1. The “flying geese” model
Welcome to the presentation on-
The “flying geese” model
of Asian economic development:
origin, theoretical extensions, and regional policy implications
Paper written By:
Kiyoshi Kojima
Professor Emeritus
Hitotsubashi University, Tokyo, Japan
Presented by:
MDS Apurba Kumar Datta
MDS Sharmin Juthi
Under the Course:
Title: Development and Policy Economics
Course ID: MDS 5303
MDS Program, Khulna University

2. Outlines “Flying geese”: what the phrase actually stands for
Introduction
Akamatsu’s original Flying Geese (FG) Model
Basic pattern of development of industry
Variant pattern of diversification of industries
Diversification and Rationalization of Industries (Kojima Model I)
Regional Transmission of FG Development
PROT-FDI and Vernon’s “Product Cycle”
Investment Frontier
Investment Frontier and Shifting of Competitive Advantage
Comments on the FG model
Conclusions

3. “Flying geese”: what the phrase actually stands for
When wild geese fly away… Generally follow a “V” formation-
WHY?
By flying in a “V” formation-
they add 71% greater flying range than if it flew alone
staying united, they ease and pleasing the process to reach the goals...
LESSONS
With the spirit of teamwork; regardless of differences, possible to meet the challenges and reach goal much efficiently…

4. Introduction
The flying geese model is metaphorically used as a model of industrial development, explains how the development take place in the less-advanced country following advanced countries.
FG model aims at addressing the catching-up process of industrialization in developing open economies.
Professor Kaname Akamatsu in 1930s first; but gained wider popularity in the 1960s
The FG pattern of industrial development then transmitted from the lead goose (Japan) to follower geese (Newly Industrializing Economies (NIEs), ASEAN 4, China, etc.), and thus regional development spread out

5. Akamatsu’s original Flying Geese (FG) Model
FG model consists of:
a basic pattern is a single industry grows tracing out the three successive sequences of import (M), domestic production (P), export (E)
a variant pattern; in which industries are diversified and upgraded from consumer goods to capital goods and/or from simple to more sophisticated products.
Akamatsu discovered these two patterns of industrial development, looked like a flying geese formation, through statistical analysis.

6. Basic pattern of development of industry
Stage I:
When an underdeveloped nation first enters the international economy-
primary products (say, cotton textile) are exported
industrial products (say, textile machinery) are imported from advanced nations.
Stage II:
domestic production of imported goods is initiated with the domestic market as an outlet.
concentration of purchasing power makes their domestic production profitable
consumption by imports lessen and self production took place.
national economic policy stimulates this trend toward domestic production
Stage III:
domestic consumer goods industry develops into the export industry.
most of the domestic markets turned into markets for domestic industrial goods.
mass production leads to increase export to overseas markets.
domestic production of machinery shrinks the import of capital goods

7. Real Value of Each Variable
Basic pattern of development of industry
In Fig. 1a:
import of consumer good (X) increases from t1 to t2.
At t2, domestic demand becomes large to be enough to set up optimal scale plants, making it possible for profitable domestic production to begin.
Real Value of Each Variable
Fig- 1a : Consumer goods
Fig- 1b: Capital Goods
M, m= Import
E, e= Export
P, p= Production
Pf= Offshore Production
M’= Revenue Imports
Fig. 1. Flying geese pattern of industrial development
Thus, at t2, the P-curve starts to increase in Fig. 1a, and the imports (m) of capital goods (Y) also rise as shown in Fig. 1b.

8. Real Value of Each Variable
Basic pattern of development of industry
Contd…
In Fig. 1a:
around t*, as far as consumer goods are concerned, E increases, whereas import (M) declines, making trade in balance.
At the same time, P becomes equal to domestic demand (D), since D= P – E + M.
Now, the industry is able to turn from import substitution toward export-led growth.
Real Value of Each Variable
Fig- 1a : Consumer goods
Fig- 1b: Capital Goods
M, m= Import
E, e= Export
P, p= Production
Pf= Offshore Production
M’= Revenue Imports
Fig. 1. Flying geese pattern of industrial development
This situation reflects a successful implementation (or graduation) of the catching-up process of the industry concerned along the sequential path of M-P-E, which is the basic pattern of the FG model.

