Table of Contents

1.0 Introduction............................................................................................................2

2.0 The Three Aspects of the Model...........................................................................3

2.1 Intra-Industry Trade (IIT)....................................................................................3

2.2 Inter-Industry Aspects..........................................................................................5

2.3 International Aspects............................................................................................6

3.0 The Weaknesses of the Model...............................................................................8

4.0 Conclusion...............................................................................................................9

5.0 References.............................................................................................................10

THE FLYING GEESE MODEL

1.0 Introduction

In the 1930s, a Japanese economist, Kaname Akamatsu, introduced the Japan-

born “Flying–Geese” (FG) theory that is frequently cited in media when news about

Asia’s phenomenal economic growth is reported. The model is often used as a frame

of reference for both further conceptual elaborations and empirical explorations.

According to Akamatsu (1935) himself, the flying geese pattern “denotes the

development after less advanced country’s economy enters into economic relationship

with the advanced countries”. Akamatsu presented his theory graphically and

verbally, with good argumentation and elaborations of the mechanism at work.

Basically, the theory based on the three time series curves denoting import, domestic

production and export of manufactured goods in less advances countries. Moreover, it

defines an alternative pattern in which industries are assorted and enhanced from

consumer goods to adopt more efficient production methods – diversification paths

are repeated in moving the economy towards the higher stages of production and

export. Besides, FG model utilized to energize the regional markets and develop new

hubs of production networks that will encourage more intraregional trade and help

address the negative impacts of the economic crisis.

However, FG Model has been used to described Asia’s regional growth pattern and

explains economic growth in Asia after the Second World War. Therefore, this

assignment will explain theoretically about the FG phenomena using the Southeast

Asian countries as a model and elaborate the weaknesses of the model itself.

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2.0 The Three Aspects of the Model

The economic progress of Asia is one of the remarkable developments of the 20 th

century. Based on the Akamatsu theory, there are three aspects of the FG model.

Firstly, Intra-industry aspects – it is product development within a particular

developing country, with a single industry growing over three time-series curves

(Import [M], Production [P], and Export [X]). Secondly, Inter-industry aspect – it is

sequential appearance and development of industries in a particular developing

country, with industries being diversified and upgraded from consumer goods to

capital goods. Lastly, International aspects – it is the subsequent relocation process of

industries from advanced to developing countries during the latters’ catching-up

process.

2.1 Intra-Industry Trade (IIT)

Akamatsu formulated the basis of Japan’s experiences to explain how the

import-production-export sequence of activities consistently occurs for particular

product in the industrialization process. According to Grubel-Llyod (1967), the more

advanced and develop an economy, the more specialized its trade structure will be -

industrialized countries has greater IIT.

Besides, there are three periods in describing intra-industry dynamic; the period start

with the domestic demand actuate manufactured goods to be imported from develop

countries abroad – establish demand with activate domestic production of the goods.

As production exceeds domestic demand, the country starts exporting and imports

will basically decreases.

The graphic bellows presented the three-time series curves for each product from the

first stage (begin import foreign goods) to the second stage (import-substituting

production) and lastly the third stage (local production increases and begin to be

exported) – approximate an inverted V-shaped flying formation of wild Geese.

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Figure 1, Akamatsu Graph presentation (1961)

The aim of flying geese is to use imports to establish a domestic demand and a

technology level capable of production in order to move on to the next phase and start

exporting. However, some countries begun straight away at export phase and

skipping the import substitution phase because they do not goaled at immersing their

own domestic market, merely relied on serving others. For instance; since 1983,

Malaysia produced their domestically car that known as Proton, based on the

automobile industry is operated in very competitive environment due to numerous

rising and already existing brand – imported car (TOYOTA) from Japan. By then, the

domestic demands increasing and Proton expand their market internationally by

exporting to Africa, Asia, Europe, Australia, Middle East and South America. Thus,

Imports in Malaysia decreased from RM 49387.30 Million to RM 49029.91 Million in

December 2012. (See figure 2)

Figure 2, Malaysia imports from Jan 11 until March 2013 (source:

http://www.tradingeconomics.com/malaysia/imports)

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2.2 Inter-Industry Aspects

As the second FD aspect, Akamatsu (1961) stated that Inter-industry is a

sequence of structural changes in industrial development, the aspect here is a gradual

upgrade from manufactured goods - mainly customers goods - to capital intensive

goods (such as; machines, Auto, or technology). Likewise, the upgrading process

depends on the level of domestic demand, that is, domestic production of consumer

goods increases and creates demands for an efficient production of the necessary

inputs to the production of the goods. Besides, it is also argues that inter-industry as

well as the intra-industry, regarding the transformation of goods and industries go

thought the Import- Production – export sequential resulting efficiency and

development in the domestic economy.

Akamatsu mentioned that the import of manufactured products first advance to

improve of domestic agriculture, making domestic production and the subsequent

substitution of foreign products by domestic products possible. Basically, every

countries have limited sources, henceforth imported from foreign countries are

decisive in order to conduct domestic production. However, Foreign Direct

Investment (FDI) also plays significant role in the economic development and

Akamatsu is aware of its importance. It helps the country to procure foreign

knowledge and technology resulting into production domestically.

To exemplify the above theory - Indonesia has a huge potential for domestic

production due to high natural resources that they have. In 1990s, Indonesian

government’s economic policy had been promote FDI in the broad based

manufacturing sector in order to stimulate an export oriented and diversified

economy. It was undoubtedly that FDI in Indonesia had functioned as a new engine of

growth and major source of domestic production. Therefore, Indonesia’s trade with

ASEAN market has been increased - Indonesia export to ASEAN-4 (Singapore,

Thailand, Malaysia and Philippine) has been always higher than its import this means

that Indonesia trade is always surplus (X>M) or in other words, the domestic demands

of the ASEAN-4 to Indonesia’s goods is practically high. (See figure 2).

