THE NEW NORMAL OF GLOBAL TRADE - Bank of Thailand · Upstream position and value added GSC...

THE NEW NORMAL OF GLOBAL TRADE: THE IMPACT ON THAILAND’S

EXPORT STRUCTURE

AND STRUCTURAL CHANGES

Assistant Professor Kornkarun Cheewatrakoolpong, Ph.D., Assistant Professor Tanapong Potipiti, Ph.D.,

Panutat Satchachai, Ph.D., Nath Bunditwattanawong, and Arpakorn Nopparattayaporn

Thai economyStructural

changes

The New Normal in Global

Trade Pattern

New normal in Thailand’s

export structure

THE NEW NORMAL OF GLOBAL TRADE: The impact on Thailand’s export structure and structural changes

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Study

MOTIVATION


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Study

OUTLINE

EVOLUTION OF GLOBAL TRADE PATTERN

01

FACTORS INFLUENCING NEW NORMAL IN GLOBAL TRADE PATTERN• Technological

change

• A change in global

supply chain

02

THE IMPACT OF NEW NORMAL IN GLOBAL TRADE PATTERN ON THAI ECONOMY

03


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Evolution of global trade pattern

GLOBAL TRADE AND GROWTH01

0

2

4

6

8

10

12

1991-1995 1996-2000 2001-2005 2006-2010 2011-2014

Total trade growth GDP growth

Trade growth is much stronger than GDP growth during

1995-2005. This trend is changing!

SOURCE: UNCTADstat


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THREE ERAS OF GLOBAL TRADE01

• Fragmentation &

vertical supply chain

• China’s mega trade

Trade blocs with three

centers (US, Japan,

Germany)

• Lower global trade

growth

• Horizontal supply chain

• South-south trade and

FDI

• Technological change

(Digital technology

and energy

technology)


supply chains

THIRD UNBUNDING

• Improvement in ICT

technology

• The end of the cold

war

SECOND UNBUNDING

Lower transportation

costs

FIRST UNBUNDING

CH

AR

AC

TER

ISTI

CS

DRIVER

S


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GLOBAL TRADE NETWORK01

JP

DE

1995

US

FIRST UNBUNDING

JP US

DE

2005

CH

SECOND UNBUNDING

JP US

DE

2010

CH

THIRD UNBUNDING

NOTE: For illustration purpose

• The size of the node is % of country’s export to the world export• The thickness of the line indicates the % of bilateral trade between two countries to the

world export

SOURCE: Author’s calculation (Appendix A)


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AN INCREASING ROLE OF DEVELOPING COUNTRIES IN GLOBAL TRADE01

0

10

20

30

40

50

60

70

80

1960-1970 1970-1980 1980-1990 1990-2000 2000-2010 2000-2014

Sh

are

of

Wo

rld

Tra

de

, %

Developed

Developing

0%

20%

40%

60%

80%

100%

1995 2000 2010 2013

55.41 58.1740.11 37.20

23.33 17.43

22.25 23.08

15.28 18.1822.72 23.26

5.98 6.22 14.91 16.46

Sh

are

of

wo

rld

tra

de

Developing-developing

Developing-developed

Developed-developing

Developed-developed

SOURCE: UNcomtrade


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WHAT HAPPENS AFTER THE 2008-2009 GLOBAL FINANCIAL CRISIS?01

SOURCE: World Economic Outlook Database, April 2015, IMF and WTO , 2015

-15

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

World real GDP at market exchange rates World trade volume

Average GDP growth 1990-2007 Average trade growth 1990-2007


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Study

OUTLINE


01


change


supply chain

02


03


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Factors influencing new normal in global trade pattern

THE IMPACT OF NEW TECHNOLOGY02

• Higher productivity of

technology leaders

• Wider productivity gap

• Lower cost competitiveness of

developing countries

• Demand for skills changes

PRODUCTION

• Higher demand uncertainty

• IOTs and high-tech products to

replace the old ones

• New consumption pattern

• E-commerce

• Individual consumption pattern

CONSUMPTION

• Relocation of production base

• A change in market leaders of the

industries with high technology

uncertainty

• A change in global supply chain

A CHANGE IN TRADE PATTERN

NEW TECHNOLOGY

• Digital technology

• Energy technology


THE IMPACT OF NEW TECHNOLOGY: PRODUCTION02

SOURCE: Boston Consulting Group


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020406080

100120140

Others Natural gas Electricity Labor

020406080

100120140

Others Natural gas Electricity Labor

2014

2004

Cost competitiveness index


THE IMPACT OF NEW TECHNOLOGY: CONSUMPTION02

Cellphone market share by brand

SOURCE: Statistica 2015

Market leaders in the industries with high technological uncertainty are

changing !