9. Variant pattern of diversification of industries
FG model also allows a variant (or subsidiary) pattern:
The sequential phenomenon of M-P-E also occurred in the progression from crude and simple goods to complex and refined goods.
The diversification of products (or industries) is classifiable into two patterns.
intra-industry cycle created by the emergence of new products within an existing industry, e.g.,
from cotton to woolen to synthetic textiles,
from crude and simple goods to complex and refined goods.
inter-industry cycle exhibiting the development of a new industry
from textiles to steel to shipbuilding to autos to computers,
from consumer goods to capital goods.

10. Variant pattern of diversification of industries
Contd…
Each cycle, either intra- or inter-industry, repeats the basic FG pattern enhancing efficiency and competitiveness of an industry, which may be called a rationalization of production.
The intra-industry cycle also raises value-added and brings about growth of an industry, i.e., a diversification of production through inter-industry cycles upgrades the structure of industries and exports.
Thus, interactions between, and parallel progress in, the rationalization and diversification of production (i.e., the basic and variant FG patterns occurring at the same time) stimulate national development.

11. Diversification and Rationalization of Industries (Kojima Model I):
Kiyoshi Kojima developed a theoretical model combining the basic and variant patterns; explain how the economic development took place-
The diversification move towards a more capital-intensive industry and the rationalization move towards a superior mode of production enhance the efficiency of the economy
as a whole and raise its wage rate or per capita income level, which is after all the essence of economic development.
Diversification
The economy specializes in labor-intensive industry, as so the demand for labor input will increase and relative wage will rise.
Then the economy will move to a more labor-saving industry and shift to a capital intensive technology by a optimal factor combinations
Thus a structural change of industries will move towards upgrading diversification.
Rationalization
The rationalization of industry is made possible by technological progress, economies of scale, “learning-by-doing,” and accelerated intra-industry product cycle.

12. Diversification and Rationalization of Industries (Kojima Model I):
Contd…
A two-factors (labor and capital) and two-goods (X and Y) case is illustrated in Fig. 2.
Showing the combinations of labor and capital required to produce a unit of output.
The factor intensity, shown by the slope of a product expansion path, say, Oa1 and Ob1 is
Fig. 2
assumed that X-industry is relatively more labor intensive.
whereas Y industry is more capital intensive for any factor price ratio (Ѡ = wage/rental), i.e. slope of the common tangent MN to the isoquant X and Y..

13. Diversification and Rationalization of Industries (Kojima Model I):
Contd…
The factor endowment ratio, i.e., total capital (K)/total labor (L) of the economy is represented by the slope of a “ʎ” line in Fig. 2, the ʎ line goes through a1, the economy will completely specialize in the production of X-goods which is labor-intensive.
as the growing demand for labor leads to increase in wage, production forced to using more labor-saving industry.
by moving the optimal factor combinations from a1 to a2 in X- industry and from b1 to b2 in Y-industry, economy attain the diversification.
Instead of the movement along an isoquant, the rationalization of an industry brings about the shift of isoquant from the inferior α production mode to the superior β one.
Fig. 2, suppose the Y-isoquant shows a unit cost to produce Y- goods by using an inferior α mode of production, whereas the Y*- isoquant represents a superior β mode.

14. Regional Transmission of FG Development
Akamatsu added a third pattern (Stage IV) of inter country alignment in order to explain the international (or regional) transmission of FG development from a lead goose to follower geese.
In this patters-
consumer goods are put into production in other less advanced countries and development in a wild-geese-flying pattern is under way.
capital goods domestically produced in the third stage begin to be exported.
Thus, in place of the decreasing export of consumer goods, capital goods are exported and reach the stage of high-degree heterogeneity (or differentiation) in regard to other less advanced countries.

15. Regional Transmission of FG Development
Contd…
with regard to this sequence, that is, a wild-geese-flying pattern sequence, the underdeveloped nations are aligned successively behind the advanced industrial nations in the order of their different stages of growth in a wild-geese-flying pattern
“The less-advanced ‘wild geese’ are chasing those ahead of them, some gradually and others rapidly, following the course of industrial development in a wild-geese-flying pattern.
The advanced “wild geese,” which are in the lead flying onward, incessantly achieving technological innovations and trying to maintain a certain distance of heterogeneous difference from the less-advanced ‘wild geese’.

