political economy of fdi, integration and path dependence: eu and east asia ken morita (hiroshima...

Political Economy of FDI, Political Economy of FDI, Integration and Path Dependence: Integration and Path Dependence:

EU and East Asia EU and East Asia

Ken Morita

(Hiroshima Shudo University, Hiroshima, Japan) 

and 

Yun Chen

(Fudan University, Shanghai, China)

1

Difference between Difference between “institutional integration” and“institutional integration” and

“functional integration”“functional integration”

2

EU: Institutional integration

East Asia: Functional integration

Difference between Difference between “institutional integration” and“institutional integration” and

“functional integration”“functional integration”

3

EU: Institutional integrationled by Nation States

East Asia: Functional integrationled by Enterprises

Difference between Difference between “institutional integration” and“institutional integration” and

“functional integration”“functional integration”

4

EU: Institutional integrationled by Nation States

towards “Renunciation of war”

East Asia: Functional integrationled by Enterprises

towards “Profit oriented”

Economic IntegrationEconomic Integrationin Europe: in Europe: net effect?net effect?

net economic welfare

5

Trade diversion effect Trade creation effect

Uncertain ?

probably net positive ?

Both “institutional integration” Both “institutional integration” and “functional integration”and “functional integration”

6

Trade structure within the region has been close

International trade ratio among the International trade ratio among the region (%)region (%)

Year East Asia EU NAFTA

2005 49.9 66.3 55.1

2006 50.2 66.7 53.3

2007 48.4 67.7 50.6

2008 47.8 66.8 48.1

2009 46.1 66.4 46.5

2010 50.6 67.2 48.1

Average 48.8 66.9 50.3

7

Note: East Asia; ASEAN plus 3 and Taiwan. EU; EU 27.Source:JETRO, Trade and Investment White Paper (annual).

International trade ratio among the International trade ratio among the region (average) (%)region (average) (%)

（＊ｆ or reference ）

8

East Asia: 48.8

EU: 66.9

ＮＡＦＴＡ : 　 50.3 　

FDI (Foreign Direct Investment)FDI (Foreign Direct Investment)has never been the samehas never been the same

FDI activities within EU: active

FDI activities within East Asia: not active

9

EU: Institutional integration

East Asia: Functional integration

How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”

there has occurred “no FDI”

there has occurred “large scale FDI”10

When there has been no international relations,

When there has been strong international relations,

How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”

11

There can be close relationship between “international relations” and “FDI activities”.

How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”

In order to objectively evaluate the FDI to be “active” or “not active”.

12

It is necessary to consider the FDI activities (“active” or “not active”)

comparatively with the international relations (“strong” or “weak”).

How should we evaluate the FDI to How should we evaluate the FDI to be “active” or “not active”be “active” or “not active”

In order to evaluate the international relations to be “strong” or “weak”.

13

We consider the international trade as “proxy index” for international relations.

Relative ratio of FDIRelative ratio of FDI(EU case)(EU case)

(numerator) EU outward FDI amount ／ world outward

FDI amount

(denominator) EU export amount ／ world export amount

14

Whether or not FDI has been Whether or not FDI has been “active”?“active”?

active

not active15

more than one

less than one

Relative ratio of FDIRelative ratio of FDI

16

Note: East Asia; 10 countries and regionEU; EU 27Source:JETRO, Trade and Investment White Paper (annual).

Year East Asia EU

2005 0.62 1.70

2006 0.43 1.43

2007 0.49 2.11

2008 0.62 1.71

2009 0.65 1.47

2010 0.69 1.11

Average 0.58 1.59

FDI activities FDI activities

17

EU (average 1.59) : active

East Asia (average 0.58) : not active

Relative ratio of FDIRelative ratio of FDIWhy : Why : Difference between Difference between

EU (1.59) and East Asia (0.58)EU (1.59) and East Asia (0.58)

18

(1) the difference of economic development level

(2) existence or absence of “international regime”

Relative ratio of FDIRelative ratio of FDI Per capita GNI in East Asia and EUPer capita GNI in East Asia and EU

Source: World Bank, World Development Report 2011

19

East Asia Per capita GNI(US$)

EU Per capita GNI(US$)

Highest Singapore: 49,850

Highest Netherland: 40,510

Second highest Japan: 33,280 Second highest Sweden: 38,560

Second lowest Vietnam: 2,850 Second lowest Romania: 14,460

Lowest Lao PDR: 2,210 Lowest Bulgaria: 12,290

Average 13,899 Average 28,360

Highest ／Lowest

25.95 Highest ／Lowest

3.30

International regime(according to Keohane)

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‘sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given

area of international relations’

Relative ratio of FDI:Relative ratio of FDI:“international regime”“international regime”

How about the “common sense of values”

21

EU: (1) liberalism, (2) democracy,

(3) market economy, (4) christianity

East Asia:Usually said to be “nothing”. Particularly

different between China and Japan

Focusing uponFocusing uponSino-Japanese relationsSino-Japanese relations

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Sino-Japanese relations: from Japanese viewpoints of international trade and FDI

Japanese FDI in China:“active” or “not active”?