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THE IMPACT OF NEW TECHNOLOGY: CONSUMPTION02

SOURCE: IDC

0

10

20

30

40

50

60

70

80

Smartphone Tablet Portable PC Destop PC

65.1

14.611.6

8.6

70.5

16.5

8.05.0

2013

2017

Market share of IT related devices Global connected-home device annual shipments

SOURCE: ABI Rearch, TechNavio, Pike Rearsh, BI Intelligence Estimates


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0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2005 2006 2007 2008 2009 2010 2011 2012 2013

China Taiwan Germany

Japan Korea Singapore

USA

R&D spending on high-technology

sector (percent of GDP)


THE IMPACT OF NEW TECHNOLOGY: TRADE PATTERN02

SOURCE: OECDstat SOURCE: OECDstat, IMF, World Economic Outlook Database

An increasing role of China, Korea, and Taiwan!

High-tech exports by country


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4%9%

10%

29%9%

9%

30%

China Taiwan

Germany Japan

Korea Singapore

United States

43%

11%7%

13%

11%

4%

11%

China Taiwan

Germany Japan

Korea Singapore

United States

1995 2011


THE IMPACT OF NEW TECHNOLOGY: TRADE PATTERN02

Export performance and technology factors

SOURCE: Author’s calculation (Appendix C.)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

Innovation

linkage

knowledge

creation

education knowledge

absorbtion

ICT knowledge

workers

R&D

0.14

0.23 0.23 0.24

0.300.32 0.33

R&D, human capital and ICT infrastructure are the most important

technology factors!


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TECHNOLOGICAL CHANGES


• A change in products

A CHANGE IN GLOBAL SUPPLY CHAINS


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LOWER COST

COMPETITIVENESS OF

DEVELOPING COUNTRIES

• HORIZONTAL SUPPLY CHAINS

BETWEEN DEVELOPED AND


• VERTICAL SUPPLY CHAINS AMONG


A CHANGE IN GLOBAL LEADERS

OF THE SUPPLY CHAINS WITH

TECHNOLOGICAL UNCERTAINTY

A DECLINE IN

INDUSTRIAL JAPAN


GLOBAL SUPPLY CHAIN PARTICIPATION02



SOURCE: Author’s calculation from Koopman et al., 2011; Koopman and Wang, 2012 (Appendix D)

-

1.00

2.00

3.00

4.00

SGP VNM CHN THA TWN MYS KOR PHL HKG IND JPN USA Western

EU

2004 2007

Index of upstream position

0%

20%

40%

60%

80%

100%

200

4

200

7

200

4

200

7

200

4

2007

200

4

200

7

200

4

200

7

200

4

200

7

200

4

200

7

200

4

200

7

200

4

200

7

2004

200

7

200

4

200

7

200

4

200

7

200

4

200

7

SGP VMN CHN THA TWN MYS KOR PHL HKG IND JPN USA Western

EU

downstream upstream

A share of upstream and downstream

Developed countries concentrate on upstream but some

developing countries are catching up!


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GSC participation and economic growth

SOURCE: Author’s calculation from Koopman et al., 2011 (Appendix D)

Upstream position and value added

GSC participation benefits from economic growth but

upstream industries are the activities that contribute to

domestic value added


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Factors influencing new normal in global trade patternA CHANGE IN GLOBAL SUPPLY CHAIN: HORIZONTAL SUPPLY CHAIN02

A share of high-tech export by economic group

0

20

40

60

80

100

1995 2000 2013

80.63 73.78

47.02

19.37 26.22

52.98

developed countries developing countries

SOURCE: World Development Indicators

A closer gap between developed and developing countries!


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Factors influencing new normal in global trade patternA CHANGE IN GLOBAL SUPPLY CHAIN: HORIZONTAL SUPPLY CHAIN02

South-South FDI flows in Asia

SOURCE: UNCTAD FDI/TNC database

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

OFDI flows (Millions of US dollars)

Formation of vertical supply chains among developing countries.

