THE UNIVERSITY OF HONG KONG SCHOOL OF ECONOMICS AND FINANCE MECON6014 Trade, Investment and Development in East Asia Summer 2017

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1 THE UNIVERSITY OF HONG KONG SCHOOL OF ECONOMICS AND FINANCE MECON6014 Trade, Investment and Development in East Asia Summer 2017 Instructor: Professor K.C. Fung Professor of Economics, University of California, Santa Cruz Visiting Professor University of Hong Kong Course Description: This is an advanced Master-level course that studies the various important and timely aspects of selected Asian economies. The topics include economic reforms and structural changes, international trade, foreign direct investment, economic growth, high technology and innovation, etc. K.C. Fung was a senior economist at the White House Council of Economic Advisers (CEA) during the George H.W. Bush and Bill Clinton Administrations. He received a letter of commendation from the U.S. President. He was also an academic advisor to the United States International Trade Commission (USITC) from 2006 to 2010 (George W. Bush and Obama Administrations). He was an academic expert to a U.S. government project related to the economic national interest of the United States in 2011 and 2012 (Obama Administration). In 2015 and in 2016 (Obama Administration), he was working with the United States Trade Representative (USTR), researching on and promoting issues related to international trade. K.C. Fung was an academic partner and a research consultant to the World Trade Organization (WTO) from 2004 to He was a Senior Research Fellow at the Bank of International Settlements (BIS) in He was an academic consultant to the World Bank in 2012 and He was an academic consultant to the OECD in 2013 and K.C. Fung was a Visiting Fellow at Bruegel in In 2016 and previously in 2012 and 2008, he was a Visiting Researcher at the Bank of Finland. In 2010, he was a Visiting Professor at the University of Le Harve, France. He is currently a Professor of Economics at the University of California, Santa Cruz and a Visiting Professor at the University of Hong Kong. He also taught at Stanford University, University of Wisconsin-Madison and Mount Holyoke College. Countries to be examined include the four largest Asian countries (based on current official or market exchange rates), Japan, China, India and South Korea; other selected Asian tigers, Hong Kong, Taiwan and Singapore; and selected common economic issues such as U.S.-Asia economic relationships, multinationals and company strategies, trade in parts and components, high technology sectors and clusters in Asia, foreign direct investment in Asia. Asian linkages and comparisons with Latin America and Europe will also be examined. 1

2 Aims: (1) Gain an understanding of the relationships and growth experiences of East Asian economies (2) Learn some of the innovation activities in East Asian economies (3) Understand the interplay of the state and market in affecting economic performances in the East Asian economies (4) Attain a critical appreciation of why different economies in East Asia pursue different development, trade and investment strategies Course Intended Learning Outcomes (CILOs) and Alignment with Programme Learning Outcomes (PLOs): CILOs: On completing Alignment with PLOs the course students will be able to: 1 Understand, analyze and critically interpret concepts and ideas related to trade, investment and development in East Asian economies PLO1, PLO2, PLO3, PLO4, PLO5 2 Understand, analyze and critically think about issues related to government policies and the economics of East Asian members 3 Understand, analyze interpret and think critically about the various economic systems adopted by East Asian economies 4 Understand, analyze and critically think about issues of development, trade, investment and innovation and how these relate to human development in East Asia Teaching and Learning Activities (TLAs): PLO1, PLO2, PLO3, PLO4, PLO5 PLO1, PLO2, PLO3, PLO4, PLO5 PLO1, PLO2, PLO3, PLO4, PLO5 TLA1 Lecture Instructor will give lectures on major concepts and issues TLA2 Discussion Instructor will organize inclass discussions TLA3 Consultation Instructor will hold weekly consultation hours to answer students questions Assessment Tasks: Assessment Method Assignment Weighting Alignment with CILOs Written paper Expository Essay 50 1, 2, 3, 4 Final Examination 2-hour written examination 50 1, 2, 3, 4 For this course, there are two assessment requirements: (1) A written paper of 1500 words (50%) (2) A written 2-hour comprehensive final exam (50%) 2

