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Journal of Chinese Economic andForeign Trade StudiesVol. 1 No. 3, 2008pp. 200-213# Emerald Group Publishing Limited1754-4408DOI 10.1108/17544400810912365

Dynamic changes in comparativeadvantage: Japan ‘‘flying geese’’

model and its implicationsfor China

Tri WidodoGadjah Mada University, Yogyakarta, Indonesia and Hiroshima University of

Economics, Hiroshima, Japan

Abstract

Purpose – The purpose of this paper is to examine the Japan flying geese (FG) model and itsimplications for China.Design/methodology/approach – Data on exports and imports three-digit the standard internationaltrade clasification (SITC) Revision 2 from UN-COMTRADE are employed. An analytical tool namely‘‘products mapping’’ is made by combining two fundamental variables derived from the FG model.Revealed symmetric comparative advantage (RSCA) index and trade balance index are applied.Findings – The paper provides evidence of the existence of FG pattern. Unskilled labor-intensiveindustries and human capital-intensive industries have clearly shown the FG pattern in East Asia. Chinahas very high comparative advantage in those industries.Research limitations/implications – The classification of industries is a crucial issue. This paperapplies the broader classification of industries based on factor intensity rather than end use. Furtherresearches on more specific industries might give detailed explanation.Originality/value – The paper examines the position of East Asian countries in the FG model.

Keywords Japan, China, Industrial countries, Classification

Paper type Research paper

1. IntroductionA country’s international trade performance changes eventually depending on itsdynamic comparative advantage. The nature of localized industrial cluster is sometimeconsidered to have strong relations with the different stages of industrial upgradingand structural transformation (Aiginger, 1999). Country with rapid catching upprocess most probably has also exhibited a rapid structural transformation. Therehave been changes in the pattern of comparative advantage of East Asian countries.Not only differences in the factor endowments but also in the production function(technology) and the consumption function (taste and preference) create countries’dynamic comparative advantage.

‘‘Flying geese’’ (FG) pattern is one of the well-recognized models to be stronglyconsidered in explaining economic development in East Asia. The model was firstlyintroduced by Kaname Akamatsu in the 1930s, as an analogous sequentialdevelopment or catching up process of manufacturing industries in developingcountries (Kojima, 2000; Ozawa, 2001; Kwan, 2002; Kasahara, 2004). By beingthe region’s most advanced country in term of technology and becoming the maintrading partner as well as the source of foreign direct investment (FDI) for the other

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/1754-4408.htm

The author would like to thank Dr Wihana Kirana Jaya (PSEKP-UGM) for providing access onUN-COMTRADE, Professor Masumi Hakogi and Professor Toshiyuki Mizoguchi for the fruitfuldiscussion and two anonymous referees for their valuable comments.

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East Asian countries; Japan has played important roles in East Asian economicdevelopment. The expansion of economic dynamism from Japan to the Asian NewlyIndustrialized Economies and even further to the Association of Southeast AsiaNations (ASEAN) countries as well as China has been frequently associated with theFG model. As far as the FG model is concerned, dynamic specializations describe thecatching up process.

This paper is addressed to answer some critical questions. Does the shift incomparative advantage or specialization support the FG model in the East Asian region?What is the exact position of countries in the FG model? What are the implications forChina? The rest of this paper is organized as follows. The evolution of the FG paradigmand its underlying economic implications is briefly discussed in part 2. The methodologyis exhibited in part 3. This paper applies an analytical tool – which is named ‘‘productsmapping’’– to analyze empirically the FG paradigm. The analytical tool is constructedby combining two main crucial variables in the FG model, i.e. comparative advantageand trade balance (Akamatsu, 1961, 1962; Kojima, 2000; Ozawa, 2001; Kwan, 2002;Kasahara, 2004). The two variables are measured with two empirical indexes, i.e.revealed symmetric comparative advantage (RSCA) index by Laursen (1998) and tradebalance index (TBI) by Lafay (1992). Part 4 exhibits the results and analysis. Finally,conclusions are presented in part 5.

2. The FG paradigm: literature reviewIn Japanese, the FG paradigm is called the ganko keitai (a flock of FG). The paradigmtries to explain the phenomenon of industrial development in the catching upeconomies. The FG concept was originally coined by Kaname Akamatsu in 1930s andhe wrote his works in Japanese so that the concept was not so popular among Westernscholars. After his publication in English during 1960s together with the popularity ofproduct life cycle (PLC) by Vernon (1966), the FG paradigm has become popular one.Afterward, the FG concept has been greatly developed and modified by some Japanesescholars including Kojima and Ozawa who were Akamatsu’s students (Kasahara,2004). It is sometime referred as the modern ‘‘multi-sequentialist’’ FG model.

