Flying Geese or Sitting Ducks: China's Impact on the Trading Fortunes of Other Asian Economies

34 Pages Posted: 28 Feb 2007

See all articles by Alan G. Ahearne

Alan G. Ahearne

National University of Ireland, Galway (NUIG) - Department of Economics

John G. Fernald

Federal Reserve Bank of San Francisco

Prakash Loungani

International Monetary Fund (IMF)

John W. Schindler

Board of Governors of the Federal Reserve System

Date Written: December 2006

Abstract

This paper updates our earlier work (Ahearne, Fernald, Loungani and Schindler, 2003) on whether China, with its huge pool of labor and an allegedly undervalued exchange rate, is hurting the export performance of other emerging market economies in Asia. We continue to find that while exchange rates matter for export performance, the income growth of trading partners matters far more. This suggests the potential for exports of all Asian economies to grow in harmony as long as global growth is strong. We also examine changes in export shares of Asian economies to the U.S. market and find evidence that dramatic changes in shares are taking place. Many of these changes are consistent with a 'flying geese' pattern in which China moves into the product space vacated by the Asian NIEs or with greater integration of trade across Asia in the production of final goods. Nevertheless, China's dramatic gains in recent years do increase the pressure on Asian economies, particularly in ASEAN and South Asia, to seek areas of comparative advantage.

Keywords: exports, trade links, exchange rates, trade equations

JEL Classification: F10, F31, O53

Suggested Citation

Ahearne, Alan G. and Fernald, John G. and Loungani, Prakash and Schindler, John W., Flying Geese or Sitting Ducks: China's Impact on the Trading Fortunes of Other Asian Economies (December 2006). FRB International Finance Discussion Paper No. 887. Available at SSRN: https://ssrn.com/abstract=965750 or http://dx.doi.org/10.2139/ssrn.965750

Alan G. Ahearne (Contact Author)

National University of Ireland, Galway (NUIG) - Department of Economics ( email )

Newcastle Road
Galway
Ireland

John G. Fernald

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

John W. Schindler

Board of Governors of the Federal Reserve System ( email )

Washington, DC 20551
United States
202-452-3889 (Phone)

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