3 The course grade is determined by the sum of the two requirements. Written Paper The written paper should focus on examining a specific topic discussed in the course. The paper should be a critical examination of an issue studied in the course using materials supplied by the instructor. Students are encouraged to augment the class materials by using outside research articles. To prepare for the paper, students may consult with the professor for advice in deciding on a topic. Place footnotes and references at the end of the paper so that they can be excluded from the word count. Appendices are allowed and can be submitted. Final Exam: The final exam will be scheduled in the Assessment Period and will be essay-based. Students will choose to answer three out of five questions. The questions will be based on materials taught in class. Alignment Among Course Intended Learning Outcome, Teaching and Learning Activities and Assessment Tasks: Learning Outcome Teaching and learning Assessment Tasks activity (TLA) CILO1 TLA1, TLA2, TLA3 In-class exam and written paper CILO2 TLA1, TLA2, TLA3 In-class exam and written paper CILO3 TLA1, TLA2, TLA3 In-class exam and written paper CILO4 TLA1, TLA2, TLA3 In-class exam and written paper 3

4 Standards of Assessment for both the written paper and in-class exam: Grade Course Grade Descriptor A+, A, A- Strong evidence of superb ability to fulfill the intended learning outcomes of the course at all levels of learning: describe, apply, evaluate and synthesis. B+, B, B- Strong evidence of ability to fulfill the intended learning outcomes of the course at all levels of learning: describe, apply, evaluate and synthesis. C+, C, C- Evidence of adequate ability to fulfill the intended learning outcomes of the course at low levels of learning; such as describe and apply, but not at high levels of learning such as evaluate and synthesis. D+, D Evidence of basic familiarity with the subject. F Little evidence of basic familiarity with the subject. COURSE SYLLABUS: Readings: Lecture materials, slides and most readings will be electronically distributed. Some of the readings include: Europe, Germany and the German Model : Economic Links and Implications for China, Global Economic Review, by K.C. Fung, Trade in East and Southeast Asia and Global Foreign Direct Investment, Journal of International and Global Economic Studies, by K.C. Fung, Nathalie Aminian and Hitomi Iizaka, Production Networks and International Trade: China, Brazil and Mexico, North American Journal of Economics and Finance, by K.C. Fung, Hsiang-Chih Hwang, Francis Ng and Jesus Seade, Some Characteristics of Innovation Activities: Silicon Valley, California, China and Taiwan, Economic Change and Restructuring, by K.C. Fung, Nathalie Aminian and Chris Tung, Economics of Export Restrictions as Applied to Industrial Raw Materials, OECD Trade Policy Papers No. 155, by K.C. Fung and Jane Korinek, Paris, France, Sino-Latin America Economic Relationships eds. K.C. Fung and Alicia Garcia-Herrero, Routlege Press, paperback edition, K.C. Fung, Lawrence,J. Lau and Joseph Lee, 2004, United States Direct Investment in China, with a Foreword by Former U.S. Secretary of State George P. Shultz, American Enterprise Institute (AEI) Press, Washington, D.C.. Trade in Services: East Asian and Latin American Experiences, Nathalie Aminian, Alicia Garcia-Herrero and Francis Ng, International Journal of Services Technology and Management, Making IT: The Rise in Asia in High Tech eds. Henry Rowen, Marguerite, Gong Hancock and William F. Miller, Stanford University Press,

5 Barry Naughton, 2007, The Chinese Economy: Transitions and Growth, MIT Press. Production Sharing in East Asia and Latin America, K.C. Fung, Alicia Garcia-Herrero and Alan Siu, BBVA Working Paper, FDI Flows to Latin America, East and Southeast Asia and China: Substitutes and Complements/ Review of Development Economics, A Comparative Analysis of Trade and Economic Integration in East Asia and Latin America, Nathalie Aminian, K.C. Fung and Francis Ng, Economic Change and Restructuring, The Political Economy of Exchange Rates: The Case of the Japanese Yen, by Nathalie Aminian, K.C. Fung, Alicia Garcia-Herrero and Chelsea C. Lin, Japan and the World Economy, Characteristics of Japanese Industrial Groups and Their Impact on U.S.-Japanese Trade, by K.C. Fung in Robert E. Baldwin ed. Empirical Studies of Commercial Policy, NBER Conference Volume, University of Chicago Press.. International Trade and Bank Groups, by K.C. Fung, Journal of the Japanese and International Economies, 16, pp , Finding an Upside for Latin America in China s Slowdown, Nikkei Asian Review, April 22, China Needs to Let It s Silicon-Valley-Like Companies Grow, Nikkei Asian Review, March 6, Course Outline: Topic 1. Introduction: Broad Economic Trends in the Economies of East Asia; Economic Relationships with the United States Lecture slides, Economic Trends in Asian Economies and class materials, 2017, by K.C. Fung Peter Navarro and Wilbur Ross, 2016, Scoring the Trump Economic Plan: Trade, Regulatory, & Energy Policy Impacts, September 29. Alexander Gray and Peter Navarro, 2016, Donald Trump s Peace Through Strength Vision for the Asia-Pacific, Foreign Policy, November 7. Topic 2. Large Asian Economies I: The Japanese Economy 2.1 Overview 5

