INTERNATIONAL POLITICS AND TRADE: CASES OF EAST ASIAN COUNTRIES

(Paper # 113)

Jae-Dong Han, University of Western Ontario, Canada

Eugene Lee, andSook Myung Women’s University, Korea

Hong Pyo Lee, Kyushu University, Japan

1. Introduction and Issues2. Methodology3. The Model and Empirical Results4. Conclusion

1. Introduction and Issues

East Asian Political Economy

• A rapid increase in East Asian countries’ Trade in the world and in the region

• Political Relationship is getting tense over long-standing issues

China-Japan Relationship

International Political Issues between China and Japan

• Territorial Disputes over ‘Diaoyu Dao’ or ‘Senkaku Islands’

• In Chinese, Japan’s ‘non-repentant behaviors’ of war atrocities

- shown in the Japanese Cabinet’s homage visit to the Yasukuni Shrine, where war criminals are enshrined

- misleading accounts of war atrocities in school history textbooks

Some Chinese boycott Japanese products

China-South Korea Relationship

Standing Political Issues

• U.S.- South Korean Joint Military Exercise against North Korea under the ‘Nose’ of China

• Chinese Long-standing Alliance with North Korea, which is developing Nuclear Weapons as immediate threat to South Korea’s national security

• Historical Claims of Ancient Nations, such as Goguryo or Gaoli, which territorially straddled Korea and China

The Chinese Perception of U.S.-Japan-South Korea Military

Alliance

Particularly in the North border of South Korea

U.S.-South Korea hold joint military drills;

Chinese fishing ships have de-facto access to this area and South Korea calls it ‘illegal’;

North Korea is alleged to ‘have bombed’ a Korean submarine; China does not support the condemnation.

China-North Korea

• In International politics, China and North Korea has a long-standing Alliance of ‘Blood’ in their fights against Japan, Chinese Nationalist Party(KMT), and U.S.

• Chinese economic supports are becoming increasing important for North Korea as the latter gets more and more isolated in the world.

• In return, China have been getting priviledged rights to mining and regional development.

• China has economic and political interests with North Korea• China wants to get involved in the

development of Special Economic Zones of North Korea, and to have a direct access to the Pacific

• Businessmen said bad international relationship hurts economic relationship, including bilateral trade;

• In East Asia, the underlying ‘sensitive’ issues will not get easily resolved.

Thus, the Key Question of Economic Pragmatism is

• “Does the broad international relationship between two East Asian countries, including political relationship and the public sentiment, affect the economic relationship, particularly the bilateral trade.”

2. Methodology1)Existing data2)Literature Review3)Our Contribution/Improvement

COPDAB (Conflict and Peace Data Bank) by Edward Azar

Longitudinal computer-based library of daily international and domestic events.

Using news media covering international events

Events Data

1) Cooperation and Peace Data Bank (COPDAB)

2) World Events Interaction Survey (WEIS)

3) Militarised Interstate Disputes data (MID)

1) COPDAB data• The Conflict and Peace Data Bank (COPDAB) is a longitudinal computer-

based library of daily international and domestic events or interactions. The event records in this file describe the actions of approximately 135 countries in the world, both toward one another and within their domestic environments. A typical descriptive event record, such as an international border clash or domestic press censorship, is coded in nine variables. A COPDAB event record includes date of event, actor initiating the event, target of the event, source from which information was gathered about the event, issue area(s), and textual information about the activity. The event record also contains an evaluation by the coder regarding the type and scale value of the event.

• Reference: Edward E. Azar, “The Onflict and Peack Data Bank(COPDAB) Project”, Journal of Conflict Resolution, Vol. 24, No. 1.

Data Period of COPDAB

• The original COPDAB data ended in 1985.

• King and Lowe provide the most recent and comprehensive events dataset, which extends on the approach of these earlier surveys using computer coding of media reports. The coding program (Virtual Research Associates

Reader) reads daily Reuters news reports to extract a list of events that identify the actors, date, and type of event according to cue

words (i.e., complain, demonstrate, seize). The program filters out routine updates such as stock reports and has been

shown to be as accurate as human coders. The King-Lowe events data are available for 1990 to 2004.

Some COPDAB datafile:

• (from a paper)

The CIODAB data of East Asia looks like:

• (Photo of Nicol’s workfile)

2) WEIS Data• The WEIS Project dataset by Joshua Goldtrein is a record of the flow of action

and response between countries (as well as non-governmental actors, e.g., NATO) reflected in public events reported daily in the New York Times from January 1966 through December 1978. The WEIS Project began under the direction of Charles McClelland at the University of Southern California as a research project on international system characteristics and processes. The unit of analysis in the dataset is the event/interaction, referring to words and deeds communicated between nations, such as threats of military force. Each event/interaction is a daily report of an international event. There are 98,043 events included in this dataset. Coded for each event are the actor, target, date, action category, and arena. Also provided are brief textual descriptions for each event.

• Reference: Goldstein, Joshua, “A Conflict-Cooperation Scale for WEIS Events Data,” Journal of Conflict Resolution, Vol. 36, No. 27, 1992, pp.369-85.

