A Critical Evaluation of the Flying Geese Paradigm: the evolving framework of the model and its application to East Asian regional development and beyond Shigehisa Kasahara i © Shigehisa Kasahara 2019 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission by the author. ISBN 978-90-6490-112-6 ii A Critical Evaluation of the Flying Geese Paradigm: the evolving framework of the model and its application to East Asian regional development and beyond Een kritische evaluatie van het model van de vliegende ganzen: de ontwikkeling van het model en de toepassing op regionale ontwikkeling in Oost-Azië en daarbuiten Thesis to obtain the degree of Doctor from the Erasmus University Rotterdam by command of the Rector Magnificus Prof.dr. R.C.M.E. Engels and in accordance with the decision of the Doctorate Board The public defence shall be held on Thursday 19 December 2019 at 16.00 hrs by Shigehisa Kasahara born in Fukui, Japan iii Doctoral Committee Doctoral dissertation supervisors Prof.dr. A.S. Bedi Dr. A.M. Fischer Other members Prof.dr. P. Korhonen, Jyväskylä University Prof.dr. P. Golub, American University of Paris Prof.dr. W. Hout iv Contents List of Figures List of Tables Acronyms Acknowledgements Abstract Samenvatting Thesis 1 Introduction to the Study …..1 1.1 Introduction 1.1.1 Preliminary Notes: The rise of manufacturing in East Asia 1.1.2 Model-building of East Asian development: Background 1.1.3 Perceptions towards the Flying Geese Paradigm 1.1.4 Geoeconomic Caveats: Conceptualizing Asia 1.2 Research Objectives: Questions and Methodology 1.2.1 Conventional history of Economic Thought 1.2.2 Research Questions 1.2.3 Research Methodology 1.3 Structure of the Dissertation 2 Evolution of the Flying Geese Paradigm: Part I: Akamatsu’s Original Model and Its Refinements 20 2.1 Introduction 2.2 Background of Japan’s Post-Feudal (Meiji) Industrial Development 2.3 Flying Geese Paradigm proposed by Kaname Akamatsu 2.3.1 Kaname Akamatsu: His Initial Framework and Its Evolution 2.3.2 Departure from Akamatsu’s Initial Model 2.3.3 Akamatsu’s Flying Geese Paradigm: Essential Elements 2.4 Refinement (Modification) of Akamatsu’s Flying Geese Paradigm: “Primary” M-P-X sequence 2.4.1 Reverse Imports (M’) 2.4.2 Consumption (Domestic Demand) (C) 2.4.3 Competitiveness 2.4.4 Alternative Measures to Calculate Competitiveness 2.4.5 Analytical Conclusion on Calculating Competitiveness 2.4.6 Industrial Upgrading 2.5 Policy implications 2.6 Chapter Summary 3 Evaluation of the Flying Geese Paradigm: Part II: Modern Versions 65 3.1 Introduction v 3.2 Product Cycle (PC) 3.2.1 Preliminary Note: Technology Gap Theory 3.2.2 Vernon’s Product Cycle (PC) Theory 3.2.3 Effects of FDI on the Original M-P-X Sequence 3.3 Modern PF Paradigm as a Catch-up Product (Industry) Life Cycle Model 3.3.1 Eclectic Model 3.3.2 Synthetic Multi-Country-Multi-Product Model 3.4 Integration/Snowball Paradigm 3.4.1 Snowballing Integration in East Asia 3.4.2 FDI as a Key Channel of Regional Integration 3.4.3 Characteristic Element of “Openness” 3.5 United States-Centric Flying Geese Paradigm 3.6 Regional Production Network Model 3.6.1 Emergence of Regional Production Networks from the Mid-1980s 3.6.2 Microeconomic Concepts: Fragmentation, Agglomeration 3.6.3 Implications of Regional Production Networks on the FG Paradigm 3.7 Chapter Summary 4 Critique of the Flying Geese Paradigm Part I: Validity as a Generic Model of Late Industrialization 95 4.1 Introduction 4.1.1 What is meant by a generic model? 4.1.2 Criticisms of the FG Paradigm: Classification of Issues 4.2 Level-of-analysis Problems 4.2.1 Methodological Nationalism 4.2.2 Identity of “Geese” 4.3 National development 4.3.1 M-P-X Sequence 4.3.2 Export-led Development 4.3.3 Technology Acquisition 4.3.4 Agents (Drivers) for Restructuring 4.3.5 Role of the State 4.3.6 Industrial Policy and Comparative Advantage 4.3.7 FDI for National Industrial Upgrading 4.3.8 Competitiveness in the National Context 4.4 Regional Development and Integration 4.4.1 Life cycle 4.4.2 Competitiveness in a Regional Context 4.4.3 Regional Hierarchy 4.5 Sustainability of the FG paradigm 4.5.1 Replicability of National Development Experience 4.5.2 Sustainability of Dialectics 4.5.3 Consideration of Demand Side 4.6 Chapter Summary 5 Critique of the Flying Geese Paradigm vi Part II: A critical evaluation of it as a regional development of East Asia 128 5.1 Introduction 5.2 Recapitulation of the Postwar East Asian economic development 5.2.1 Japan 5.2.2 1st-tier NIEs: South Korea, Taiwan, Singapore and Hong Kong 5.2.3 2nd-tier NIEs: Malaysia, Thailand and Indonesia 5.2.4 China 5.2.5 Overseas Chinese Communities (Chinese diaspora) 5.3 The United States (US) 