The Economics of East Asian Integration: A comprehensive Introduction to Regional Issues

Authors: Masahisa Fujita, Ikuo Kuroiwa, Satoru Kumagai

ISBN: 9780857930118

Publisher: Edward Elgar

Year: 2011

Reviewed by Ryan Hartley, University of Sheffield (UK) and Tohoku University (Japan)

This book sets out to be a comprehensive introduction to economics in East Asia and to regional issues. Organised into five sections, nineteen chapters, and running to 511 pages, it is certainly that. Published by IDE-JETRO, Japan’s leading government linked international business think tank, the ideological persuasion is evident. Focusing strongly on ‘integration’, the chapters are divided into disciplinary based parts: (1) theory; (2) production and innovation; (3) agriculture, services, labour and money; (4) institutions; (5) consequences and challenges (poverty, environmental issues etc). The grouping in this way is reasonable enough, except for part three which is attempting to do too much. Dividing this part into separate sections, perhaps ‘agriculture and labour’ followed by ‘services and money’ would help to better differentiate the themes approached. On the whole however the schema is reasonable for organizing the wealth of ambitions the text has.

Since this is an edited text, a chapter by chapter review is necessary. Chapter one by Ikuo Kuroiwa and Satoru Kumagai focuses on the history of integration in East Asia. Demarcating its temporal starting point as Japan’s post WWII ‘take off’ period, the chapter largely begins its history from the 1980s period. The chapter does not actually serve up much history in the traditional sense. Only enough to back stop the favoured theories: take off, ‘flying geese’, functionalism, and the growth of ASEAN. There are large sections of this chapter that, in a discussion of history, are irrelevant. Freight costs, tariff rates and business sectors (only automobile and electronics, revealing the bias of a Japan based text) seem at odds with economic history. The ‘Nixon shocks’, 1973 and 1979 oil crises, Japan’s post-Plaza Accord yen revaluation and ‘endaka phase’ (expensive yen, pushing many Japanese corporates offshore), and Chinese liberalisation under Deng Xiaoping are notably absent. Chapter two and chapter three establish the theoretical framework of the book, with chapter two by Koji Nishikimi and Ikuo Kuroiwa focusing on industrial agglomeration, while chapter three by the same two authors contrastingly focuses on dispersion. This distinction between the two chapters is well reasoned.

With the background and theoretical approach established, chapters four to six (part two of the book) focus on integration through production networks. Mitsuyo Ando’s chapter on East Asia is very box and graph heavy, making the body of prose at times difficult to follow. The chapter correctly notes the growth of machinery based production and trade, at the increasingly intra-regional level, although there are points to question, especially with regards to the degree to which Japanese firms intra-regionally trade with local firms, in addition to claim made that Japanese firms behave similarly to US firms in terms of labour; case studies of factory life in the region would contest this. The next chapter by Ho Yeon Kim and Toshitaka Gokan examines theories of FDI, and evaluates the positive and negative roles of MNEs in East Asia. All of the classic approaches are given time – product life cycle theory, flying geese theory, new trade theory, and new economic geography approaches. The chapter then shifts towards examining KOREAN FDI, no doubt due to the background of one of the authors, but it is unclear how this fits in with a chapter on theories of FDI. This chapter does not readily meet its own set aim – to evaluate the positive and negative impact of MNEs, instead focusing on description rather than critical evaluation.

The final chapter of this section by Kensuke Kubo, focuses on that most ephemeral of production – R&D and intellectual property. Again the approach taken to technology transfer here is that it happens by ‘spillover’, ie: technological innovation, or that structural factors such as the link between income level and R&D spending, are responsible for technology transfer. Omitted is the habitual behavior of Japanese and KOREAN manufacturers to separate production processes from worker training, with for example Japanese firms maintaining final assembly within Japan so that local factories can never obtain a complete understanding of the products and systems they are learning. Also surprisingly omitted is the controversy and criticism surrounding the intellectual property regime, on issues such as patent protected medicines or the patenting of agricultural goods such as seed and grains.

