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From Export Promotion to Import substitution: Comparative Experience of China and Mexico Mehdi Shafaeddin Director: Global Vision (Training & Consultancy)

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Presentation on theme: "From Export Promotion to Import substitution: Comparative Experience of China and Mexico Mehdi Shafaeddin Director: Global Vision (Training & Consultancy)"— Presentation transcript:

1 From Export Promotion to Import substitution: Comparative Experience of China and Mexico Mehdi Shafaeddin Director: Global Vision (Training & Consultancy) Affiliated to the Institute of Economic Research, University of Neuchatl, Switzerland

2 The QUESTIONS What is the experience of China and Mexico in export processing? Why is China more successful than Mexico Can the experience of China be replicated? In two papers

3 Outline The literature Performance of trade, MVA & GDP Performance of Processing Industries Conclusions:Prospects for the future

4 The literature Import Substitution and Export Promotion as Alternative Strategies The process of MS & Prebischs thinking MS as prerequisite to EP Common Argument: Emphasize on learning –MS: Learning by doing –(outward-orientation )EP: Transfer of knowledge & Tech. –Opening up: imitation; catch-up opportunities; innovation Differences –MS: need for Gov. intervention –EP: Hands off

5 Critiques of MS,EP Contribution to Learning: not much in either case MS: often discouraged learning; –Reasons; lack of efficient Gov. policies –exceptions EP: did not appreciate internal conditions for learning: –Simply exporting is not sufficient –Learning is not automatic –Gov policies required

6 Literature (2): Productive Power (PP) and Learning List: mental capita as main source of PP –Role of socio-economic factors –Importance of gov. Policies in industrial learning and education ; –external economies of learning Others :Arrow, Linder;Fellner: role of experience Capability Building Theory –Role of tech. capability in a broad sense –Market failure –Need for intervention Test of Impact of FDI: Experience of Costa Rica/ Ireland

7 Mexico &China :Similarities & differences Similarities: –Opening up to trade; FDI and processing Difference: performance: (table 1) –Growth of Xman. –Trade balance –FDI; national I –MVA;GDP (graph 1) –Trade in Parts (table 1.a

8 Table 1: Comparative economic Performance of china and Mexico (1965-2005) ChinaMexico Growth rates65-8080-9090-20002000-20052004200560-8080-9090-20002000-200520042005 Manufacturing value Added10.510.812.711.310.710 0.91.54.30.04.01.2 Gross Domestic Product6.610.310.69.610.19.96.31.13.11.94.13.0 Gross Fixed Capital Formation9.79.813.914.812.414.67.7-2.74.11.87.57.6 Total Exports 12.814.523.7a31 5.916.13.5.a14.3 (Xman-Mman)/Xman. Initial period/%) -1.654.522.618.3 -67-58-13.1-16 Ratios70/7180/8190/9104/05 70/7180/8190/9104/05 MVA/GDP34.439.532.844.1 23.122.120.717.9 GFCF/GDP24.527.526.538.4 19.025.618.319.5 FDI/GDP0.00.11.03.5 0.81.11.32.3 Exports of Manufactures / Total MVA / Total World MVA 1.02.68.5 1.01.20.9?

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10 Table 1.a: Trade in Parts and Components: Manufactured Good; China and Mexico -------------------------------------------------------------------------------------- 1992/32003/4 China :Value($b) Exports3.258.4 Imports9.844.6 Balance-6.5713.8 Shares : Components/total X:6.317.6 Mexico:Value($b) Exports6.826.3 Imports13.833.8 Balance-7.5-7.5 Shares : Components/total X:20.223.9 Meomo : balance of man. trade ($b): China-5.8125.2 Mexico-17.8-1.7

11 Performance of Maquila sector Mexico 1974198520002006Ratio 98/85 Ratio 06/98 - Gross output ($b) 0.011.3669 11393412.6 - Local input:% 0.90.72.4 2.82.41.3 -VA:%36.324.922.1 20.40.60.9 RV.%37.225.624.5 23.20.931 Imported input:% 64.375.175.6 76.71.21

12 Performance of Maquila and non-aquila:1

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14 Processing trade of China: Evolution year Value($10m) Ratios XpMpRVXp/XmRV/Xp 19811115-3.75-32 1990254188675526 200013779264516233 20064164274014235834

15 Prospects for the Future What are the prospects for increasing value added in assembly operation of China and Mexico? Evolution of pattern of CA RCA indices: –Rx= [Xij/Xj]: Xwi/Xw]; –Rm = [M ij / Mj ] [ M wj / Mw ]; –Cr= (Change in R)/R

16 China: RCA in X Choice of about 30 products=64% of X RCA in almost all 13 capital/tech. intensive; mostly elect. 14 L intensive Gain RCA (increase in Cr) in K/T, particularly elect. Loss in Cr in most L intensive So good prospects for X; BUT? How about production?

17 China: RCA & M:Components Assembly Operation or Production? Choice pf products: 30: 67% of M Intermediate/components:19; bulk of M Comparative advantage in assembly in all components: except automobile Advantage in assembly increased in most cases However in 4 cases (of components) adv. In production increased How about finished good?

18 China: RCA & M: Finished products Production? Increase in adv. In production of: –Telecommunication equipment –Specialized machinery –Textiles and leather machinery –Aircraft –Machine tools for working metals –Passenger cars

19 Mexico: RCA: X Choice of products : similar to China Mexico exports higher no. of K/T intensive products than china(18 out of 29) Automotive &elect. 25 % of X Gained adv. On components of auto. &data processing Lost adv. In X on 11 K/T intensive finished goods How about assembly operations?

20 Mexico: RCA: M Production? Paperboard the only intermediate product (out of 13)with adv. in production; but adv. In assembly increased! Finished goods: advantage in production in: –Automotive –Data processing Examine these cases

21 Auto. &data processing Prospects ExportsImports RRcRRc 1.Office machines and auto.data processing : Finished products: 7510.630.450.440.42 7522.0763.6770.911.48 Components: SITC 7590.8011.4381.2773.612 2.Automotive products: Finished products: 7811.5180.9910.6725.366 7824.2313.3881.083.81 7831.5820.340.250.19 Components 7841.71.12.323.66

22 Conclusions China Mexico Question?


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