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The Developing Economies

Volume 41, Number 3 (September 2003)

The Developing Economies ■ The Developing Economies Volume 41, Number 3 (September 2003)
■ B5
■ 105pp.
■ Published in September 2003
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William E. James and Oleksandr Movshuk, "Comparative Advantage in Japan, Korea, and Taiwan between 1980 and 1999: Testing for Convergence and Implications for Closer Economic Relations," pp. 278-308.

This paper seeks to explore the basis for a free trade agreement (FTA) between Japan and the Republic of Korea by comparing export patterns of these two countries with that of a nonmember---Taiwan---that is geographically close and is also a major exporter of machinery. After calculating indices of revealed comparative advantage (RCA) for 3-digit SITC categories, we test for convergence of export patterns between each pairing of partners (Japan-Korea, Korea-Taiwan, and Japan-Taiwan). We find that even though each partner has a statistically significant correlation of RCA indices, export patterns of Korea and Taiwan are converging with that of Japan, while in the case of Taiwan and Korea there is no significant convergence between their export patterns. Finally, we identify sectors where trade diversion is likely to occur and provide an upper-bound estimate of the potential amount of trade that might be diverted from Taiwan by a Japan-Korea FTA.

Peiyi Yu, "Competitive Issues in the Taiwanese Banking Industry: Mergers and Universal Banks," pp. 309-39.

This paper investigates scale economies and scope economies in the Taiwanese banking system, looking beyond the market-power (MP) and efficient-structure (ES) hypotheses. Given the existence of overall economies of scale and the positive value of expansion path sub-additivity, we conclude that there might be large increases in profits following mergers. Moreover, since the profit-structure relationship after financial reform is determined by the relative market power hypothesis, this consolidation trend will not necessarily decrease the social benefit for Taiwanese consumers. With regard to scope economies and product-specific economies of scale, we are unable to recommend whether Taiwanese banks should develop as specialized banks or diversified banks in the future. Finally, we find that risk indicators play an important role in explaining the observed variation in bank profitability, and present evidence that default risk and leverage risk have negative effects on the profits of banking, although the effect of portfolio risk is uncertain.

Chih-Hai Yang, "Exporting and Productivity: A Firm-Level Analysis of the Taiwan Electronics Industry," pp. 340-61.

Based on the panel data of Taiwanese electronics firms, this paper explores the relationship between exporting and productivity. Contemporaneous levels of exports and productivity are indeed positively correlated. The causality tests show causality from productivity to exporting and vice versa, implying that self-selection and learning-by-exporting effects coexist in the Taiwan electronics industry, while the learning-by-exporting effect is less supported. Exporting also has a positive impact on the productivity growth of firms, while the effect diminishes gradually after entering foreign markets. Decomposing the productivity growth shows that the reallocation effect accounts for only 20 per cent compared to the own-effect share of 80 per cent, which is mostly contributed by firms that continually export.

Yasushi Hazama, "Social Cleavages and Electoral Support in Turkey: Toward Convergence?" pp. 362-87.

Studies on Western democracies have shown that deep-seated social cleavages stabilize the electoral behavior and thus reduce electoral volatility. But how do social cleavages affect a party system that is undergoing democratic consolidation, such as in Turkey? In this study, investigations were carried out on long- and short-term relationships between social cleavages (religiosity, ethnicity, and sectarism) and electoral volatility in Turkey during the 1961-2002 period. Cross-sectional multiple regressions were applied to electoral and demographic data at the provincial level. The results showed that in the long-term, social cleavages on the whole have increased volatility rather than reduced it. The cleavage-volatility relationship, however, has changed over time. Repeated elections have mitigated the volatile effect of social cleavages on the voting behavior, as political parties have become more representative of the existent social cleavages.