Economics [Working Papers]
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Item Trade and innovation in global networks--regional policy implications(Honolulu, HI : East-West Center, 2014-05) Ernst, DieterThis Think Piece explores how integration into international trade through global networks of production (GPNs) and innovation (GINs) might affect a region's innovation capacity. As regions across the globe are progressively integrated into those global networks--some certainly more than others--these regions are all faced with a fundamental challenge: How might progressive integration of its firms into GPNs and GINs affect learning, capability development and innovation? Will network integration unlock new sources of industrial innovation? Or will it act as a poisoned chalice that will sap and erode the region's accumulated capabilities? The paper presents illustrative examples of how "ubiquitous globalization" increases the diversity and complexity of GPNs and GINs, and briefly discusses the underlying systemic pressures and enabling forces. In order to capture the gains for innovation that a region might reap from global network integration, the paper suggests moving from a one-way analysis of the external impacts on a region's innovation capacity to an analysis of two-way interactions. The paper concludes with Policy Implications and highlights Unresolved Issues for Future Research, including the critically important issues of spillover employment effects and inequality.Item The microeconomics of North-South Korean cross-border integration(Honolulu, HI : East-West Center, 2012-06) Haggard, Stephan; Noland, MarcusEconomic integration between North and South Korea occurs through three modalities: traditional arm's-length trade and investment, processing on commission (POC) trade, and operations within the Kaesong Industrial Complex (KIC). In order, these three modalities are characterized by decreasing exposure of South Korean firms to North Korean policy and infrastructure. Through a survey of 200 South Korean firms operating in North Korea we find that these modalities of exchange matter greatly in terms of implied risk. For example, firms operating in the KIC are able to transact on significantly looser financial terms than those outside it. We find that direct and indirect South Korean public policy interventions influence these different modalities of exchange and thus impact entry, profitability, and sustainability of South Korean business activities in the North. In effect, the South Korean government has substituted relatively strong South Korean institutions for the relatively weak Northern ones in the KIC, thus socializing risk. As a result, the level and type of cross-border integration observed in the survey is very much a product of South Korean public policy.Item Networks, trust, and trade : the microeconomics of China-North Korea integration(Honolulu, HI : East-West Center, 2012-06) Haggard, Stephan; Noland, MarcusA central hope of engagement with North Korea is that increased cross-border exchange will encourage the strengthening of institutions, and eventually, a moderation of the country's foreign policy. An unprecedented survey of Chinese enterprises operating in North Korea reveals that trade is largely dominated by state entities on the North Korean side, although we cannot rule out de facto privatization of exchange. Little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and dispute settlement mechanisms are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that integration between China and North Korea, at least as it is currently proceeding, will foster reform and opening.Item Global trends of multi-factor productivity(Honolulu, HI : East-West Center, 2014-03) Lee, Jeong YeonSummary: Multi-factor productivity (MFP) compares the growth of gross domestic product with the growth of combined capital and labor inputs. The growth rate of MFP assumes theoretical significance because it represents the slope of the steady-state growth path, and hence is a major determinant of the long-term growth trend. This paper offers the balanced panel of the estimated growth rates of MFP for 24 OECD countries over 1986-2011. Based on the estimates of MFP growth, a number of notable trends in productivity growth are identified for the entire OECD area as well as three major economies--the United States, the Eurozone and Japan--within the OECD.Item Is the information technology agreement facilitating latecomer manufacturing and innovation? : India's experience(Honolulu, HI : East-West Center, 2013-11) Ernst, DieterA defining characteristic of today's international trading system is that plurilateral trade agreements like the Information Technology Agreement (ITA) are gaining in importance relative to the gridlocked Doha round of multilateral trade negotiations. These more selective trade agreements pose new and so far little understood challenges for the governance of the international trading system, especially with regard to the distribution of liberalization gains among participants which differ in their stage of development, their institutions, and their resources and capabilities. The paper examines India's experience with ITA. Initially, the main concern was to attract inward FDI and to facilitate the growth of its then still nascent IT services industry. For electronics manufacturing however, the analysis shows that gains from trade liberalization were overshadowed by substantial costs - with rising electronics imports inflating the country's current account deficit to unsustainable record highs, while eroding domestic electronic manufacturing and innovation. To improve reciprocity in the distribution of gains from ITA, the paper suggests that latecomers like India deserve, under certain conditions, special and differentiated treatment. In turn, these countries need to agree to reforms that reduce investment barriers in their domestic industries, such as restrictive regulations and discrimination against foreign direct investment.Item Standards, innovation, and latecomer economic development : a conceptual framework(Honolulu, HI : East-West Center, 2013-09) Ernst, DieterLittle is known about the impact of standards on the economic development of countries which are latecomers to industrial manufacturing and innovation. Standardization is regarded primarily as a technical issue, and hence receives only limited high-level policy support. However, technical standards contribute at least as much as patents to economic growth. As