Political Economy of FDI, Political Economy of FDI, Integration and Path Dependence: Integration and Path Dependence:
EU and East Asia EU and East Asia
Ken Morita
(Hiroshima Shudo University, Hiroshima, Japan)
and
Yun Chen
(Fudan University, Shanghai, China)
1
Difference between Difference between “institutional integration” and“institutional integration” and
“functional integration”“functional integration”
2
EU: Institutional integration
East Asia: Functional integration
Difference between Difference between “institutional integration” and“institutional integration” and
“functional integration”“functional integration”
3
EU: Institutional integrationled by Nation States
East Asia: Functional integrationled by Enterprises
Difference between Difference between “institutional integration” and“institutional integration” and
“functional integration”“functional integration”
4
EU: Institutional integrationled by Nation States
towards “Renunciation of war”
East Asia: Functional integrationled by Enterprises
towards “Profit oriented”
Economic IntegrationEconomic Integrationin Europe: in Europe: net effect?net effect?
net economic welfare
5
Trade diversion effect Trade creation effect
Uncertain ?
probably net positive ?
Both “institutional integration” Both “institutional integration” and “functional integration”and “functional integration”
6
Trade structure within the region has been close
International trade ratio among the International trade ratio among the region (%)region (%)
Year East Asia EU NAFTA
2005 49.9 66.3 55.1
2006 50.2 66.7 53.3
2007 48.4 67.7 50.6
2008 47.8 66.8 48.1
2009 46.1 66.4 46.5
2010 50.6 67.2 48.1
Average 48.8 66.9 50.3
7
Note: East Asia; ASEAN plus 3 and Taiwan. EU; EU 27.Source:JETRO, Trade and Investment White Paper (annual).
International trade ratio among the International trade ratio among the region (average) (%)region (average) (%)
(*f or reference )
8
East Asia: 48.8
EU: 66.9
NAFTA : 50.3
FDI (Foreign Direct Investment)FDI (Foreign Direct Investment)has never been the samehas never been the same
FDI activities within EU: active
FDI activities within East Asia: not active
9
EU: Institutional integration
East Asia: Functional integration
How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”
there has occurred “no FDI”
there has occurred “large scale FDI”10
When there has been no international relations,
When there has been strong international relations,
How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”
11
There can be close relationship between “international relations” and “FDI activities”.
How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”
In order to objectively evaluate the FDI to be “active” or “not active”.
12
It is necessary to consider the FDI activities (“active” or “not active”)
comparatively with the international relations (“strong” or “weak”).
How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”
In order to evaluate the international relations to be “strong” or “weak”.
13
We consider the international trade as “proxy index” for international relations.
Relative ratio of FDIRelative ratio of FDI(EU case)(EU case)
(numerator) EU outward FDI amount / world outward
FDI amount
(denominator) EU export amount / world export amount
14
Whether or not FDI has been Whether or not FDI has been “active”?“active”?
active
not active15
more than one
less than one
Relative ratio of FDIRelative ratio of FDI
16
Note: East Asia; 10 countries and regionEU; EU 27Source:JETRO, Trade and Investment White Paper (annual).
Year East Asia EU
2005 0.62 1.70
2006 0.43 1.43
2007 0.49 2.11
2008 0.62 1.71
2009 0.65 1.47
2010 0.69 1.11
Average 0.58 1.59
FDI activities FDI activities
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EU (average 1.59) : active
East Asia (average 0.58) : not active
Relative ratio of FDIRelative ratio of FDIWhy : Why : Difference between Difference between
EU (1.59) and East Asia (0.58)EU (1.59) and East Asia (0.58)
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(1) the difference of economic development level
(2) existence or absence of “international regime”
Relative ratio of FDIRelative ratio of FDI Per capita GNI in East Asia and EUPer capita GNI in East Asia and EU
Source: World Bank, World Development Report 2011
19
East Asia Per capita GNI(US$)
EU Per capita GNI(US$)
Highest Singapore: 49,850
Highest Netherland: 40,510
Second highest Japan: 33,280 Second highest Sweden: 38,560
Second lowest Vietnam: 2,850 Second lowest Romania: 14,460
Lowest Lao PDR: 2,210 Lowest Bulgaria: 12,290
Average 13,899 Average 28,360
Highest /Lowest
25.95 Highest /Lowest
3.30
International regime(according to Keohane)
20
‘sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given
area of international relations’
Relative ratio of FDI:Relative ratio of FDI:“international regime”“international regime”
How about the “common sense of values”
21
EU: (1) liberalism, (2) democracy,
(3) market economy, (4) christianity
East Asia:Usually said to be “nothing”. Particularly
different between China and Japan
Focusing uponFocusing uponSino-Japanese relationsSino-Japanese relations
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Sino-Japanese relations: from Japanese viewpoints of international trade and FDI
Japanese FDI in China:“active” or “not active”?