2.1 The Akamatsu’s original conceptThe basic pattern of development of industry is illustrated like the wild-geese-flying inorderly rank and forming an ‘‘inverse V’’. Figure 1 shows the Akamatsu’s FG concept.Akamatsu mentions four stages of the fundamental of FG pattern that was developedin the historical context of the Euro-American as leader and Asian as follower(Kasahara, 2004; Kojima, 2000).

2.1.1 First stage. The industries might be classified into several categories such asconsumer goods and capital goods industries. Manufactured consumer goods areimported from advanced countries (started from t1 in panel a). Some products (primaryproducts for example) are exported by less-advanced countries. In this stage, importedmanufactured product may have a negative consequence on the native handicraftindustry of the less-advanced countries due to the substitution effect.

2.1.2 Second stage. The actual production of the imported manufactured goods(import-substitution strategy) exists (started from time t2 in panel a). The import ofconsumer goods increases from time t1 to t2. The domestic demand becomes largeenough to reach the economies of scale. It is therefore possible for the domesticproduction to start (at t2 in panel a). At the same time, the country must also importcapital goods (started from t2 in panel b). In the case of Japan, not only capital goods

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such as machinery but also raw materials must be imported (Akamatsu, 1962). In thisstage, there will be competition between imported consumer goods and domesticproduction. By using infant industry arguments, the government sometimes mustprotect the domestic industry through subsidy, import tariff, etc.

2.1.3 Third stage. The domestic consumer goods industry develops into the exportindustry (started from t3 in panel a). At time t*, trade in consumer goods is in theequilibrium or trade balance (export¼ import) and domestic production equalsdomestic demand (since domestic demand¼ domestic production� exportþ import).This stage implies a successful implementation of the catching up process of theindustry concerned along the sequential path import-production-export (M-P-E) whichis the basic pattern of the FG model (Kojima, 2000)[1]. In addition, the industrymetamorphoses from import-substitution industry toward export-led growth industry.The consumer goods industry is already homogenized with that of advanced countries.Therefore, the country has not been less-advanced country in these goods.

2.1.4 Fourth stage. The advanced status in consumer goods industry is furtherelevated. It is shown by the decrease of export in consumer goods (started from t4 inpanel a) meanwhile capital goods are started to be exported (started from t4 in panel b).The decrease export in consumer goods happens due to the fact that consumer goodsproduction is put in other less-developed countries (offshore production depicted bybroken line in panel a). In addition, it is possible that the reverse import exists.

2.2 The modern conceptThe modern FG paradigm considers the sequential transformation of economicactivities from industrialized countries to less-industrialized countries through the

Figure 1.The FG paradigm

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increasing role of transnational corporations (sub-contracting, licensing agreement,joint venture, FDI, etc.) in parallel with the dynamic shifting in comparative advantagepattern. Ozawa (1991) states three types of orderly sequencing of economic activities –multi-sequentialist – within and among a group of national economies (as summarizedby Kasahara (2004)). Product-cycle sequencing of a particular product (or a productgroup) is the first type. The national economy tracks the trade framework of a PLC,comprising four stages: import, import-substituting production, export and finallyonce again import (reverse import). In Figure 1, it is depicted by panel (a). Consumergoods are firstly imported, and then domestically produced, exported and againimported (M-P-E-M).

Industry-cycle sequencing of economic development is the second type. Thecontinuing development of industries together with national economy’s changingfactor and technological endowments affects country’s comparative advantage. It alsomeans that the country changes its production activities (and export), from the lowervalue-added, more labor-intensive and less capital-intensive industries, to the highervalue-added, less labor-intensive and more capital-intensive industries. In Figure 1, it isshown by the shift from panel (a) consumer goods to panel (b) capital goods. The shiftshows a signal of the structured and orderly process to generate self-sustaining andself-propelling forces along the dynamic path of comparative advantage. Inter-economy sequencing related to the orderly transfer of industrial activities amongnational economies along the regional hierarchy is the third type. These industrialtransfers will be done in those following economies that have attained the resourcesand technological capacities most appropriate to the transfers.

