Economic growth and trade in the Pacific Rim: An analysis of trade patterns

Mark Jonathan Gehlhar, Purdue University

Abstract

In the last decade there have been considerable changes in trade patterns among the fast-growing East Asian countries and their partners. Growth in this area of the world has been due to superior accumulation of physical and human capital. The probable evolution of global trade patterns is of much interest. An understanding of forces driving structural changes in production, consumption, and trade is important both as a means of predicting the broad path of change and identifying market opportunities. Such knowledge also provides a basis for designing policies which encourage structural adjustments. In the past, endowment-based statistical approaches have been used to explain existing trade patterns but they say little about the evolution of trade patterns over time. Without explicit representation of firm and household behavior these approaches are not appropriate for inferring likely time-series behavior in a growing world economy. This research employs an applied general equilibrium model of the world economy to explain changes in East Asian trade patterns over the period, 1980-1990. The analysis decomposes the sources of structural transformation in the growth process. In particular, the effects of household demand are isolated from those of factor accumulation. This is done by simulating the effects of household demand generated by growth in per capita income in the absence of factor market constraints. Likewise the individual effects of factor accumulation are isolated by simulating the changes in endowments in the absence of household demand effects. Finally the combined effects of factor supply and household demand is used to show how these determinants affect patterns of production, consumption and trade. Historical changes in sectoral shares of exports from 1980 to 1990 were compared with those determined by the model for six East Asian countries. The correlation between actual and predicted sectoral shares of exports ranged from 0.604 for Indonesia to 0.982 for Taiwan. In all countries the magnitude of change in historical export shares was greater than the predicted changes. It was demonstrated that restrictions imposed by the Armington elasticities in the model may be one reason for the predicted changes to be consistently lower than the actual changes. The analysis performed in this thesis provides a different approach for understanding the forces driving trade patterns in rapid-growing countries. Numerous factors could influence trade patterns as growth occurs in the world economy. By systematically isolating the determinants of trade pattern changes in a multi-country model one can better assess how trade patterns might evolve over time.

Degree

Ph.D.

Advisors

Hertel, Purdue University.

Subject Area

Agricultural economics

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