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Figure 2, ASEAN: Export and Import (source: www.asean.org, 2011)

2.3 International Aspects

It is a sequential positioning of the developing countries that are lined up

behind the advanced nations so that the former can emulate, learn from, and

capitalize on growth stimuli/externalities via economic interactions. (Akamatsu,

1962).

The last aspect of the Flying Geese theory is International Aspect, which is the

aspect by interchange industries with different countries with different degrees of

development and industrialization – from advanced countries to the less advanced

countries. Countries across the world are at the different stage of development and

growing at different speeds of structural transformation. According to Ozawa (2001),

the countries could interact with each other in a complementary and mutually

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augmenting way to growth regression’s explanatory power. Through correlation with

another country, the less advanced country can secure more than just a stream of

revenue, merely it can tap its links with more advanced firms to acquire knowledge,

technology, and market share or the things beyond the country’s limited resources.

In contrast, this pattern of FG model may be utilised as a general way of

describing latecomer catch-up industrial dynamics – Akamatsu clearly stated that

countries should strive to seed new industries when the technologies and capital

equipment become available. As an example given in Akamatsu theory, Japan

adopted a strategy of extreme domestic self-sufficiency in terms of capital, while

scouring the world for technology to enable it to build industries that could compete

with those of the advanced countries – (such as; from black and white to colour TV,

videocassettes and HDTV) – by which time Japan had caught up and was an industrial

leader in its own right. For instance, Thailand is one of the world’s thirteenth-largest

exporter of agricultural products since 1961, and food with a market share 2.2 percent

of world food export (sugar, rice, rubber, cassava, shrimp, and canned tuna) from

1988-2010 the annual growth rates of agricultural and food export were impressive –

Respectively averaging 10.5% and 12.2%. However, Thailand is aiming to diversify

its export markets not only in agricultural goods but as well as technology and textile.

Therefore, Thai Garment Manufacturers Association 2012 highlight that Thai textile

and garment industry is enthusiastic to ensure its benefits from the ASEAN Economic

Community (AEC), a liberalized common market of ASEAN countries to be

established from 2015.

Another example is Vietnam that used international aspect – huge diversification

for their domestic industry to change their industry from agriculture to manufacturing.

By allowing other countries to invest their line. Moreover, where there are some areas

with strong growth potential in Vietnam, it opens opportunity to build linkages

between resource-based manufactures and low-tech manufactures, allowing the

country to capture a greater share of value added. Thus, the experience of supplying

international markets, including the improvement of quality standards and process

technologies has provided Vietnamese firms with valuable experience that could form

the basis of diversification efforts into new products and market.

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3.0 The Weaknesses of the Model

Weaknesses of FG

1. Incomplete in its Financial Dimension

2. Does not Justify the lost of competitiveness

3. Lack of clarification of Technology from Exporting country to

Importing Country

4. Mechanism and phase of import left unknown

5. Unexplained Theory for export and import if the country face

Financial Crisis

Figure 3, Summary of the Weaknesses (self-made)

Based on Kojima (2000) the FG model is incomplete in many respects, especially

in its financial dimension. Comparatively, every theory has its own weaknesses. In

FG models, in term of imports Akamatsu did not really elaborate about the

mechanism/phase is left unknown - the lack of clarification in Akamatsu theory on the

mechanism of technology transfer through trade (apart from the aforementioned,

ambiguous reference to demonstration effects), all sorts of speculations may be

possible. The same goes with export; he did not basically explain how the technology

is basically transferred from exporting to the importing country.

Moreover, different countries has different formation, the evolution of the model

will not certainly the same. In terms of linkages between both countries, Akamatsu

does not justify if competitiveness is happen to be lost or domestic production

terminated - it remains unclear how local firms that have been impoverished due to

the competitive pressures of imports could overcome their overwhelmingly

unfavorable situation. Afterward, this weaknesses consistently lead to emanation of

economic nationalism, which often spinoff the struggle for economic in a country.

As an illustration in Asia, the weakness for the FG theory is the Financial Crisis

faced by the countries. There is no applicable method defined by Akamatsu to

overcome the crisis. Nonetheless, the most obvious areas impacted by Financial Crisis

are export and import, which have declined sharply across the region. The global

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crisis had been hardly hit the sharp of demand in the developed economies and

elsewhere in Asian economies. Most countries in the region were showing double

digit declines in export – even those countries that were faring relatively better were

experiencing large export declines (Japan, Korea, Singapore, Indonesia, Thailand,

Malaysia, including RRC and India) (see figure 4). Along with the drop in exports,

industrial production were falling as well as domestic demand in a number of

countries. Henceforth, FG theory requisite to be more provisional in order to growth

strength in the economy in a country.

Figure 4, export growth in Asia economies in 2008-2009 (source: Masahiro Kawai, 2009

4.0 Conclusion

In conclusion, this assignment has critically interrogated the Flying Geese model

of Akamatsu as a model of industrial learning in Southeast Asia. It explains how

stepped-up integration with the outside economy via trade and investment can assist

any aspiring developing country to jumpstart and sustain rapid structural

metamorphosis and economic growth. The FG model has proved its merits in the form

of remarkable economic performance of countries, even thought the theory is more

verbal and lacks of some applications, it has continued to guide the economic

movement of Asian countries. Therefore, if a country intends to industrialize and

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catch up in economic and technological development, to open up its economy and

submit itself to the forces of globalization.

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