2.3 Previous empirical tests on the FG patternKojima (2000) states some empirical researches supporting the FG paradigm. First,Tran (1992) examines the transfer of Japan’s synthetic fiber industry serially to NIEs,ASEAN4, China and Vietnam, starting from downstream to upper stream. Second,Kosai and Tran (1994) finds geographical extension of a FG pattern (industrializationhas spread through FDI in the sequence of Korea–Thailand–Malaysia–Indonesiaduring 1960-1990) and industry structural upgrading of a FG pattern (production hasupgraded in the sequence of textiles-synthetic fibers-steel-office equipment in eachcountry). Third, APEC Economic Committee (1995) finds that direct investment andtrade are complements. Kojima (1995) mentions such kind of FDI as pro-trade orientedtype investment. Fourth, Shinohara (1976, 1982) adds another phase of the FG pattern,called the ‘‘boomerang effect’’, which represents a reverse flow of imports from less-advanced countries to the more advanced capital-exporting countries. The boomerangeffect explains Japan’s declining share in US export markets in the wake of risingexports of Asian countries. Shinohara (1996) also finds that there had been rapidincreases in machinery trade (i.e. intra-industry horizontal trade) during the 1975-1992period between Japan and Asian countries (NIEs, ASEAN4 and China), the USA andAsian countries and NIEs and ASEAN 4.

Rana (1990) finds some links between changes in the pattern of trade and economicdevelopment. He points out that the shifts in comparative advantage were significantfrom Japan to the NIEs and ASEAN4 and from the NIEs to the ASEAN 4. In addition,the shifts were ‘‘beneficial’’ in the sense that the gains increase export earnings andpromoted economic development in these countries. Fukasaku (1992) examines theability of the FG theory in explaining inter-industry trade as the mechanism forpromoting growth across countries. By using trade data 1979-1988, Fukasaku finds

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that the pattern of trade within Asia has gradually shifted away from inter-industrytrade toward intra-industry trade. As far as the Asian economies become increasinglyintegrated and interdependent, the intra-industry trade has bigger opportunities toexist. Consequently, the doubt of the FG theory remaining applicable in the futuremight rise. Following technique used by Lutz (1987), Rana (1990) and Fukasaku (1992);Dowling and Cheang (2000) conducts a test on the existence of the FG pattern by usingrevealed comparative advantage (RCA) indices of all 22 industry groups for period of1970-1995. They find that comparative advantage has shifted from Japan to the NIEsand ASEAN4 during the period 1985-1995. In addition, Japanese FDI has been used torecycle comparative advantage and to tap the rich resources in the ASEAN 4.

3. Methodology3.1 Data and classification of industriesThis paper applies data on exports and imports published by the United Nations (UN)namely United Nations Commodity Trade Statistics Database (UN-COMTRADE). Thispaper uses three-digit the standard international trade classification (SITC) Revision 2and focuses on 237 groups of products SITC[2]. There are still two groups of products(SITC) which are not covered i.e. SITC 675 (Hoop and strip of iron or steel, hot-rolled orcold-rolled) and 911 (postal packages not classified according to kind) due to theunavailability of data[3]. When discussing industries, this paper focuses on 234 groupsof products SITC (three digit level) classified by factor intensities. This paper uses theclassification of industries by the empirical trade analysis (ETA). On the basis of theUnited Nations Conference on Trade and Development/World Trade Organizationclassification using the SITC Rev. 3, the ETA distinguished the following five productsor industries: primary-industries (83 SITC), natural resource-intensive industries (21SITC), unskilled labor-intensive industries (26 SITC), technology-intensive industries(62 SITC), and human capital-intensive industries (43 SITC)[4]. Most empirical analysisabout industries concentrate on the three-digit level of trade statistics, whichcorresponds closely to the conventional definition of an industry as a set of producerscompeting in the production of the same set of commodities (Grubel and Lloyd,1975)[5].

