Trade Patterns of East Asia: Before and After the Currency Crisis

Abstract

Trade data of the one year following the crisis suggests that Japan, by far the regions largest economy and trading nation, is struggling from its long-running recession, unable to provide the needed stimulus through trade. Instead, East Asias export loss went to markets of North America and EU. This paper identified the need for region-wide policy coordination and highlighted the role of China in maintaining stability of the region is highlighted. In addition, this paper found a trend toward increasing regional concentration in all major trading blocs into the late 1990s. Increasing gravity coefficients of the three large regions observed suggest that within each region, preference for the regions products in place of imports from outside is increasing. Too much gravity may result in interregional trade conflict placing a strain on the spirit of multilateral trading system embodied in the World Trading Organization (WTO) regime. WTO should review the consequences of the recent trend of increasing regional concentration. This paper also emphasizes the role of international investment in enhancing trade between economies and regions. The economies of ASEAN-4 achieved a remarkable growth following this strategy and were able to increase their trade. Foreign direct investment that highlights an economy"s comparative advantage induces more intraindustry trade and specialization. FDI and trade are not substitute, but increasingly becoming more complementary. In this regard, East Asian economies, particularly those hit by the current crisis should promote inflow of FDI by establishing more transparent and liberal investment regimes.