Causes and Consequences of Globalization in East Asia: What Do the Micro 1 Data Analyses Show? Chin Hee Hahn and Dionisius Narjoko
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ERIA Research Project Report 2009, No. 2 CCAAUUSSEESS AANNDD CCOONNSSEEQQUUEENNCCEESS OOFF GGLLOOBBAALLIIZZAATTIIOONN IINN EEAASSTT AASSIIAA:: WWHHAATT DDOO TTHHEE MMIICCRROO DDAATTAA AANNAALLYYSSEESS SSHHOOWW?? Edited by CHIN HEE HAHN DIONISIUS NARJOKO March 2010 TABLE OF CONTENTS Table of Contents i List of Project Members iii Acknowledgements iv Executive Summary v CHAPTER 1. Causes and Consequences of Globalization in East Asia: What do the Micro 1 Data Analyses Show? Chin Hee Hahn and Dionisius Narjoko CHAPTER 2. The Role of Trade Costs in FDI Strategy in Heterogeneous Firms: Evidence 22 from Japanese Firm-level Data Toshiyuki Matsuura and Kazunobu Hayakawa CHAPTER 3. The Effects of Imported Intermediate Varieties on Plant Total Factor 61 Productivity and Product Switching: Evidence from Korean Manufacturing Yong-Seok Choi and Chin Hee Hahn CHAPTER 4. Policy Reforms, Firm Entry, and Labor Productivity Change: Learning from 102 the Example of Vietnamese Manufacturing Dionisius Narjoko CHAPTER 5. Micro Study: Philippines; Does Trade Protection Improve Firm Productivity? 143 Evidence from Philippine Micro Data Rafaelita M. Aldaba CHAPTER 6. Impact of Trade and Investment Liberalization on Productivity in Organized 196 Manufacturing in India Ram Upendra Das CHAPTER 7. Productivity Spillovers from Foreign Direct Investment: The Case of Vietnam 228 Hoang Van Thanh and Pham Thien Hoang CHAPTER 8. Trade, Productivity and Innovation: The Case of Malaysia 247 Cassey Lee Hong Kim CHAPTER 9. Imports-as-Market Discipline Hypothesis: Evidence from the Thai 268 Manufacturing Sector Archanun Kohpaiboon CHAPTER 10. Globalization and Firm Demand for Skilled Labor in China's Manufacturing 313 Sector Yifan Zhang CHAPTER 11. The Source of Production, Employment and Productivity in Indonesia 339 Haryo Aswicahyono and Teguh Yudo Wicaksono i CHAPTER 12. Structural Adjustment and International Migration: Firm Survey Analysis of 375 the Thai Clothing Industry Archanun Kohpaiboon and Pisut Kulthanavit ii LIST OF PROJECT MEMBERS DR. SHUJIRO URATA (PROJECT SUPERVISOR): Professor, Graduate School of Asia- Pacific Studies, Waseda University, Japan; Senior Researcher Advisor to the Executive Director, Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia. DR. CHIN HEE HAHN (PROJECT LEADER): Senior Research Fellow, Korea Development Institute (KDI), Korea. DR. DIONISIUS NARJOKO (PROJECT COORDINATOR): Researcher, Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia. DR. TOSHIYUKI MATSUURA: Assistant Professor, Institute of Economic and Industrial Studies, Keio University, Japan. DR. KAZUNOBU HAYAKAWA: Research Fellow, Inter-disciplinary Studies Center, Institute of Developing Economies, Japan. DR. YONG-SEOK CHOI: Associate Professor, Kyung Hee University, School of Economics, Korea. DR. YIFAN ZHANG: Assistant Professor, Department of Economic, Lingnan University, Hong Kong. DR. BISWAJIT DHAR: Director General, Research and Information System for Developing Countries (RIS), India. DR. RAM UPENDRA DAS: Senior Fellow, Research and Information System for Developing Countries (RIS), India. DR. CASSEY LEE HONG KIM: Senior Lecturer, School of Economics, University of Wollongong, Australia. DR. RAFAELITA ALDABA: Senior Research Fellow, Philippine Institute for Development Studies (PIDS), Philippines. DR. ARCHANUN KOHPAIBOON: Assistant Professor, Faculty of Economics, Thammasat University, Thailand. DR. PISUT KULTHANAVIT: Lecturer, Faculty of Economics, Thammasat University, Thailand. DR. HARYO ASWICAHYONO: Senior Researcher, Department of Economics, Centre for Strategic and International Studies (CSIS), Indonesia. DR. TEGUH YUDO WICAKSONO: Researcher, Department of Economics, Centre for Strategic and International Studies (CSIS), Indonesia. MR. HOANG VAN THANH: Deputy Director, Central Institute for Economic Management (CIEM), Vietnam. MR. PHAM THIEN HOANG: Researcher, Central Institute for Economic Management (CIEM), Vietnam. iii This Page has intentionally been left blank Acknowledgements This report consists of the papers from one of ERIA’s research working groups in Fiscal Year 2009. It has a broad mandate to conduct research on the impact of globalization on performance and/or behavior of firms, with particular with a particular focus on micro data analysis. As indicated in the first chapter of this report, a number of feature of globalization impact or firm performance are addresses so far, including productivity, exporting behavior, firm dynamics, international production networks, impact of foreign direct investment, etc. All papers presented in this report were presented in three workshops held in Jakarta over the period of August 