3.2 ‘‘Products mapping’’: RSCA and TBI indexesThis subpart explained the ‘‘products mapping’’ which is developed to examine theFG pattern. As mentioned in the FG concept, there are two crucial variables engagedin the FG pattern, i.e. comparative advantage and export–import (trade balance)[6].Therefore, the analytical tool is constructed by combining the two variables.Accordingly, two indicators are chosen, i.e. RSCA as the indicator of comparativeadvantage and TBI as the indicator of export–import activities. The RSCA index isformulated as (Laursen, 1998):

RSCAij ¼RCAij � 1

RCAij þ 1ð1Þ

RCA is the ‘‘revealed’’ comparative advantage (Balassa) index by Balassa (1965), whichis formulated as RCAij ¼ xij=xin

� �= xrj=xrn

� �. Where xij symbolizes total exports of

country i in group of products (SITC) j. Subscript r denotes all countries withoutcountry i, and subscript n refers all groups of products (SITC) except group of productj. By excluding the country and group of products under consideration, double

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counting is avoided and the nature of trade, which is always a bilateral exchange ofgoods between two countries, is nicely represented (Worz, 2005; Vollrath, 1991). TheRSCAij index ranges from minus one to one (or �1�RSCAij � 1). The RSCAij greaterthan zero implies that country i has comparative advantage in group of products j. Incontrast, the RSCAij less than zero imply that country i has comparative disadvantagein group of products j.

TBI (Lafay, 1992) is applied to analyze whether a country has specialization inexport (as net-exporter) or import (as net-importer) for a specific group of products(SITC). TBI is simply formulated as follows:

TBIij ¼xij �mij

xij þmij

ð2Þ

where TBIij denotes trade balance index of country i for group of products (SITC) j; xij

and mij represents exports and imports of group of products j by country i,respectively. This index ranges from minus one to one. Extremely, the TBI equalsto minus one if a country only imports, in contrast, the TBI equals to one if a countryonly exports. Indeed, the index is not defined when a country neither exports norimports. In this case, this paper put zero since it shows either potentially to be exportedor imported. Any values within minus one and one implies that the country exportsand imports good j simultaneously, ‘‘net-importer’’ (if the TBI negative) or ‘‘net-exporter’’ (if the TBI positive). By using the RSCA and TBI indexes, the ‘‘productsmapping’’ is constructed[7]. Products (SITC) can be categorized into four groups A, B, Cand D as depicted in Figure 2. Group A consists of products which have bothcomparative advantage and export-specialization; Group B consists of products whichhave comparative advantage but no export-specialization; Group C consists ofproducts which have export-specialization but no comparative advantage; and GroupD consists of products which have neither comparative advantages nor export-specialization.

4. Results and analysis4.1 The rounds of industries in the FG patternAs previously mentioned, industries are categorized following the ETA, i.e. primaryindustries, natural resource-intensive industries, unskilled labor-intensive industries,technology-intensive industries and human capital-intensive industries. The first two

Figure 2.The ‘‘products mapping’’

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industries are omitted from the analysis since Japan, as the lead-goose has nocomparative advantage on them. Figure 3 panels (a), (b) and (c) show the results of‘‘products mapping’’ for East Asian countries by the industries. These figures areobtained by following some stages. Firstly, the RSCA and TBI indexes for each SITC

Figure 3.The East Asia FG pattern

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are calculated. Secondly, the median of RSCA and TBI indexes for each industriesclassification are calculated[8]. Finally, for each industries classification, the medianRSCA and TBI indexes are plotted into the ‘‘products mapping’’ (in Figure 2) for twoyear observations, i.e. 1985 and 2005.

From Figure 3, it might be argued that unskilled labor-intensive industries are in thefirst round, human capital-intensive industries are in the second round and technology-intensive industries are in the third round of the FG pattern in the East Asian region.Japan had very high comparative advantage in unskilled labor-intensive industries inthe past. In the catch-up years of the 1950s and 1960s, Japan industrial policy wasdesigned to develop leading manufacturing industries. By the 1970s, Japan had alreadycaught-up the West (Sumita and Namiki, 1997). Now, the industries have beentransferred through pro-type FDI to other countries in East Asia. As result, the Japan’scomparative advantage in these industries decreases. As depicted in panel (a), Japan’scomparative advantage decreased in the period 1985-2005. Japan was still net-exporterof products from these industries in 1985, but Japan became net-importer in 2005. Thissituation shows the reverse import (Kojima, 2000) or ‘‘boomerang effect’’ (Shinohara,1976, 1982). Therefore, if unskilled labor-intensive industries are associated withconsumer goods in Figure 1, this situation is reflected by situation in time beyond timet4. Japan has had the import-reserve of products in unskilled labor-intensive industries,which she used to have high comparative advantage in the past.

Similarly, Korea has also not specialized in unskilled labor-intensive industriesany more. Until the 1960s, Korean industrial policy was mainly inward looking,encouraging import-substitution in non-durable consumer good industries. In 1962,

Figure 3.