SOURCE: UNCTAD,

FDI flows from developing countries by region


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Factors influencing new normal in global trade patternA CHANGE IN GLOBAL SUPPLY CHAIN: A CHANGE IN GLOBAL PLAYERS02

SOURCE: OECD

0

5

10

15

20

25

CHN SGP USA TWN KOR JPN DEU MEX NLD FRA GBR

13.7

8.19.2

5.2

7.5

9.0

5.3

3.12.5 2.3 2.5

22.8

7.6 7.3 7.2 6.95.8

3.6 3.22.3

1.5 1.2

2005 2011

Market share of electronic exports by country

China and Taiwan have an increasing market share while

Japan is experiencing a downfall in electronic industry.


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Factors influencing new normal in global trade patternA CHANGE IN GLOBAL SUPPLY CHAIN: A DECLINE IN "INDUSTRIAL JAPAN"02

An export share of advanced manufacturing goods of Japan

SOURCE: Mckinsey Global Institute, 2015, calculated from World Integrated Trade Solutions Database

Japanese exports of advanced manufacturing goods by product

A decline in machinery and electrical equipment industries in Japan.

0

50

100

150

200

250

300

350

2010 2011 2012 2013

63 57 4722

82 9684

66

164 165169

148

Transport equipment

Machinery

Electrical and optical equipment


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0

10

20

30

40

50

60

70

80

90

100

2000 2010

87 92

13 8

Rest of the world Japan

Factors influencing new normal in global trade patternA CHANGE IN GLOBAL SUPPLY CHAIN: A DECLINE IN "INDUSTRIAL JAPAN"02

NOTE: Advanced manufacturing labor productivity (value added per hour)(US$, 2009 at purchasing power parity)

SOURCE: Mckinsey Global Institute, 2015, calculated from IHS, World Input-Output Database

SOURCE: OECDstat

Productivity gap by sector

0

5000

10000

15000

20000

25000

30000

Chemicals Electrical

Machinery

Machinery

and

equipment

Motor

vehicles,

trailers and

semi-trailers

Billio

ns

of U

S d

olla

rs

2005 2010 2013

Japanese R&D spending by sector


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Study

OUTLINE


01


change


supply chain

02


03

The impact of new normal in global trade pattern on Thailand’s economyA CHANGE IN THAILAND’S EXPORT STTRUCTURE03

NEW NORMAL IN GLOBAL TRADE PATTERN

GLOBAL SUPPLY CHAIN

THAILAND'S EXPORT STRUCTURE

TECHNOLOGICAL CHANGES

• Cannot move up to

higher value-added

activities

• Strong linkages with

Japan's IPN

• Cannot link with new

leaders/products

SUPPLY CHAIN

• Low R&D and

technological

advancement

TECHNOLOGY

THAILAND'S LOWER PRODUCTION AND EXPORT COMPETITIVENESS

• A decline in exports

• A change in export

composition

THAILAND'S EXPORTS

• Growth

• Domestic value-added

• Employment

THAI ECONOMY


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A CHANGE IN GLOBAL SUPPLY CHAIN: IMPACT ON THAILAND'S EXPORT PATTERN

03

GLOBAL TECHNOLOGICAL CHANGES


• A change in products and market leaders

• Low R&D

• Low technological advancement

• Low innovation

THAILAND

THAILAND’S SUPPLY CHAIN PARTICIPATION EXPORT COMPETITIVENESS


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THE IMPACT OF NEW TECHNOLOGY ON THAILAND'S EXPORT PATTERN03

SOURCE: The Global Innovation Index, 2014 and IMD

82.681.3

74.867.7

58.845.044.8

32.031.1

16.111.6

10.52.3

0.00.00.0

0 20 40 60 80 100

KRUSJPDESGCNHKIN

MYTHID

PHBNVNKH

MM

Research and development (R&D)

74.868.5

67.165.0

52.834.6

18.418.017.3

11.510.4

7.34.24.03.8

1.9

0 20 40 60 80

KRUSCNDEJPSGIN

HKTHMYPHVNBNKHID

MM

Knowledge creation

51.546.446.446.3

45.740.7

38.938.7

36.134.133.8

30.529.5

26.526.2

23.0

0 20 40 60

SGDEUSJPHKKRIN

KHID

BNMYCNVNTHPH

MM

Innovation linkages

36

48 52 50 4741

0

20

40

60

2009 2010 2011 2012 2013 2014

Thailand’s IMD technology readiness ranking


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THE IMPACT OF NEW TECHNOLOGY ON THAILAND'S EXPORT PATTERN03

Thailand’s exports by technology levels

SOURCE: OECDstat

0%

20%

40%

60%

80%

100%

1995 2000 2005 2011

Low-technology Medium-low-technology

Medium-high-technology High-technology

Thailand has a decreasing share of high-tech exports.