2009 to February 2010. We would like to express our appreciation and gratitude, first and foremost, to the members of working group who have actively contributed to outcome of the research in this fiscal year. We are deeply indebted to Professor Shujiro Urata for his active engagement in discussion of all research papers and for his intellectual leadership. We express special thanks to Professor Fukunari Kimura, Chief Economist of ERIA, for his encouragement and support for the research project. ERIA management support is crucial for the progress of this research. We are grateful for the continuously strong support provided by Mr. Hidetoshi Nishimura (Executive Director of ERIA), Mr. Daiki Kasugahara (General Manager of ERIA), and Mr. Koshi Yamada (Financial Director of ERIA), as well colleagues in the finance and administration. Our appreciation also goes to all reliable supporting staffs for the excellent logistic supports. Last, but not least, we would like to thank our colleagues, ERIA researchers, for their enthusiasm in the works of our working group. Chin Hee Hahn Dionisius Narjoko iv This Page has intentionally been left blank EXECUTIVE SUMMARY 1. Background and Objectives Economists have long recognized the gains from international trade. If might be fair to say that most, if not all, economists believe that globalization and economic growth are intimately related and, furthermore, that globalization has brought enormous benefits for many countries and people. The current state of our knowledge, as well as the past diverse experiences of countries, suggest that there are still many questions, old and new, that need to be explored in order to improve our understanding of various aspects of the globalization that we are facing today, including its causes and consequences. This research project contributes to the literature by an attempt to answer some of these questions. Most of these questions are related to the relationship between globalization on the one hand, and growth, productivity, reallocation, location of industries and firms, employment and wage inequality, market structure, etc. on the other. Developing answers to these questions is likely to be a pivotal step toward maximizing the potential benefits from globalization, as well as sharing those benefits more widely not only across countries but also across various economic agents in a country. All papers contained in this report tackle some of the questions raised above. One of the key features of this report- micro data analysis of globalization -stems from the recognition that many of the old and new issues raised above can be addressed better by utilizing micro datasets. We also expect that micro data analysis can potentially give us much richer information on various issues of globalization, such as the exact channels through which the benefits of trade materialize the possible differential effects of trade and investment liberalization, and the existence of factors or policies that are complementary to trade and investment liberalization. v 2. Key Findings and Conclusion Some key findings and conclusions from the chapters in this report are the presented below. Learning from the experience of Japanese FDI to developing countries, reduction in trade costs between host and home countries has different impacts on the type of foreign direct investment (FDI), and the nature of international production process leads to firms to adopt vertical FDI more than the traditionally horizontal FDI. Trade liberalization contributes to higher growth of variety in the import of intermediate inputs which has a favorable impact on productivity growth. Moreover, trade liberalization also motives higher frequency of product switching, defined as simultaneously adding and dropping products, and this evidently improves firm efficiency. All these are the lesson from the Korean experience in the 1990s. Three studies in this project, which elaborates the case study of the Philippines, Vietnamese, and Indian manufacturing, confirm that trade and investment liberalization leads to productivity gains. The Vietnamese study shows that the high firm entry rate in early 2000s increases industry-level productivity, while the Philippines study establishes a relationship that high effective rate of protection reduces productivity growth of some groups of firms. Productivity improvement is also observed in the Indian study. The Vietnamese study further shows that gain in productivity does not only occur at industry level, but also at firm level. The Indian study further suggests that importance of imported goods in improving productivity suggests that firms are learning from imported and more advanced technology. This is important to note, since positive productivity gains seem to have accrued due to liberalization of the imports of intermediate inputs