Presentation on theme: "From Export Promotion to Import substitution: Comparative Experience of China and Mexico Mehdi Shafaeddin Director: Global Vision (Training & Consultancy)"— Presentation transcript:
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
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
Outline The literature Performance of trade, MVA & GDP Performance of Processing Industries Conclusions:Prospects for the future
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
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
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
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
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 Product6.610.310.69.610.19.96.31.126.96.36.199.0 Gross Fixed Capital Formation9.79.813.914.812.414.67.7-188.8.131.52.57.6 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/GDP34.439.532.844.1 184.108.40.2067.9 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?
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 ($b): China-5.8125.2 Mexico-17.8-1.7
Performance of Maquila sector Mexico 1974198520002006Ratio 98/85 Ratio 06/98 - Gross output ($b) 0.011.3669 11393412.6 - Local input:% 0.90.72.4 220.127.116.11 -VA:%36.324.922.1 18.104.22.168 RV.%37.225.624.5 23.20.931 Imported input:% 64.375.175.6 76.71.21
Performance of Maquila and non-aquila:1
Processing trade of China: Evolution year Value($10m) Ratios XpMpRVXp/XmRV/Xp 19811115-3.75-32 1990254188675526 200013779264516233 20064164274014235834
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
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?
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?
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
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?
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