Moving on to part three, integration that occurs through ‘agriculture, services, labour and money’, we find four very different chapters. The first by Masayoshi Honma lines its sights on agriculture. Due to the sensitivity surrounding agriculture in its relations with broader issues or trade and integrative processes, this chapter is one of the most important in the whole edited collection. Again the chapter is very descriptive, with political information omitted, for example Thailand’s political decision to stockpile price and push up the price, that has now crashed and fuelling the current turmoil’s in the country as farmers are left in debt; although mention is made about Japan’s Liberal Democratic Party connections with Japan’s powerful farming lobby. However no mention is made of the intra-bureaucracy feuds that exist in Japan, between the liberalizing Ministry of Finance and the protectionist Ministry of Agriculture, Forestry and Fisheries that leaves those in less developed countries bemused by Japanese negotiators. A final mention is made as to the EU’s Common Agricultural Policy (CAP), however this may have been a better starting point for the chapter, because the lessons learnt from Europe’s CAP demonstrate that integration at the agricultural level sets a very high bar of political tolerance for integration.

The next chapter contributed by Christopher Findlay focuses on services, examines the scope of services in the economy, engages with a case study of the logistics sector, and aims finally to make suggestions for services reform. The definition for ‘services’ selected by Hill at the outset is remarkably broad, almost covering any economic exchange that has an effect on virtually anything else; although following sections do break the tertiary sector down into differing sections (eg: travel, insurance, financial services, etc), albeit only for the year 2006. Again, due to the nationality of the author we have a focus this time that widens ‘East Asia’ to include Australia and New Zealand. This chapter stands out as finally considering the role of policy in international economic interaction, and more critical analysis of the role of the WTO and Doha Round talks to the region would have been useful.

The third chapter of this third part, written by Tomohiro Machikita, examines migration, a sensitive topic tinged with historical significance in the region. Drawing on the Asian Development Bank’s ‘growth corridors’ sub-regional projects, the chapter focuses on the Indonesia-Malaysia corridor followed by overseas Chinese students in Japan. It is not altogether clear why these two disparate cases were chosen, and important factors of immigration were omitted such as the historical role of the Chinese diaspora in spread capitalism around Southeast Asia, in addition to trafficking of peoples from South to North Asia. The final chapter of the section from Eiji Ogawa and Kentaro Kawasaki focuses on monetary integration, and it may have been more prescient to place this chapter next to opening agricultural integration chapter as these two sectors are so often in contrast. The chapter follows a familiar structure – advantages/disadvantages, theories, and then a case study, which in this case is of the 1997 Asian Financial Crisis. This chapter is interesting, and tackles head on whether East Asia needs or indeed could develop a common currency as per the European model. All key develops are given time – the Chiang Mai initiative, common currency baskets, an Asian Currency Union, although more recent developments such as firm level local currency bonds did not make it in. Furthermore, no mention is made of the political difficulty that some in the region feel about Japanese attempts to perhaps be developing a ‘yen bloc’, such as the countries elites desired to do at the beginning of the twentieth century to replace sterling as the monetary base. However overall this chapter achieves what it sets out to do, and the beginner student of international economics will no doubt gain a lot from this chapter.

This brings us to part four, and leaves behind the general processes of integration to move towards the drivers of integration. Part four contains four chapters, divided two by two focusing on two themes – institution building and infrastructure/connectivity. The first chapter by Jiro Okamoto finally adopts some history, and succinctly glides over key post WWII institutions and the influence of the Cold War, leading up the development of ASEAN. This chapter is another important one, and I would have recommended the material in this chapter to have appeared in the opening chapter of text, rather than in the middle at chapter eleven. This chapter is an excellent overview of the history of East Asian institution building. To compliment this, the subsequent chapter by Daisuke Hiratsuka transitions from backward looking history to the possibility of forward looking ‘further integration’. The weapons employed here at the continuance of trade barriers, proliferation of multiple level Free Trade Arrangements (FTAs) and the Rules of Origin (ROOs) regime. East Asian integration is far more messy than the treaty and law based integration of Europe, and this is noted in what the author notes as the ‘spaghetti bowl’ phenomenon in East Asia, i.e. many different processes occurring simultaneously and at differing levels. As with the previous chapter being better placed at the opening of the text, this chapter may be better to have been placed at the end of the text, as any of the questions raised, stimulate questions with regard to policy implications and the next course of progress that East Asia may or may not proceed down.