6 Lecture Slides on the Evolving Japanese Economy, 2017, by K.C. Fung The Promise of Abenomics, by Joseph E. Stiglitz, Project Syndicate, April 5, 2013: Aspects of Abenomics, Lecture slides K.C. Fung Japan s Industry Structure, Trade and Exchange Rate The Political Economy of Exchange Rates: The Case of the Japanese Yen, by Nathalie Aminian, K.C. Fung, Alicia Garcia-Herrero and Chelsea C. Lin, Japan and the World Economy, "The Strategic Logic of Japanese Keiretsu, Main Banks and Cross- Shareholdings, Revisited," by Ulrike Schaede, Working Paper No. 247, Center on Japanese Economy and Business, Columbia Business School, October Characteristics of Japanese Industrial Groups and Their Impact on U.S.-Japanese Trade, by K.C. Fung in Robert E. Baldwin ed. Empirical Studies of Commercial Policy, NBER Conference Volume, University of Chicago Press.. International Trade and Bank Groups, by K.C. Fung, Journal of the Japanese and International Economies, 16, pp , Japan s Lost Decade and Weaknesses in Its Corporate Governance Structure, by Mitsuhiro Fukao, in Robert M. Stern ed., Japan s Economic Recovery, Edward Elgar Publishing. 2.3 Japan s Labor Market and the J-Firm Some International Properties of Japanese Firms, by K.C. Fung, Journal of Japanese and International Economies, 6, pp Unemployment, Profit-Sharing and Japan s Economic Success, European Economic Review, by K.C. Fung, 33, "Japanese Firms," by Koji Taira, mimeo. Additional Reading Materials: OECD Economic Survey of Japan, Paris, France, 2013 and 2015 available online. The Japanese Economy, by Takatoshi Ito, MIT Press, latest edition 6

7 Information, Incentives and Bargaining in the Japanese Economy, by Masahiko Aoki, Cambridge University Press, latest edition, Chapters 2, 3 and 4. Chapter 8, The Labor Market, The Japanese Economy, by Takatoshi Ito. "European Union (EU) Research and Development: A Comparison with Japan, the United States and China," Bruegel Policy Brief, 2008, Brussels: Belgium, download from: Chapter 7, Industrial Structure and Policy, The Japanese Economy, by Takatoshi Ito. A Simple Bargaining Analysis of the Implementation of Regional Trade Agreements in Integration of Markets vs. Integration by Agreements, pp , by Nathalie Aminian, K.C. Fung and Francis Ng, World Bank Policy Research Working Paper, Washington, D.C Applications U.S.-Japan Economic Issues White House Council of Economic Advisers (CEA): Reclassification of Japanese Multipurpose Vehicles, Executive Office of the U.S. President, Washington, D.C., USA White House Council of Economic Advisers (CEA): Meeting with Japanese Government s Economic Planning Agency, Executive Office of the U.S. president, Washington, D.C., USA White House Council of Economic Advisers (CEA) : SII: Negotiations with Japanese Government Officials, Notes by K.C. Fung, Executive Office of the U.S. President, Washington, D.C., USA Structural Impediment Initiatives (SII), Interagency Negotiations with the Government of Japan, Notes by K.C. Fung, Executive Office of the President, Washington, D.C.., U.S.A WTO Training of Government Officials from the Asia/Pacific World Trade Organization (WTO) Training Course for Government Officials "Economic Development of Japan," WTO, Geneva: Switzerland, July 2006, K.C. Fung. World Trade Organization (WTO) Trade Policy Course for Government Officials, Market Access: Price Surveys in U.S. and Japan, WTO, Geneva: Switzerland, July 2004, K.C. Fung and Piermartini, WTO. 7