a key mechanism for the diffusion of technological knowledge, technical standards contribute to productivity growth. Equally important are qualitative impacts for instance of environmental, health, food and work safety standards. A well-functioning standardization system and strategy can work as a catalyst for translating new ideas, inventions and discoveries into productivity-enhancing innovation. Standards thus are the missing link in a growth strategy which seeks to create quality jobs in higher-value added advanced manufacturing and services. The paper develops a conceptual framework to study how standards are created and used in Asian countries that seek to catch up with the productivity and income levels of the US, the EU and Japan. A stylized model of latecomer standardization tasks, capabilities and strategies is used to demonstrate that the costs of developing and implementing effective standards can be substantial. The paper examines the critical role that patents play for standardization and argues that "strategic patenting" to generate rents from de facto industry standards can stifle latecomer economic development. Policy implications conclude the paper.Item Industrial upgrading through low-cost and fast innovation--Taiwan's experience(Honolulu, HI : East-West Center, 2013-09) Ernst, DieterThis paper examines the forces that drive Taiwan's new strategy of "Upgrading through Low-Cost and Fast Innovation." The first section highlights characteristics of Taiwan's traditional "Global Factory" innovation model and examines the role of innovation policy in that model. Section 2 reviews fundamental weaknesses that define the requirements of Taiwan's new innovation strategy. Section 3 explores Taiwan's new strategy of "low-cost and fast innovation through domestic and global innovation networks." Finally, section 4 examines the role of government and key policies and initiatives in the IT industry.Item Europe's innovation union--beyond techno-nationalism?(Honolulu, HI: East-West Center, 2012-08) Ernst, DieterThis paper traces recent transformations in Europe's innovation policy--the move towards EU-wide policy coordination in the form of an "Innovation Union." A deep fiscal crisis and increasingly severe austerity policies are slowing down Europe's move towards greater openness and internationalization of its innovation system. The paper asks whether Europe has left behind for good "techno-nationalism," or whether government action in support of high-tech industries through various forms of protectionist policies is re-emerging, this time however on a region-wide scale. This question is of relevance to current policy debates about the role of innovation in the US as well as in Asia's emerging economies. The paper specifically explores what lessons the US and emerging Asia might draw from Europe's move towards an EU-wide Innovation Strategy.Item Global technology sourcing in China's integrated circuit design industry : a conceptual framework and preliminary findings(Honolulu, HI: East-West Center, 2012-08) Ernst, Dieter; Naughton, BarryThe paper examines the role of global technology sourcing, and its drivers and impacts in China's integrated circuit (IC) design industry. IC design is one of the priority targets of China's innovation policy, as codified especially in the "Strategic Emerging Industries" initiative. At the same time, however, China's IC design industry is deeply integrated into the vertically disintegrated global semiconductor industry, through markets, investment and technology. The paper highlights a fundamental challenge for China's innovation strategy: How can China reconcile its primary objective of strengthening indigenous innovation with the benefits that it could reap from its deep integration into international trade and into global networks of production and innovation? We show that the process of global technology sourcing is changing in important ways as it becomes possible to "source" technological services in an increasingly fine division of the value chain, even compared to what was possible a few years ago. The paper describes how globalization has transformed the distribution of scientific and technical knowledge; explores possible effects on technology sourcing; and examines the tension between these global changes and China's indigenous innovation policy. Focusing on IC design for wireless communications, the most dynamic part of China's country's IC design industry, we examine how changes in markets and technology create new strategic opportunities for Chinese IC design companies, and discuss tentative findings of case study research. Global technology sourcing describes a small but important segment of China's innovation system that is very different from the government-sponsored innovation of the strategic emerging industries and "indigenous innovation." This raises an important policy question: Can China combine the benefits of both innovation strategies?Item Who should bear the cost of China's carbon emissions embodied in goods for exports?(Honolulu : East-West Center, 2011-11) Zhang, ZhongXiangChina's capital-intensive, export-oriented, spectacular economic growth since launching its open-door policy and economic reforms in late 1978 not only has created jobs and has lifted millions of the Chinese people out of poverty, but also has given rise to unprecedented environmental pollution and CO2 emissions. While estimates of the embedded CO2 emissions in China's trade differ, both single country studies for China and global studies show a hefty chunk of China's CO2 emissions embedded in trade. This portion of CO2 emissions had helped to turn China into the world's largest carbon emitter, and is further widening its gap with the second largest emitter. This raises the issue of who should be responsible for this portion of emissions and bearing the carbon cost of exports. China certainly wants importers to cover some, if not all, of that costs. While China's stance is understandable, this paper has argued from a broad and balanced perspective that if this is pushed too far, it will not help to find solutions to this issue. On the contrary it can be to China's disadvantage for a number of reasons. However, aligning this responsibility with China does not necessarily suggest the sole reliance on domestic actions. In that context, the paper recommends specific actions that need to be taken internationally as well as domestically in order to effectively control the embedded CO2 emissions in China's trade.