The second subsection of this part four on drivers of integration, is to do with transport and infrastructure. Chapter thirteen by Ikumo Isono focuses on transport links, and nicely takes an inherently technical subject breaks it down into pieces of why transport matters for different facets of integration. Again however, there is a lack of political focus, and just as the Roman’s always understood that road building went hand in hand with empire building, infrastructure has a highly political role. No mention is made as to the competition in the Mekong region between China and Japan with regards to the desired construction of a Kunming-Singapore railway network that would connect the sub-region with itself, and the sub-region to the wider region. Moreover, no mention is made of China’s ‘nine pearls’ strategic strategy of developing key SEZ ports, that would give it power projection abilities from East Asia to South Asia and beyond. The subsequent chapter by Bisa Nath Bhattacharyay again focuses on infrastructure, but instead examining a mixed bad of transport systems, energy and financing arrangements. This chapter feels as through it did not need to be a separate piece, instead being better to have been rolled together with the previous chapter. It is also unclear as to the relevance of a rather broad focus upon discussing bond markets and the financial crisis as part of financing this kind of infrastructure. In addition, no mention is made of the cost of developing this kind of infrastructure, such as the large-scale movement of indigenous peoples from their land to make way for dams and bridges.

Moving on to the final part of the text, part five – ‘cohesion and stability’. The opening chapter by Nobuaki Hamaguchi and Wei Zhao examines disparities in regional integration, and aims to discern the underlying forces responsible for increasing regional disparities. This is performed at both the intra-country and inter-country levels, and again due to the nationality of one of the authors China is heavily analyzed. On this topic, due to both China’s size and large regional variations, this may have been a mistake, as China represents such a statistical outlier that it can affect a regional analysis by pulling the mean in into its orbit. Despite the title, the chapter is really only interested in meta-level disparities, and little micro-level, human centered, discussion takes place of the poverty of the peoples of East Asia. Instead, this is taken on in the following chapter by Kosaki Kono who examines integration and poverty. He confusingly concludes in the opening that trade expansion and increased FDI flows have no significant impact on aggregate poverty rates, but that the expansion of trade creates ‘winners and losers’. Little time is given to the substantially difficult task of defining poverty and a simple GDP per capita measure is adopted, which hardly captures the day to day reality of what poverty means to people. The chapter is highly econometric, with statistical equations and models used as evidence to support the aforementioned conclusion. Due to the narrow definition of poverty adopted in this chapter the final conclusion reached was a near foregone conclusion.

A change in direction is taken in chapter seventeen by Nobuhiro Horii, who examines the problem of energy in East Asia, and whether the difficulty in cooperating on issues of energy supply and distribution will hamper future regional integration. The chapter is an interesting one, drawing in both international factors affecting energy in addition to the regional effect of a rising (and thirsty) China. The author concludes that to resolve the tensions created by China’s assertions in the region, a supranational institution is required to manage this common interest. This hardly seems likely, due both to that present tension in addition to a trajectory of East Asian integration that shies away from supranational institutions. However the chapter deals effectively with an important question for the future of the region. The second to last chapter by Michikazu Kojima and Etsuyo Michida centres itself on the environment, and examines the role of trade in creating increased environmental degradation and pollution. The approach adopted however is one of impenetrable econometric equations, coupled with copious box sorted details as opposed to narrative or description. The conclusion unsatisfactorily arrives at no clear position, and the recommendation of ‘more cooperation is needed’ falls rather flat on this very important issue.