8 2.4.3 Other Applications Japan: The Setting Sun? by Malcolm Foster, December 27, 2010 Japan s Gross National Cool by Douglas Mc Gray, Shunto in Japan, Economist, March 2008 "In Japan, Secure Jobs have a Cost," by Hiroko Tabuchi, May 2009 "Fertility Rates in Japan," Japan Brief/FPCJ, No June 10, 2009 "Public Debt in Japan," Japan Brief/FPCJ, No June 15, 2009 Topic 3. Large Asian Economies II: The Chinese Economy 3.1 Overview Lecture Slides on the Chinese and East Asian Economies, 2017, Lawrence J. Lau Lecture Slides on China and the Global Supply Chain, 2011, K.C. Fung, Stanford University Reading Materials: China s Transition to the Market: Progress and Challenges by Nicholas Hope and Lawrence J. Lau,, in Policy Reform and Chinese Markets: Progress and Challenges, ed. Belton M. Fleisher, Nicholas C. Hope, Anita Alves Pena and Dennis Tao Yang, Edward Elgar Publishing Ltd., 2008, Chapter 1. Barry Naughton, Chapter 4, Chapter 6, Chapter 15. OECD Economic Survey of China, Paris: France, External and Other Aspects of China Reading Materials: Barry Naughton, Chapter 16, Chapter 17, Chapter 20. Economic Integration between Asia and Europe Guest Editors: K.C. Fung, Alicia Garcia-Herrero, Andre Sapir and Jun-En Lee, Journal of Economic Integration, June

9 United States Direct Investment in China, by K.C. Fung, Lawrence. J. Lau and Joseph Lee, with a Foreword by Former U.S. Secretary of State George P. Shultz, American Enterprise Institute Press, Washington, D.C., Domestic Value Added and Employment Generated by Chinese Exports: A Quantitative Estimation by Xikang Chen, Leonard Cheng, K.C. Fung, Lawrence J. Lau, Jiansuo Pei, Yun-Wing Sung, Zhipeng Tang, Yanyan Xiong, Cuihong and Kunfu Zhu, China Economic Review, Measuring Vertical Specialization: The Case of China, Judith Dean, K.C. Fung and Zhi Wang, Review of International Economics, FDI Flows to Latin America, East and Southeast Asia and China: Substitutes or Complements? Review of Development Economics, by Busakorn Chantasasawat, K.C. Fung, Hitomi Iizaka and Alan Siu, China and Central and Eastern European Countries: Regional Networks, Global Supply Chain or International Competitors? by K.C. Fung, Iikka Korhonen, Ke Li and Francis Ng, BOFIT Discussion Paper No , Institute for Economies in Transition, Bank of Finland, Helsinki, Finland, June Japanese Direct Investment in China, by K.C. Fung, Hitomi Iizaka and Alan Siu, China Economic Review, 14, pp , 2003 Additional Reading Materials: What is so Special About Chinese Export? Kennedy School of Government, Harvard University, Dani Rodrik, NBER working paper, 2006, available online Applications: U.S. China Economic Issues U.S. Congressional Commission on US-China Security and Economic Review "U.S. and Foreign Direct Investment in China," invited testimony by K.C. Fung, Hearings on Chinese State-Owned Enterprises and U.S.-China Bilateral Investment, the United States Congress, United States Government, Washington, D.C., United States House of Representatives, Committee on Ways and Means, Official Request for a Study on U.S.-China and U.S.-Asia Trade and Investment, 2006 U.S. Congressional Commission on US-China Security and Economic Review "Trade and Investment: China, the United States and the Asia/Pacific Economies," invited testimony by K.C. Fung, Hearings on China as an Emerging Regional and Technological Power, the United States Congress, U.S. Government Printing Office, Washington, DC., USA,

10 United States International Trade Commission How Vertically Specialized is Chinese Trade, USITC Discussion Paper 08-09D, by Judith Dean, K.C. Fung and Zhi Wang, The United States Government, Washington, D.C., USA, 2008; paper presented at the IMF, Washington, D.C., April 6, 2007, online at EC200809D.pdf White House Council of Economic Advisers (CEA), China 301 Market Access, Executive Office of the President, Washington, D.C. Vertical Specialization in Chinese Trade, Judith Dean, K.C. Fung and Zhi Wang, BOFIT Online, Bank of Finland, Helsinki, June Other Applications Presentations to the OECD, Paris: France, June 2014, K.C. Fung Presentation to the World Trade Organization, WTO, Geneva: Switzerland, June 2013, K.C. Fung China and Latin America, 2012, K.C. Fung and Alicia Garcia-Herrero Topic 4. Large Asian Economy III: The Indian Economy 4.1 Overview Lecture Slides on the Indian Economy, 2017, K.C. Fung. Why India Can Grow at 7 Percent a Year or More: Projections and Reflections, by Dani Rodrik and Arvind Subramanian, IMF Working Paper WP/04/118, 2004 OECD Economic Survey of India, Paris, France, OECD Economic Survey of India, Paris, France, External and Labor Market Aspects of the Indian Economy India and China: Trade and Foreign Investment, by Arvind Panagariya, Columbia University, India: The Emerging Giant by Arvind Panagaria, YouTube Applications: 10

