Sentences to ponder, on globalization’s 2nd unbundling

by on January 4, 2012 at 7:20 am in Economics | Permalink

…as the Thai versus Malay auto sector experiences show, thinking about localisation policies without putting global value chains at the heart of the economic logic can lead to some very misguided policies.  Today’s nations might do better to look at Thailand starting from the late 1980s, rather than Korea and Taiwan.

That is from Richard Baldwin and the paper is here.  For background, Baldwin suggests that Malaysia failed to become a major auto producers because it tried to commandeer the entire supply chain, whereas Thailand was content to fit in with the broader Japanese supply chain.  I found this an excellent read, interesting throughout, though I wish Baldwin had spent more time discussing the rather limited nature of economic progress in Thailand, including relative to Malaysia.

The paper has the title “Trade and Industrialisation after Globalisation’s 2nd Unbundling: How Building and Joining a Supply Chain are Different and Why It Matters.”  It’s the first good paper I’ve read this year, but there are more to come.  It is also a good paper for Arnold Kling to comment on; Baldwin asks for instance how South Korea will deal with the international unbundling of the national supply chains the country has created and used to back its growth.

john personna January 4, 2012 at 8:28 am

FWIW, when I was in Malaysia I was told they all drove Japanese used cars, because the Japanese have those strict vehicle re-inspections, forcing cars off the street there and into an export market. Does this impact Thailand equally? Left hand drivers? Low tariffs on used cars?

david January 4, 2012 at 9:54 am

I’m guessing a detailed study of the positions of cronies in Thailand vs. Malaysia to benefit from each stage of car manufacturing would probably account for the difference in policy. Malaysia was less corrupt than Thailand in the 80s-90s, mind, which probably only made it even harder to mobilize political support without counterproductive appeals to nationalism. The downside of being less corrupt but not non-corrupt, I guess.

johnleemk January 4, 2012 at 10:10 am

John:

I am a Malaysian and I am not sure how true that is. Maybe for a select, wealthy portion of the population. In general, Japanese cars are very expensive because of prohibitive government tariffs. Most people drive locally-made cars, which are strongly subsidised.

It is definitely true that Japanese strict vehicle re-inspections force their vehicles into other markets. When my family migrated to New Zealand, my father specifically sought out used Japanese vehicles because he knew they’d be cheap while still being very reliable. How far this affects Thailand, I can’t say.

john personna January 5, 2012 at 6:35 pm

Thanks for the added info!

JWatts January 4, 2012 at 10:13 am

“It is easy to see how a comparison between Brazil and China is puzzling when one ignores
supply chains.
China – which is physically in the middle of ‘Factory Asia’ – is not using Chinese factors of production, Chinese technology, or relying on Chinese policy for most of Chinese exports.

Brazil is too far from ‘Factory North America’ and ‘Factory Europe’ to enjoy such a free ride.
Most of what Brazil depends on ‘things Brazilian’.”

I tend to doubt this statement about Brazil. I don’t see the physical distances as being that important. Certainly Australia is just as far from any other major factory conglomeration, but it is part of a supply chain, not an independent entity. Perhaps the effect is mostly cultural, but China is a pretty independent culture. So again, I don’t see how this statement is supportable.

Steven Kopits January 4, 2012 at 3:40 pm

“I wish Baldwin had spent more time discussing the rather limited nature of economic progress in Thailand, including relative to Malaysia.”

According to the IMF WEO, Thai per capita GDP in US dollars, was 38% of Malaysian per capita GDP in 1980. In 2010, Thai per cap GDP was 60% of Malaysia. And if we index from 2000, on a PPP per capita basis, Thailand 194, Malaysia 170 in 2011. For total GDP in US $ (2000=100), Malaysia is at 165 in 2011, Thailand at 158. The discrepancy: population growth rates. Compared to 2000 (2000=100): in 2011, Thailand stands at 104, Malaysia at 123. Thailand’s population is growing more slowly, hence the appearance of inferior economic performance.

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