23

Japanese FDI into China:“active” or “not active”?

FDI concentration index

trade linkage index

(numerator) Japanese FDI in China ／ inward FDI

in China

(denominator) Japanese outward FDI ／ worldwide

outward FDI

24

FDI concentration index

＊ <more than one> Japanese FDI in China: relatively

larger than in other countries

＊ <less than one> Japanese FDI in China: relatively

smaller than in other countries

25

FDI concentration index

Source: JETRO, Trade and Investment White Paper (annual) and authors’ calculation.

26

FDI concentration index

Year China USA

2005 1.764 2.362

2006 2.238 1.445

2007 1.320 1.735

2008 0.732 2.262

2009 1.618 1.235

2010 0.892 0.890

Average 1.427 1.655

(numerator) Japanese export to China ／

Japanese export to the whole world

(denominator) Import of China ／ import of the

whole world

27

trade linkage index

＊ <more than one> Japanese trade with China: relatively

larger than with other countries

＊ <less than one> Japanese trade with China: relatively

smaller than with other countries

28

trade linkage index

Source: JETRO, Trade and Investment White Paper (annual) and authors’ calculation.

29

trade linkage index

Year China USA

2005 2.625 1.391

2006 2.167 1.308

2007 2.201 1.272

2008 2.347 1.375

2009 2.395 1.310

2010 2.077 1.203

Average 2.302 1.310

International relations of Japan with China are strong as expressed more than 2.0, and with USA are as displayed 1.2 to 1.4

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trade linkage index

“trade linkage index” points out a degree of strength and weakness of

international relations

(numerator) FDI concentration index

(denominator) trade linkage index

31

FDI-trade index

＊ < the ratio: equals to one>

32

FDI-trade index

FDI relations between the two countries correspond with their

strength of International relations

＊ < the ratio: more than one>

33

FDI-trade index

FDI relations between the two countries are more active than expected from the strength of

International relations

＊ < the ratio: less than one>

34

FDI-trade index

FDI relations between the two countries are less active than expected from the strength of

International relations

＊ < the ratio: more than one>

＊ <the ratio: less than one>

＊ “ in comparative sense”35

FDI-trade index

FDI: active

FDI: not active

Source: JETRO, Trade and Investment White Paper (annual) and authors’ calculation.

36

FDI-trade index

Year China USA

2005 0.672 1.690

2006 1.033 1.105

2007 0.514 1.364

2008 0.312 1.645

2009 0.676 0.943

2010 0.429 0.740

Average 0.505 1.248

We can say thatWe can say that

from FDI-trade ratio

37

Japanese FDI in China:might not be so active

(average: 0.505)

We can say thatWe can say that

from FDI-trade ratio

38

Japanese FDI in USA:might be active(average:1.248)

Why the difference Why the difference 0.505 (China) and 1.248 (USA)0.505 (China) and 1.248 (USA)

but they both have such “common sense of values” as liberal, democratic, rule of law, market economy etc.

39

US-Japanese relations have no institutional integration

Sino-Japanese relations have neither institutional integration nor “common sense of

values”

40

Japanese FDI in China:might not be so active

“lack of international regime”

International regime(according to Keohane)

41

‘sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given

area of international relations’

Why

42

“lack of international regime”between China and Japan

“Path Dependence”

Path DependencePath Dependence

means

＊ cannot move to “another path” 43

a situation in which such factors as cultural, institutional, historical etc.,

are locked in

It saysIt says

44

Japan: own path (locked in)

China: own path (locked in)

difficult to be integrated

Path Dependence:Path Dependence: how to break away from it?how to break away from it?

Cases of breaking away from it

from Mao Zedong’s path

from Soviet type’s path45

(1) Deng Xiaoping’s reform and opening-up policy

(2) Demise of Cold War

Common characteristic Common characteristic features features

Mao Zedong’s path and Soviet type’s path

46

Inefficiency and introversion

should be changed

＊　 extroversion: necessary to break away from path dependence

47

Efficiency and extroversion

Inefficiency and introversion

How to break away towards How to break away towards “extroversion”: the case of China“extroversion”: the case of China

＊ (from economic point of view)

48

to break away from “regional protectionism”

What are (possible) reasons to break away from “introversion”?

49

coming close towards the limit of inefficient economy

＊ towards “Perestroika” by M. Gorbachev

existence of a person with “mission”

＊ Asian version of Coudenhove-Kalergi and Jean Monnet with “Pan-Asianism”

Is it probable to break away Is it probable to break away from “introversion”?from “introversion”?

50

It seems to be difficult to expect it as “realistic”.

Possible realistic way Possible realistic way towards “extroversion”towards “extroversion”

To expand the network of

within the region( ＊ ).

（＊） even it is not so easy.51

FTA (Free Trade Agreement)