IN THE WAKE OF THE EAST ASIAN CRISIS : INTRA-REGIONAL TRADE TRENDS AND PROSPECTS

Abstract

This academic exercise aims to analyse the impact of the East Asian Currency Crisis of July 1997 on intra-regional trade in East Asia. By looking at the export structure and trade linkages of selected East Asian economies, the transmission of the crisis through intra-regional trade linkages could be determined. This is done with the use of country case studies for economies like Singapore, Hong Kong, Thailand, Malaysia and Indonesia. In the process, the trade prospects of these economies and of East Asia as a whole is ascertained. The extent to which the East Asian economies were affected by the crisis depends very much on their export baskets. Economies reliant on exports of high value added manufacturing such as Singapore, Malaysia and Thailand were hard hit because their high value added exports had a high import content. On the other hand, it was found that a diversified export basket lends a measure of resilience to an economy. Thailand is one such example. Finally, economies like Thailand and Indonesia that have substantial labour-intensive export sectors stood to gain from the crisis because of the devaluations of their currencies, which made their exports more competitive. Such gains were, however, negated by the losses sustained by other sectors of the economy. The spread of the East Asian crisis through trade linkages between East Asian economies was gauged by the trade exposure of each economy to the region. It was found that Singapore and Malaysia had one of the highest degree of linkages with the region. Correspondingly, one can expect these two economies to be worst hit. On the other end of the spectrum are Hong Kong and Indonesia, whose export orientation were largely biased towards extra-regional markets. The widespread collapse of export demand from East Asia would have less impact on these economies. The possible impact of an emerging China on East Asia is an aspect that can not be neglected. Analysis of China's export structure with respect to other East Asian economies has revealed high degrees of similarity, especially with that of other emerging East Asian economies. This is an occurrence that warrants close monitoring, for China's export growth could seriously impede the efforts of many East Asian economies in fostering a recovery from the crisis. With the crisis, a decline in East Asian intra-regional trade must be expected. Although this would slow down the process of East Asian integration, it would not halt it. In the end, FDI and trade remain the key instruments to growth and integration of the region.