The Middle-Income Trap in the ASEAN-4 Countries from the Trade Structure Viewpoint

Abstract

This paper investigated the middle-income trap for the ASEAN4 countries from the viewpoint of trade structure. The historical changes in the net export ratios for different type of goods revealed that the ASEAN4 countries had long been following the ``flying geese'' pattern, a sequential industrial upgrading after Japan and Asia NIEs, but diverged from the paths after year 2000. One possible factor that has caused the stagnant industrial upgrading in the ASEAN4 countries is the resource curse. After recovering from the recession caused by the Asian financial crisis in 1997/1998, resource-based industries in the ASEAN4 countries enjoyed booming prices of primary commodities, having diverged investments from manufacturing to primary industries. The second possible factor is the lack of homegrown MNCs in the manufacturing sector, making it difficult for the ASEAN4 countries to export parts and components to overseas MNCs. The policy to foster home companies with their own technology will bring long-lasting competitiveness in an industry, but once failed, the cost of being excluded from the regional production networks is very high. Therefore there is a choice between `shallow' industrialization, depending on FDI and MNCs, and `deep' industrialization by home companies with their own technology.