most of all we are indebted to Cathryn Vaulman

for stepping in and helping us bring this eff ort to fruition with great patience and care.

We also wish to acknowledge the project manager of the production team, Bharathy

Surya Prakash, as well as her team members, for their patient work on getting the vol￾ume into its fi nal form.

Inderjit Kaur would like to acknowledge the rich intellectual environment of the

University of San Francisco Center for the Pacifi c Rim, where she held a Research

Fellowship of the Kiriyama Chair for Pacifi c Rim Studies. In particular, she is indebted

to the then-Executive Director of the Center, Barbara Bundy, for many valuable conver￾sations. She also acknowledges the consistent support of the Center’s Associate Director

at the time, Ken Kopp, and of the Kiriyama Chair for Pacifi c Rim Studies.

Nirvikar Singh would like to acknowledge his former and current colleagues at

UC Santa Cruz, some of whom have contributed to this volume, for many interac￾tions that have expanded his understanding of the economics of the Pacifi c Rim, and

the global economy more generally: Joshua Aizenman, Yin-Wong Cheung, Menzie

Chinn, Michael Dooley, K.C. Fung, Michael Hutchison and Phillip McCalman. Michael

Hutchison, in particular, has been a valued collaborator on a range of projects, and he,

Menzie and K.C. joined Nirvikar in founding the Santa Cruz Center for International

Economics, which became an important intellectual hub for work on the global econ￾omy, including much on the Pacifi c Rim. Nirvikar would also like to acknowledge

learning from many collaborators on various past Pacifi c Rim research projects: K.

P. Kalirajan, Terrie Carolan, Gaofeng Han, Jesse Mora, Cyrus Talati and Hung Trieu.

Much of that collaborative work was funded by the University of California Pacifi c Rim

Research Program, and their support is gratefully acknowledged as well.

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x ACKNOWLEDGMENTS

Most of all we would like to acknowledge and thank the authors who contributed

to this volume. Th ey have produced an outstanding set of pieces, which we think will

be infl uential in guiding future thinking about the economics of the Pacifi c Rim. It has

been a pleasure to work with them on this project, and we cannot thank them enough

for their participation, cooperation and wonderful hard work. We believe that work will

have a lasting impact.

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List of Contributors

Joshua Aizenman is Dockson Chair in Economics and International Relations at the

University of Southern California and Research Associate at the NBER.

Prema-Chandra Athukorala is Professor of Economics at the Crawford School of

Public Policy at Australian National University.

Barry Bosworth is Senior Fellow of Economic Research at the Brookings Institution.

Yin-Wong Cheung is Head & Chair Professor of Department of Economics and

Finance at City University of Hong Kong, Hong Kong.

Menzie D. Chinn is Professor of Public Aff airs and Economics at the University of

Wisconsin, Madison.

Susan M. Collins is Joan and Sanford Weill Dean of Public Policy at the Gerald R. Ford

School of Public Policy and Professor of Economics in the College of Literature, Science,

and the Arts at the University of Michigan, as well as Senior Fellow of Economic Research

at the Brookings Institution.

Hinh T. Dinh is Lead Economist in the Offi ce of the Senior Vice President and Chief

Economist of the World Bank.

Wendy Dobson is Co-Director of the Rotman Institute for International Business and

Adjunct Professor of Business Economics at Rotman School of Management, University

of Toronto.

Reuven Glick is Group Vice President of International Research of the Federal Reserve

Bank of San Francisco.

Maria Socorro Gochoco-Bautista is Senior Economic Advisor at the Economics and

Research Department, Asian Development Bank and Bangko Sentral ng Pilipinas

Sterling Chair in Monetary Economics in the School of Economics at University of the

Philippines.

Anne Goujon is Research Scientist of Population Dynamics and Forecasting at the

Vienna Institute of Demography, Austrian Academy of Sciences.

Deng-Shing Huang is Researcher at the Institute of Economics at Academia Sinica.

Michael Hutchison is Professor of Economics at the University of California, Santa

Cruz, and Co-Director of the Santa Cruz Center for International Economics.

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xii LIST OF CONTRIBUTORS

Hiro Ito is Associate Professor of Economics at Portland State University.

Eric Jones is Professorial Fellow in Economic History at the University of Melbourne

Business School.

Devesh Kapur is Director of the Center for the Advanced Study of India at the University

of Pennsylvania.

Inderjit Kaur is Research Associate at the University of California, Santa Cruz.

Anne O. Krueger is Professor of International Economics in the School for Advanced

International Studies at Johns Hopkins University.

Manmohan Singh Kumar is Assistant Director in the Finance Department and Chief

of General Resources and SDR Policies Division at the International Monetary Fund.

Justin Yifu Lin is Director of the China Center for Economic Research at Peking

University. He was formerly World Bank Chief Economist and Senior Vice President of

Development Economics.

Philip Martin is Professor of Agricultural and Resource Economics, Chair of the UC

Comparative Immigration & Integration Program, and Editor of Migration News and

Rural Migration News at the University of California, Davis.

Hui Miao is China and Hong Kong Equity Strategist and Director at Deutsche Bank.

Chikafumi Nakamura is Assistant Professor of Economic Systems Analaysis at Kyushu

University.

Ilan Noy is Associate Professor of Economics at Victoria Business School, New Zealand

and the University of Hawai’i, Manoa.

Eiji Ogawa is Professor of International Finance at Hitotsubashi University, Graduate

School of Commerce and Management.

Naohiro Ogawa is Professor of Human Development Science at Nihon University.

Howard Pack is Professor of Business Economics and Public Policy in the Wharton

School of Business at the University of Pennsylvania.

Peter A. Petri is the Carl Shapiro Professor of International Finance at Brandeis

University.

John Ravenhill is Director of the Balsillie School of International Aff airs, Waterloo,

Canada.

David Roland-Holst is Adjunct Professor in the Department of Agricultural and

Resource Economics and the Department of Economics at the University of California,

Berkeley.

Nirvikar Singh is Professor of Economics at the University of California, Santa Cruz,

and Director, Center for Analytical Finance.

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LIST OF CONTRIBUTORS xiii

Noli R. Sotocinal is Senior Economist at the Asian Development Bank.

Manik Suri is a J.D. candidate at Harvard Law School, Visiting Fellow at the University

of Pennsylvania’s Center for the Advanced Study of India, and a Truman Security Fellow.

F. Ted Tschang is Associate Professor of Strategic Management in the Lee Kong Chian

School of Business at Singapore Management University.

Kar-Yiu Wong is Professor of Economics at the University of Washington, Director

of the Research Center for International Economics (RCIE), and President of the

Asia-Pacifi c Economic Association (APEA).

Jaejoon Woo is Associate Professor of Economics at DePaul University and Senior

Economist at the International Monetary Fund.

Tzu-Han Yang is Professor in the Department of Public Finance at National Taipei

University.

Shahid Yusuf is Chief Economist of Th e Growth Dialogue at George Washington

University.

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