5.3.1 Initial posture of the US foreign policy 5.3.2 Rising intolerance, criticisms, pressures 5.4 The FG paradigm as an East Asian Regional Development Model 5.4.1 The M-P-X sequence in East Asia 5.4.2 Demand-related issues in East Asian Industrialization 5.4.3 FG paradigm and the Developmental State: Compatibility Question 5.4.4 Emulation of Earlier Industrializers 5.4.5 Life Cycle (product, market, enterprise, and industry) 5.4.6 Sustainability of East Asian development: Dialectics 5.4.7 Fallacy of Composition in East Asian manufacturing 5.4.8 Level-of-analysis problems in East Asia 5.4.9 Other Issues: Currency stability, Migration, WTO Regime, Porous Regionalism, Japan-China Rivalry 5.5 Chapter Summary 6 Discourse Transition of the Flying Geese Paradigm: The Emergence of a China-centric Model 6.1 Introduction 6.2 Transition from Japan Centricity to China Centricity 6.3 Japan-centric Model: Basic Elements (a Quick Review) 6.3.1 Japan Centricity 6.3.2 Japan’s Development Model 6.4 China’s Rise and the Flying Geese Paradigm 6.4.1 Domestic Application vs International Application 6.4.2 Semi-sequential Phases of Different Policy Orientations/ Emphases 6.4.3 Development Guidelines for the “Go West” Phase 6.4.4 FG paradigm at the “Go Out” Phase 6.4.5 Belt and Road Initiative (BRI) 6.5 China-centric model 6.5.1 Prelude to the Reference of the FG Paradigm 6.5.2 World Bank’s Hinting of China’s Flying Geese 6.5.3 Explicit Reference to the FG Paradigm 6.6 Comparative Analysis: Japan Centricity and China Centricity 6.6.1 East Asian Hierarchy 6.6.2 Industrial Policy: Conforming or Defying Comparative Advantage vii 6.6.3 Open Regionalism 6.6.4 Manufacturing Activities via External Stimulus 6.6.5 Trickle-down Effect (Industrial Relocation/Diffusion) 6.6.6 Scale of Operation 6.6.7 Policy-implications 6.7 Chapter Summary 7 Conclusion 184 7.1 Introduction 7.2 Intellectual lineage of the FG paradigm 7.2.1 Prewar FG Paradigm: A National Catch-up Model 7.2.2 Postwar FG Paradigm: A Regional Development Model 7.2.3 Prewar Model vs Postwar Model: A Analytical Comparison 7.3 Critique of the FG Paradigm: A Selective Recapitulation 7.4 Discourse Transition: A Consequence of China’s Emergence 7.4.1 Domestic FG Paradigm 7.4.2 Go Global Policy 7.4.3 Belt and Road Initiative: The Latest Framework for the China-centric FG Paradigm 7.5 Last Words: Caveats Appendices 8 Nine East Asian Economics: A brief historical profile (Supplement to Chapter 1) 199 8.1 Introduction: Background Profile 8.2 Japan 8.3 1st-tier NIES: Subgroup 1 and Subgroup II 8.3.1 South Korea (Subgroup 1) 8.3.2 Taiwan (Subgroup 1) 8.3.3 Singapore (Subgroup 2) 8.3.4 Hong Kong (Subgroup 2) 8.4 2nd-tier NIEs 8.4.1 Malaysia 8.4.2 Thailand 8.4.3 Indonesia 8.5 China 8.6 Empirical Profile 8.6.1 Overall Profile 8.6.2 Overall Growth of Recent Performance 8.6.3 Relative Weight of Economic Performance 8.6.4 Per Capita GDP 9 Modernization of the Japanese Cotton Industry: A brief description of Meiji period (Supplement to Chapter 2) 236 9.1 Introduction viii 9.2 Initial Rise of Import of Raw Cotton, Cotton Yarn, and Cotton Fabric 9.3 Import Substitution of Cotton Yarn 9.4 Import Substitution of Cotton Fabric 9.5 Import Substitution of Textile Machines and Dyeing 9.6 Outward FDI in Cotton industry 9.7 Chapter Summary 10 Investment Development Path: A Brief Note on Its Conceptual Development (Supplement to Chapter 3) 244 10.1 Introduction 10.2 Net Outward Investment Position 10.3 Relevance to the FG Paradigm 11 Regional Production networks of the Japanese automobile industry: A brief description of the postwar Thailand (Supplement to Chapter 3) 250 11.1 Introduction 11.2 Thai Automobile Sector 11.3 Japanese automakers in Thailand 11.4 Chapter Summary 12 Empirical research on the FG paradigm: A literature survey and new findings (Supplement to Chapter 5) 256 12.1 Introduction 12.2 Hypotheses 12.2.1 Hypothesis I: Fundamental Product/Sector Specific M-P-X-(M’) Sequence 12.2.2 Hypothesis II: Intra-sector/industry Sequence of Product Upgrading 12.2.3 Hypothesis III: Inter-industry Sequence 12.2.4 Hypothesis IV: Inter-economy (regional) Sequence 12.2.5 Overview of Analytical Research on Hypotheses I, II, III 12.3 Formal Tests of the FG Paradigm 12.3.1 Survey Findings (based on trade data) 12.3.2 Analytical Questions for Hypothesis IV 12.4 List of Representative Empirical Research Bibliography 271 Brief Biography 331 ix List of Figures 1.1 East Asian Nine 2.1 Akamatsu’s FG Paradigm: An Early Graphic Presentation of Import, Production and Export of different woolen products 2.2 Akamatsu’s FG Paradigm: A Primary Pattern of Import-Production-Export (M-P-X) Sequence of Cotton Thread and Cotton Cloth 2.3 Akamatsu’s FG