16. PROT-FDI and Vernon’s “Product Cycle”
For a lead goose country (say, A), continue exports of consumer goods to rise up to a peak and then decline because such labor-intensive consumer goods (say, textiles) are losing comparative advantage due to a rapid rise in wages
A follower goose country, (say, B), whose wage level is much lower, now begins to produce textiles, facilitated by A’s firms FDI by transferring capital, superior technology, and managerial skills.
Thus the country A’s exports of capital goods increases and increase with an enlarged scale of comparative advantage
This is what Kojima called “Pro-trade oriented FDI”, that enhance comparative advantages in both countries, expanding trade and a reinforced productivity growth.
As long as this type of FDI is promoted, an FG stimulus of industrialization is transmitted sequentially from a lead goose to follower geese, bringing about enlarged trade and co-prosperous economic growth.

17. PROT-FDI and Vernon’s “Product Cycle”
Contd…
Modifying the Vernon’s ‘product cycle’ thesis, Kojima rephrased the flying geese model as “catching-up product cycle” of development”.
depending upon borrowed technology and capital, increases economies of scale through “learning-by-doing,” and thus international competitiveness, and enables catching-up with the advanced world.
Once domestic production is rationalized, firms are confronted with a task to extend PROT-FDI abroad and/or to diversify their production structure, at home.

18. Investment Frontier
Kojima found that Japan’s FDI has been of the PROT type, which exhibits a pattern of an “investment frontier”
Fig. 3 is drawn with two assumptions.
an economy’s industrial structure is diversified and upgraded in a sequence from X (labor intensive goods- textile) to Y (capital intensive goods- steel), and further to Z (machinery and other capital/knowledge-intensive goods).
The FG pattern of industrialization is transmitted through PROT-FDI from economy A, the lead goose or Japan, to follower geese B (or, NIEs), C (or, ASEAN 4), and D (or, China)

19. Fig. 3. Investment Frontier
Contd…
Fig. 3. Investment Frontier
The industrial shift occurs horizontally over time.
The geographical spread takes place vertically over time.
The passage of time is indicated by dotted lines I, II, III and so forth.

20. Investment Frontier
Contd…
At period I, Japan graduates from the catching-up process in X-industry, and there is no outward FDI yet.
At period II, Japan achieves a comparative advantage in Y-industry and invests in country B’s X-industry (i.e., PROT-FDI).
By period III, Japan upgrades its comparative advantage to Z-industry, and invests in country B’s Y-industry and country C’s X-industry.
At period IV, the future progress of Japan’s industrialization is yet unclear, but her investment has spread widely toward country B’s Z-industry, country C’s Y-industry, and country D’s X-industry.

21. Investment Frontier and Shifting of Competitive Advantage
Source: Alam M Rugman and Simon Collinson, International Business 5th Edition.
Fig. 3. “Flying Geese” pattern of shifting comparative advantage

22. Comments on the FG model
A number of criticisms have been raised about the FG model.
Some are political and ideological in nature; they come from dependency theorists in political science.
Some others are more constructive, suggesting modifications of the model to reflect the changing global environment.
A first critical comment suggests that Japan’s investment cum trade expansion might be a revised version of imperialism or a Greater Asian Co prosperity.
FDI-led growth strategy creates dependence on borrowed technology, capital, management, and marketing and does not encourage any indigenous innovation.
Such export-led growth is vulnerable against changes in global economic and political circumstances.
Foreign affiliates import capital goods and intermediate inputs from home, spreading little linkage effect to the host economy and leaving only small value-added by cheap local labor.

23. Comments on the FG model
Many studies note that the sequential transfer of industrial specialization does not follow the same pattern in each country.
The example of the Indian IT and services industry also demonstrates that leapfrogging is possible. Here a less developed country (LDC) has evolved competitive advantages in an advanced service sector without going through the stages depicted by the model.
The “triangle trade” caused a large trade deficit for Asian countries, that caused a trade imbalances are caused by the failure of reverse imports in the FG product cycle.
Some follower geese may become sub-leaders when they graduate from the catch-up process and start to undertake FDI, particularly in specialized niche products.

24. Conclusions
Though the flying geese model is metaphorically used, it successfully explained the sequential shifting of comparative advantage across economies.
FG pattern has become very famous and popular not merely in the academic circle, but also in the political, business, and even journalistic world.