Resource title

Responses to the Crisis: - Constraints to a Rapid Trade Adjustment

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Resource description

It has been argued that “… trade adjustment in East Asia…will be rapid and sizable, liftingaggregate growth in these economies even as the domestic non-tradable sectors continue tosuffer a decline (as in Mexico)” (World Bank, 1998, p.5). Much hope has been pinned onthe electronics industry to come through with rapid growth through expanding exports. Twoarguments appear to bolster such an expectation: the severity of the region´s currencydepreciations has lowered the cost of much of its electronics supply base relative to itscompetitors; and the electronics industry´s proven track record as an engine of export-ledgrowth shows that it can be quickly started and accelerated in response to changes in themarket.However, no export boom in electronics has (as yet) materialized. The paper analyzes whatexplains this puzzle. We first introduce a taxonomy of East Asia´s electronics firms andmarket segments to distinguish different capacities to ride out the crisis. We then discussthree barriers to an East Asian export boom in electronics: i) supply-side constraints thatresult from limited access to trade finance, and from the cost-increasing impact of localcurrency depreciations in highly import-dependent countries; ii) demand-related constraints,resulting from deteriorating growth perspectives in East Asia´s electronics export markets;and iii) deflationary pricing pressures, resulting from a narrow specialization in high-techcommodities that are characterized by periodic surplus capacity and price wars. Combined,these barriers have produced a vicious circle: once exports increase, net volume gains arelikely to be offset by pricing losses.

Resource author

Dieter Ernst

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Resource language

eng

Resource content type

application/pdf

Resource resource URL

http://hdl.handle.net/10398/8091

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