from export promotion to import substitution: comparative experience of china and mexico mehdi...
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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
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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
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Outline
• The literature
• Performance of trade, MVA & GDP
• Performance of Processing Industries
• Conclusions:Prospects for the future
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The literature
• Import Substitution and Export Promotion as Alternative Strategies
• The process of MS & Prebisch’s 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
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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
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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
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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
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Table 1: Comparative economic Performance of china and Mexico (1965-2005)
China Mexico
Growth rates 65-80 80-90 90-2000 2000-2005 2004 2005 60-80 80-90 90-2000 2000-2005 2004 2005
Manufacturing value Added 10.5 10.8 12.7 11.3 10.7 10 0.9 1.5 4.3 0.0 4.0 1.2
Gross Domestic Product 6.6 10.3 10.6 9.6 10.1 9.9 6.3 1.1 3.1 1.9 4.1 3.0
Gross Fixed Capital Formation 9.7 9.8 13.9 14.8 12.4 14.6 7.7 -2.7 4.1 1.8 7.5 7.6
Total Exports 12.8 14.5 23.7a 31 5.9 16.1 3.5.a 14.3
(Xman-Mman)/Xman. Initial period/%) -1.65 4.5 22.6 18.3 -67 -58 -13.1 -16
Ratios 70/71 80/81 90/91 04/05 70/71 80/81 90/91 04/05
MVA/GDP 34.4 39.5 32.8 44.1 23.1 22.1 20.7 17.9
GFCF/GDP 24.5 27.5 26.5 38.4 19.0 25.6 18.3 19.5
FDI/GDP 0.0 0.1 1.0 3.5 0.8 1.1 1.3 2.3
Exports of Manufactures / Total
MVA / Total World MVA 1.0 2.6 8.5 1.0 1.2 0.9?
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Table 1.a: Trade in Parts and Components: ManufacturedGood; China and Mexico
--------------------------------------------------------------------------------------1992/3 2003/4
China :Value($b)Exports 3.2 58.4Imports 9.8 44.6Balance -6.57 13.8Shares : Components/total X: 6.3 17.6Mexico:Value($b)Exports 6.8 26.3Imports 13.8 33.8Balance -7.5 -7.5Shares : Components/total X: 20.2 23.9Meomo : balance of man. trade ($b):China -5.8 125.2Mexico -17.8 -1.7
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Performance of Maquila sector Mexico
1974 1985 2000 2006 Ratio
98/85
Ratio06/98
- Gross output ($b)
0.01 1.3 669 1139 341 2.6
- Local input:%
0.9 0.7 2.4 2.8 2.4 1.3
-VA:% 36.3 24.9 22.1 20.4 0.6 0.9
RV.% 37.2 25.6 24.5 23.2 0.93 1
Imported input:%
64.3 75.1 75.6 76.7 1.2 1
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Performance of Maquila and non-aquila:1Performance of the maquiladora sector (1980-2006)
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Maquil exports/Non petrol exports Maquil exports/Maquil interm imports
A Maquil trade balance / Maquil exports*100
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Performance of non-maquiladora export sector (1980-2006)
-350-340-330
-320-310-300-290-280
-270-260-250-240
-230-220-210-200-190
-180-170-160-150-140
-130-120-110-100
-90-80-70-60-50
-40-30-20-10
0
10203040
5060708090
100110120
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
B Rest of manufact. exports / Non-oil exports*100
C (Rest of manuf. exports-Rest of intermed. good imports) / Rest of manufact exports * 100
D Rest of manuf. exports / Rest of intermediate goods * 100
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Processing trade of China: Evolution
year Value($10m) Ratios
Xp Mp RV Xp/Xm RV/Xp
1981 11 15 -3.7 5 -32
1990 254 188 67 55 26
2000 1377 926 451 62 33
2006 4164 2740 1423 58 34
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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
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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?
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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?
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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
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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?
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Mexico: RCA: MProduction?
• 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 processingExamine these cases
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Auto. &data processingProspects
Exports Imports R Rc R Rc
1.Office machines and auto.data processing :Finished products:751 0.63 0.45 0.44 0.42752 2.076 3.677 0.91 1.48Components:SITC 759 0.801 1.438 1.277 3.612
2.Automotive products:Finished products:781 1.518 0.991 0.672 5.366782 4.231 3.388 1.08 3.81783 1.58 20.34 0.25 0.19
Components784 1.7 1.1 2.32 3.66
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Conclusions
China
Mexico
Question?