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Japanese FDI into China:“active” or “not active”?
FDI concentration index
trade linkage index
(numerator) Japanese FDI in China / inward FDI
in China
(denominator) Japanese outward FDI / worldwide
outward FDI
24
FDI concentration index
* <more than one> Japanese FDI in China: relatively
larger than in other countries
* <less than one> Japanese FDI in China: relatively
smaller than in other countries
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FDI concentration index
Source: JETRO, Trade and Investment White Paper (annual) and authors’ calculation.
26
FDI concentration index
Year China USA
2005 1.764 2.362
2006 2.238 1.445
2007 1.320 1.735
2008 0.732 2.262
2009 1.618 1.235
2010 0.892 0.890
Average 1.427 1.655
(numerator) Japanese export to China /
Japanese export to the whole world
(denominator) Import of China / import of the
whole world
27
trade linkage index
* <more than one> Japanese trade with China: relatively
larger than with other countries
* <less than one> Japanese trade with China: relatively
smaller than with other countries
28
trade linkage index
Source: JETRO, Trade and Investment White Paper (annual) and authors’ calculation.
29
trade linkage index
Year China USA
2005 2.625 1.391
2006 2.167 1.308
2007 2.201 1.272
2008 2.347 1.375
2009 2.395 1.310
2010 2.077 1.203
Average 2.302 1.310
International relations of Japan with China are strong as expressed more than 2.0, and with USA are as displayed 1.2 to 1.4
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trade linkage index
“trade linkage index” points out a degree of strength and weakness of
international relations
(numerator) FDI concentration index
(denominator) trade linkage index
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FDI-trade index
* < the ratio: equals to one>
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FDI-trade index
FDI relations between the two countries correspond with their
strength of International relations
* < the ratio: more than one>
33
FDI-trade index
FDI relations between the two countries are more active than expected from the strength of
International relations
* < the ratio: less than one>
34
FDI-trade index
FDI relations between the two countries are less active than expected from the strength of
International relations
* < the ratio: more than one>
* <the ratio: less than one>
* “ in comparative sense”35
FDI-trade index
FDI: active
FDI: not active
Source: JETRO, Trade and Investment White Paper (annual) and authors’ calculation.
36
FDI-trade index
Year China USA
2005 0.672 1.690
2006 1.033 1.105
2007 0.514 1.364
2008 0.312 1.645
2009 0.676 0.943
2010 0.429 0.740
Average 0.505 1.248
We can say thatWe can say that
from FDI-trade ratio
37
Japanese FDI in China:might not be so active
(average: 0.505)
We can say thatWe can say that
from FDI-trade ratio
38
Japanese FDI in USA:might be active(average:1.248)
Why the difference Why the difference 0.505 (China) and 1.248 (USA)0.505 (China) and 1.248 (USA)
but they both have such “common sense of values” as liberal, democratic, rule of law, market economy etc.
39
US-Japanese relations have no institutional integration
Sino-Japanese relations have neither institutional integration nor “common sense of
values”
40
Japanese FDI in China:might not be so active
“lack of international regime”
International regime(according to Keohane)
41
‘sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given
area of international relations’
Why
42
“lack of international regime”between China and Japan
“Path Dependence”
Path DependencePath Dependence
means
* cannot move to “another path” 43
a situation in which such factors as cultural, institutional, historical etc.,
are locked in
It saysIt says
44
Japan: own path (locked in)
China: own path (locked in)
difficult to be integrated
Path Dependence:Path Dependence: how to break away from it?how to break away from it?
Cases of breaking away from it
from Mao Zedong’s path
from Soviet type’s path45
(1) Deng Xiaoping’s reform and opening-up policy
(2) Demise of Cold War
Common characteristic Common characteristic features features
Mao Zedong’s path and Soviet type’s path
46
Inefficiency and introversion
should be changed
* extroversion: necessary to break away from path dependence
47
Efficiency and extroversion
Inefficiency and introversion
How to break away towards How to break away towards “extroversion”: the case of China“extroversion”: the case of China
* (from economic point of view)
48
to break away from “regional protectionism”
What are (possible) reasons to break away from “introversion”?
49
coming close towards the limit of inefficient economy
* towards “Perestroika” by M. Gorbachev
existence of a person with “mission”
* Asian version of Coudenhove-Kalergi and Jean Monnet with “Pan-Asianism”
Is it probable to break away Is it probable to break away from “introversion”?from “introversion”?
50
It seems to be difficult to expect it as “realistic”.
Possible realistic way Possible realistic way towards “extroversion”towards “extroversion”
To expand the network of
within the region( * ).
(*) even it is not so easy.51
FTA (Free Trade Agreement)