11 Bank for International Settlements (BIS), Where Do Chinese and Indian Investors Go and Why? by K.C. Fung and Alicia Garcia-Herrero, September 2007 United States Trade Representative (USTR), Interagency Report on Review of Trade and Investment Policies: India, Washington, D.C. Topic 5. Large Asian Economy IV: The South Korean Economy 5.1 Overview Lecture Slides on the South Korean Economy 2017, by K.C. Fung Lecture Notes on the Economic Development of South Korea 2017, K.C. Fung 5.2 Growth and Management Aspects of the Korean Economy Byung-Nak Song, The Korean and Japanese Growth Patterns Compared in The Rise of the Korean Economy, Oxford University Press, latest edition. Byung-Nak Song, The Korean and Japanese Management Systems Compared in The Rise of the Korean Economy, Oxford University Press, latest edition. Economic Models of Industrial Policies: East Asia, lecture notes, K.C. Fung. 5.3 Application: Antidumping and DRAMs, Clinton Administration, Government of the United States, Washington, D.C. Aggressive Legalism: Changing Legal Behaviors of South Korea and Japan in the WTO, World Trade Organization, WTO, Geneva: Switzerland Topic 6. East Asian Trade and Investment 6.1 Production Network, Foreign Direct Investment and Regional Integration Trade in Services: East Asian and Latin American Experiences, Nathalie Aminian, K.C. Fung, Alicia Garcia-Herrero and Francis Ng, International Journal of Service Technology and Management, United States, Japanese and Korean FDI and Intra-East Asian Trade,, K.C. Fung, Hitomi Iizaka and Alan Siu, Asian Economic Papers, Production Sharing in East Asia and Latin America, by K.C. Fung, Alicia Garcia- Herrero and Alan Siu, BBVA Working Paper. 11

12 A Comparative Analysis of Trade and Economic Integration in East Asia and Latin America, by Nathalie Aminian, K.C. Fung and Francis Ng, Economic Change and Restructuring, Foreign Direct Investment, Intra-Regional Trade and Production Sharing in East Asia, by Nathalie Aminian, K.C. Fung and Hitomi Iizaka, Research Institute of Economy, Trade and Industry (RIETI) Discussion Paper 07-E-064, Government of Japan, Tokyo, Japan, December "EU and East Asia--the Third Link" Bruegel Discussion Paper 2006, Brussels, Belgium: "Production Sharing in East Asia," K.C. Fung, Hitomi Iizaka and Alan Siu, IDE- JETRO, Chiba, Japan, Applications: World Trade Organization (WTO) Trade Policy Course for Government Officials, International Trade and Finance: East Asia, WTO, Geneva: Switzerland, July 2006, by K.C. Fung World Trade Organization (WTO) Trade Policy Course for Government Officials, "International Trade and the Environment in the Asia/Pacific," WTO, Geneva: Switzerland, K.C. Fung, August 2006, by K.C. Fung Topic 7. High Technology in Asia Henry Rowen, Marguerite Gong Hancock and William Miller ed., Chapter 1, An Overview by Henry Rowen Chapter 2, Stability and Change in the Japanese System, by Ken-ichi Imai Chapter 4, Hsinchu, Taiwan: Asia s Pioneering High-Tech Park, by Chintay Shih, Kung Wang, and Yi-Ling Wei Chapter 5 The Re-Making of Singapore s High-Tech Enterprise Ecosystem by Poh Kam Wang Chapter 8 Entrepreneurship: The True Story Behind Indian IT by Rafiq Dossani Topic 8. Economic Growth in Asia 12

13 Lecture Materials: Growth Accounting and East Asian s Growth, K.C. Fung, The Myth of Asia s Miracle, by Paul Krugman Lecture Notes on the Economic Development of Taiwan, K.C. Fung, "Innovation and Technology in Taiwan," Lecture materials by K.C. Fung,