Empirical Works on the Relationship between Conflicts and Trade

• The results are mixed about whether there IS or IS NOT a relationship between the two;

• The direction of causation is also subject to dispute.

1) Solomon W. Polacheck, “Conflicts and Trade”, Journal of Conflict Resolution, Vol. 24, No. 1, 1980.

Using COPDAB for the world, he regresses an equation of Net Conflict Index = a + b exports/Imports + c X, and concludes “Trade reduces Conflicts” (non zero “b”).

2) Pollins, B., “Conflict, Cooperation and Commerce: The Effect of International Political Interactions on Bilateral Trade Flows,” Amercian Journal of Olitical Science, Vo. 33, pp.737-61.

“Concerns for National Security affect International Trade”

3) John O’loughlin, “Geo-economic competition in the Pacific Rim: the Political Geography of Japanese and U.S. exports, 1966-1988”,

Our Project• Looking at the inter-relationship among China, Japan,

South Korea, Taiwan, North Korea;• An Updated data for the most recent period of ten

years up to 2012;• Covering all social, political, economic and cultural

interests;• A simple, clear, detailed human (not soft-ware)

analysis and coding system;• Overcoming a lack of English data/media coverage for

the East Asian Region – we are using the regional/nationally representative media;

4) Davis, C.L, and Meunier, S., “Business as Usual? Economic Response to Political Tensions”, American Journal of Political Science, vol 55, no. 3, July 2011.

-constructed WEIS data for Japan-China, and worked on Sino-Japanese trade (1990-2004), and

- Verified the hypothesis of separation of politics and economics: governments will not directly intervene in the economy for political reasons, and private actors will be slow to change trade and investment patterns in response to worsening political relations.

Our ‘Comprehensive’ International Relationship Index Data

1)Constructing the international Relationship IndexLast 10 years: 2000-2010Events Analysis close to COPDABOn the Chinese representative journal of The People’s Dailyfor China/Japan; China/South Korea; China/North Korea; and

China/Taiwan

Time-series data of International Relationship Index is made by analyzing the media cover of the partner countries in the official news paper ‘People’s Daily’:

• Any coverage of Japan, South Korea, North Korea, and Japan in the news paper is analyzed;

• The length (counting the number of words) and the location(front/inside pages) are numbered;

• The orientation (negative; positive; neutral-informative) is analysed.

Actual Data of Socio-Political-Cultural International Relationship Index

Looks like:Year Month Day

Reported Countries Report Area            

China Japan Taiwan South Korea North Korea 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Page Number Length Orientation Title

2006 1 1 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 2 336 1 Happy new year to Taiwan

2006 1 1 1 0 0 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 75 1 Friendly communication with South Korea Ambassador

2006 1 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 3 198 0 South Korea President had a speech about the new year

2006 1 1 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 260 0North Korea wished to solve nuclear problem with the US peacefully

2006 1 2 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 504 0 North Korea would like to focus on economic development

2006 1 4 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 252 0 North Korea would like to dicuss nuclear problem with the US

2006 1 4 0 0 0 1 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 196 0 South Korea changed members of cabinet

2006 1 4 0 0 0 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7 144 0 South Korea increased trade this year

2006 1 5 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 2 80 1 Mainland planed to give Taiwan pandas as gifts

2006 1 6 1 1 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4 1188 0 Coference about the political relation with Japan

2006 1 6 1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 12 322 0 China and South Korea had a baseketball competition

2006 1 7 1 0 0 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 45 1 South Korea Ambassador would visit China

2006 1 7 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 7 2736 1 Details about giving Taiwan two pandas

This is an illustration of our Coding Method.

Newspaper, January 4th, 2007

Data Coding

Newspaper, January 4th, 2007

News about Japan, 2007: Result/Sum of the Simplest Weighing Formula

China-Japan Relationship, 2007:Results of the Simplest Weighing Formula

2) Examining its relationship with International Trade between China/Japan;

China/South Korea; China/North Korea; and China/Taiwan

3. The Model and Empirical Results

The Model: A Statistical Analysis of the Relationship between Political Index and Trade

• Using regression models of the Gravity Theory of International Trade:

Imports = a+ b * Political Index + c * X, where X is a vector of all relevant trade determinants, such as national incomes

and price levels of two countries.

H0: b = 0. We examine the statistical significance of the coefficient ‘b’ by t-test

Summary of Tentative Results

The t-test of a statistical significance of the estimate of ‘b’,

which measures the impact of the Political Index on Trade

Countries IiIs ‘b’ significant? Socio-Political-Cultural Relationship/Trade

China/Japan NO Separate

China/South Korea NO Separate

China/Taiwan NO Separate

China/North Korea YES Inter-related

4. Conclusion

Despite a lot of clamors and claims, there is no empirical evidence of negative impact of international socio-political-cultural relationship on interregional trade within East Asia. However, between China and North Korea exists a unique interrelationship between politics and economy.

* Extension of Research

• Han and Chowdhury (2014) will use more sophisticated econometric models like

Imports = a+ b * Political Index (leads and lags) + c * X,

• We do NOT expect different results, though.

5. Application

• What does this ‘Dichotomy between Politics and Economy’ mean in terms of stability of the U.S. Supply Chain within the E.A.?