The theory of wage differentials: A correction

International Economics

Diagnosis of Financial Crisis in Asia:From Miracle to Debacle

This paper discusses the causes, cures and consequences of the Asian financial crisis.Since mid-1997 a number of Southeast Asian economies have been in the grip of a severe financial crisis that has thrown the region into a deep recession.On the basis of expected diminishing returns this has raised doubts about the durability of the region's rapid growth rates which were realized since the 1980's.Its very success made it attractive to private capital inflows which were borrowed in dollars on short terms but lent out domestically for long periods and intermediated through poorly regulated domestic financial systems. Large current account deficits due to overvalued currencies and overinvestment in the nontradable sector created an asset bubble which had to burst.The crisis started in Thailand in July 1997 but has not been predicted and alarm bells did not ring although the ratio of short-term debt to foreign reserves had increased to unsustainable heights and falling stock prices gave some indication of growing concern.A key feature of the crisis has been the contagion and spillover to other countries in the region.After six months of currency and stockmarket turmoil the process of cleaning up shattered financial systems did start, but some obstacles obstruct a rapid clean up.On the basis of IMF projections world output growth in 1998 has been estimated at 2% (down from 4% in 1997) and global growth is to recover only moderately in 1999.There are reasons to believe that the IMF rescue packages added rather than ameliorated the panic.Now financial and economic conditions in Asia are improving and the period of economic and financial meltdown is largely over.Real activity has reached a bottom and much of this reflects the improvement in current account balances.Incipient signs of recovery are emerging but the path to recovery remains rocky with significant head wind.While the symptoms of the crisis have abated and the underlying malaise is better understood, the treatment is only just beginning

Wintelism and Production Networks in the Electronics Industry

This paper deals with two interrelated elements of globalization: Wintelism and cross national production networks which have been underexposed in discussions about globalization.Wintelism refers to the shift in competition away from final assembly and vertical control of markets by final assemblers toward a struggle over de factor product standards generating market power anywhere in the value chain.In electronics Intel and Microsoft are leveraging their control over PCs to alter the terms of competition by emphasizing the microprocessor resp. the operating system as de facto market standards.The creative use of intellectual property rights and associated licensing strategies define defensible market positions more than manufacturing cost as the basis of competitive advantage.Cross national production networks refer to the dis-integration of the industry's value chain into constituent functions which can be contracted out to independent producers wherever located in the global economy.These networks have emerged most clearly in Asia and have been used by American and Japanese firms.The development of USA direct investment in electronics in Asia over the past three decades will be examined and compared with Japanese investment in Asia.A production network typology will be used to analyse the positions of US, Japanese and Overseas Chinese electronic firms.The final question to be discussed is whether the production networks that have emerged in East Asia can become a significant feature of the integration of Central /Eastern Europe.The optic of such networks provides an alternative perspective on the East European economic transition.The basic conclusion is that Wintelism and networking were the principal means by which the US electronics industry recovered from its mid-1980 s crisis in competition with Japanese firms and will likely influence a broader range of sectors.However, there is nothing automatic about the benefits of participating in international production networks.Periodically there are important reversals in the distribution of such benefits.The China Circle will witness one of the great market battles in memory as US, Japanese and indigenous production networks vie for 21 st century advantage

From Confrontation to Coopetition in the Globalized Semiconductor Industry

The silicon chip is not only a symbol of marvellous technologies that are transforming industrial production and leisure time in society, but also of trade and technology conflicts while at the same time offering the potential for cooperation.The purpose of this paper is to show that the semiconductor industry has moved from being highly confrontational to being much more cooperative as is evidenced by the emergence of cross-national strategic alliances between companies, spanning R&D, product development, production and distribution.Over the last 15 years the semiconductor industry has experienced startling reversals of competitive fortune in which the USA dominated in 1970s, then Japan entered in 1980s, and in 1986 surpassed the USA as the largest producer of semiconductors with most US firms abandoning DRAM production due to price competition.This reversal of market position has become known as the X-curve. Since the early 1990s the Americans are on top again but with the Koreans and the Taiwanese coming on fast.With China and perhaps India coming on line in the present decade or so, these reversals in competitiveness will continue to play themselves out in the market.Due to external economies and spillover effects for other industries, this industry is considered to be a strategic sector, not only in the USA, where the industry came into existence, but also in Japan and Europe.Observing the excessive returns earned initially in this industry in the USA, Japanese companies wanted to shift these profits, at least in part, to Japan, for which the Japanese government provided support.The closing of the Japanese market both to imports and foreign direct investment undermined the initial American competitive strength.In order to counteract the loss of competitiveness the US industry reacted, besides by restructuring, by creating, with government funding, the research consortium SEMATECH, while the American government responded by concluding since 1986 bilateral trade agreements with Japan in which Japan initially agreed to "voluntarily" restrict its exports of semiconductors and to "voluntarily" expand the imports of American chips.In the mid-1980s Europe was a marginal player in the global competitive battle and suffered dependence on the USA and Japan.This was a consequence of decisions taken by European firms but part also lies in the fragmentation of the European market and the policy pursued by

The elimination of technical barriers to trade in the European Community

Trade Barriers;EEC;international economics

Effective protection: A survey

Trade Barriers;international economics