The final chapter of this part five, and indeed the whole edited text, is by Masahisa Fujita, Ikuo Kuroiwa, and Satoru Kumagai, who question what new directions East Asian regionalization may take. The authors assume from the outset that EU style integration cannot take place in East Asia, and de facto integration has consistently preceded de jure integration as the characterizing trend of the region’s integration. The authors accept the common understanding that while America and Europe are the innovation centers of the global economy, East Asia is the ‘factory of the world’, and they regard any change in this global structural dynamic as extremely difficult, although steps are being taken in developing Northeast Asian universities. In addition to this, measures such as boosting regional demand and mobilizing intra-regional savings for the purposes of investment are suggested, although rather half heartedly. The conclusion reminds one of a diplomatically wary politician’s, that “…we should proceed step by step by setting a common agenda and tackling each item jointly, while strengthening mutual trust and nurturing the common identity of the East Asian community”.

Overall Strengths

The text as an introduction covers all the standard bases, from Vernon’s trade theory, to ‘flying geese’ theory, to vertical/horizontal production networks etc. Akamatsu, Krugman, Stiglitz, all receive their obligatory mentions. It is highly detailed, with up to date information, concisely detailed in manageable sections, and relevant sources have been used and identified, allowing students using the text to follow these sources up.

The language is clear and concise, without too much jargon that is not explained or technicality, making the book ideal for its target audience of a student or for an introductory economics course. Not only in terms of discipline but in general English terms, the language could be used for native and non-native speakers alike, as it is lucid and simple. The text could however be far better formatted, with the small size meaning figure boxes crossing over pages, and text, especially in tables, being squashed and cut to fit into the space constraints.

Overall Weaknesses

The ideological bias is evident when the text’s main focuses are considered. Despite a brief and very cursory mention of early developments in the 19th and 20th century, the timeframe focused on is largely from the 1980s forward. This is clearly done to benefit the normative assumptions behind the adopted approach, which is that integration often ‘just happens’. The analytical approach is clearly normatively neo-liberal and methodologically econometric. So if you are someone who is intimidated by algebra, this may not be the book for you. In addition, despite the text being published in 2011 a majority of the data being shown only reaches to around 2005. Perhaps the editing process was long, but this is one issue with econometrics based texts – they very quickly go out of date. Furthermore, there is clearly an agenda underlying the text, as solutions are always resolutely neo-liberal: more SEZs would be good, lower tariffs would be good, more free trade and privatisation would be good.

Lots of econometric algebra, graphs and descriptive statistics supplant not only a lack of historicity but also a lack of criticality. Very little mention is made of structures, political context (such as the Cold War), policies, leaders, or any kind of sociological or cultural factors. This gives the text a rather descriptive tendency, which perhaps the authors were aiming for as an introductory course text. However the lack of context and criticality of the processes being described would I suspect leave the potential student confused as to ‘why’ these economic changes were occurring. Little analysis, even in the section on institutions, is done on the role of the state in East Asia, or country level politics or political leaders. It is difficult to omit these, as for example the impact of a Deng Xiaping in China or a Koizumi Junichiro are clear.

Conclusion

In conclusion, this is an economics text, written by economists, for budding economists. The failings or bias pointed out are evident but if understood from the outset, the text remains a highly concise and detailed summary of East Asian globalisation. In fact, the authors may have found a wider audience if they had used ‘globalisation’ or ‘regionalisation’ in the title, rather than integration, as that is what is really being addressed. This is certainly a good textbook to have as a ‘go to tool’ for empirical facts and broad outline of (some) theories. If questions related to power or context are required, or answers to the ‘why’ questions are sought, then this text may need to be complimented with extra material.

Suggested citation:

Ryan Hartley (2014). Review of “The Economics of East Asian Integration: A comprehensive Introduction to Regional Issues”, by Masahisa Fujita, Ikuo Kuroiwa and Satoru Kumagai, East Asian Integration Studies, Vol. 7, no.35.