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03

A CHANGE IN GLOBAL SUPPLY CHAIN

• Moving to horizontal supply chain

• New leaders in technology-related sectors

• A decline of Japanese manufacturing

sectors

• Cannot move up to high-

tech sectors or higher

value-added activities

THAILAND

• Weak linkages with the supply

chains of new products or

new market leaders

• Strong linkages with

Japanese supply chains

A DECLINE IN THAILAND’S EXPORTS A CHANGE IN THAILAND'S EXPORT COMPOSITION


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03

SOURCE: Author’s calculation (Appendix A)

Thailand’s trade network in 2000

2000

JP US

CH

TH

SG VN PH MY ID

2010

JP US

CH

TH

SG VN PH MY ID

Thailand’s trade network in 2010

Strong reliance on Japan!


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NOTE: For illustration purpose

• The size of the node is % of trade partners’ exports to Thailand’s total exports• The thickness of the line indicates the % of bilateral trade between trade partners and

Thailand

36%

13%10%

9%

8%

24%

Japan United States Hong Kong

China Netherlands Other



03

SOURCE: UNCTAD FDI/TNC database and Bank of Thailand

25%

23%

19%

11%

7%

15%

Radio, television, communication equipment and

apparatus

Motor vehicles, trailers and semi-trailers

Machinery and equipment

Chemicals and chemical products

Fabricated metal products

Japanese FDI in Thailand in 2005, by sector

Strong reliance on Japan!

FDI in Thailand in 2005, by country


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03


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Thailand’s export composition has changed overtime

SOURCE: Ministry of Commerce, Office of the Permanent Secretary, Information and Communication Technology Center with cooperation of the Customs Department

13%

11%

6%

5%

5%

5%3%

52%

HDD Texttile Circuits Gems

Footwear Plastics TV Others

1995

14%

11%

6%

6%

5%5%4%

49%

Automobiles HDD Gems Plastics

Chemicals Rubber P. Circuits Others

2014

HDD

HDD

Automobiles

Textile

OthersOthers

Circuits

CircuitsTVPlastics

Plastics

Footwear

Gems

Gems

Chemicals

Rubber P.

The impact of new normal in global trade pattern on Thailand’s economyA CHANGE IN THAILAND’S EXPORT STRUCTURE03

SOURCE: UNCTAD

After 2012, Thailand’s export growth is smaller than that of the world


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Thailand’s export growth vs World’s export growth

-30

-20

-10

0

10

20

30

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Thailand World Thailand's export growth (average 1990-2007) World's export growth (average 1990-2007)

The impact of new normal in global trade pattern on Thailand’s economyEXPORTS AND ECONOMIC GROWTH03

SOURCE: Author’s calculation

Export growth plays an important role in economic growth.

y = 0.26x + 2.39, R² = 0.4642

-3

-1

1

3

5

7

-13 -8 -3 2 7 12 17

GD

P G

row

th

Export Growth

Thailand’s export and growth overtime


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The impact of new normal in global trade pattern on Thailand’s economyEXPORTS AND OUTPUT GROWTH AT THE STRUCTURAL LEVEL03

SOURCE: Author’s calculation (Appendix E)


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*0.13 *0.03

*0.28

NOTE: * denotes p-value<0.01

VALUE

ADDEDEMPLOY

MENT

OUTPUT

GROWTH

EXPORT

GROWTH

The impact of new normal in global trade pattern on Thailand’s economyCONCLUSION03

• The new normal in global trade is driven by changes in technology and

global supply chain.

• All changes have negative impacts on Thailand’s export performance.

• Technology: Thailand’s costs of production are rising relative to

developed countries. But Thailand cannot upgrade to more advanced

technology or upstream industries.

• Supply chain: Thailand has strong linkages with Japan which is losing its

leadership in markets. Moreover, Thailand cannot create new linkages with new leaders.

• A drop in exports would cause drop in output, value added and

employment.


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THE NEW NORMAL OF GLOBAL TRADE - Bank of Thailand · Upstream position and value added GSC...

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