The Rise of Asia

The Rise of Asia

The ‘Flying-Geese’ Theory of Tandem Growth and Regional Agglomeration

New Horizons in International Business series

Terutomo Ozawa

Terutomo Ozawa introduces a newly reformulated theory of ‘flying-geese’ economic development, exploring Asia’s dynamic growth and financial development. This unique book shows how the flying-geese theory can be expanded and applied to both the real- and the financial-sector structural transformation of regionally clustered economies.

Chapter 4: Comparative Advantage Recycling in Labor-Driven Growth: An Unprecedented Opportunity for the Poor to Rise?

Terutomo Ozawa

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, economics and finance, asian economics, international economics

Extract

REPLICATION OF LABOR-DRIVEN GROWTH 4.1. Looking at the experience of Asia, one can easily notice that a newly attained comparative advantage, especially in labor-intensive (Stage-I) industries (such as toys, garments, and sundries), has not lasted long in any rapidly catching-up country. Paradoxically, the relatively more laborabundant a developing country happens to be, the faster the occurrence of labor shortage and rising wages when it exploits its endowed comparative advantage in labor-intensive goods. The rise in wages is the ineluctable outcome of labor-driven growth. It compels local firms to search for lower-wage labor via FDI or subcontracting in other developing countries where labor is still abundant. True, adopting labor-saving technology is an alternative to going overseas. But this approach takes time and often proves expensive. The most likely way out of rising labor costs at home is, therefore, overseas investment in still lower-wage countries. This process of industrial transmigration in labor-intensive goods has been repeated in a staggered fashion across the region. Low-wage light industry manufacturing shifted first from Japan to the NIEs (initially in the 1950s and 1960s), then to the ASEAN-4 (in the 1970s), more recently to China (after its open-door policy of 1978), and most recently to Vietnam and Cambodia. In other words, Stage-I growth (of the labor-driven type) has been replicated, in one country after another, as labor-intensive manufacturing was transplanted down the East Asian hierarchy of economies, boosting wages in each country. Such an occurrence may be called ‘comparative-advantage recycling’, since the trade advantage has been...

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