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Korea switched to an outward-looking, export-oriented industrialization and growthstrategy. In 1985, Korea had very high comparative advantage and was net-exporter ofproducts from these industries. Woo (2001) finds that an important aspect of Korea’ssuccess in the phase of outward-looking was the deliberate concentration on industrieswith relatively low capital requirement or unskilled labor-intensive industries (such asclothing and wigs) which had favorable and rising international demand. In this case,Korea has transferred these industries to the other East Asian countries. In contrast,the comparative advantage of unskilled labor-intensive industries has been taken overby China, Thailand and Indonesia which have plenty of unskilled labors. Thosecountries currently have high comparative advantage in these industries and becomenet-exporters.

Japan had very high comparative advantage and was net-exporter of products fromhuman capital-intensive industries in 1976 as depicted in panel (b). If human capital-industries are associated with capital goods in Figure 1, this situation is reflected bysituation in time beyond t**. Although Japan had no comparative advantage in humancapital-intensive industries anymore, Japan was still as net-exporter in the period 1976-2005. China, Korea and Thailand are the first follower geese. Singapore, Malaysia,Indonesia and the Philippines are the second follower geese. From Figure 3 panel (b), itseems that Korea had lost competitiveness in these industries for the period 1985-2005.During 1970s under the heavy and chemical industries-biased development strategyKorea created comparative advantage in more capital-intensive industries, whetherphysical or human capital. The chemical industry and primary metal manufacturinghad lost ground slightly in the 1980s after reaching substantial gains in the 1970s(Woo, 2001). Unlike in unskilled labor-intensive industries, it is clear that the EastAsian countries – except Japan and Korea – have still similar direction, i.e. increasingcomparative advantage and becoming net-exporter in human capital-intensiveindustries.

Until recently, Japan has still kept having comparative advantage in technology-intensive industries and being net-exporter in period 1976-2005. After reaching successin catching up Europe and North America in manufacturing sector by the second halfof the 1970s and into the first half of the 1980s, Japan had shifted its industrial policy tocreate a business environment more suitable to intellectual and creative pursuits in thesecond half of the 1980s and the 1990s (Sumita and Namiki, 1997). Technology-intensive industries have become the leading industries in Japan. The other East Asiancountries have the same direction. However, until 2005 they have not had comparativeadvantage in these industries yet. Consecutively, Singapore, Korea, China, Malaysia,Thailand, Indonesia and Philippine are the follower geese. Most unskilled labor-intensive industries and many human capital-intensive industries have beentransferred from Japan as the lead goose to the other East Asian countries as thefollower geese. There are still a lot of products in Japan’s technology-intensiveindustries were in Group A in 2005 potentially transferred from Japan to China andother East Asian countries in the future.

4.2 Implications for ChinaAffected by globalization and liberalization, there is a paradigm shift from industrialtechnology to information technology. The dynamics of the industrial structure in theEast Asian region follows this paradigm, i.e. the shift from industrial technology toinformation technology. Masuyama and Vandenbrink (2001) notes that the paradigmshift is encouraging structural changes in East Asian industries in some ways, i.e.

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(1) Accelerating the transfer of mature industrial (manufacturing) technology fromadvanced countries to less-developed economies through FDI.

(2) Increasing the share of the IT industries in East Asia.

(3) Increasing the knowledge content of the production process as information(knowledge) substitutes for labor and capital as a production input, exceptperhaps in the assembly function.

(4) Forcing a change in industrial organization from the self-containedorganization such as keiretsu and chaebol to the networked (out-sourcing andsupply-chain) organization.

(5) Changing the pattern of international production network from Japan (during1980s in industrial technology) to the USA (as source of innovation in the ITindustry).

In this structural change in East Asian industries, the traditional FG concept might beless relevant to explain the economic and industrial development in the region and theindustrial pattern has become less predictable. It might be argued that China is the newdominant player in the new industrial pattern. China should intensively play importantrole in the regional integration especially through production fragmentation, especiallyin machinery industry. International production fragmentation has become aninteresting phenomenon[9] in East Asia. It is defined as cross-border dispersion ofcomponent production/assembly within vertically integrated production process, witheach country specializing in particular stage of production sequence (Athukorala andYamashita, 2006). Having this large number of production sharing activities, East Asiais sometimes called East Asia’s de facto economic integration. Intra-regional trade,especially in machinery, parts and components, has increased significantly (Ng andYeats, 2003). Assembly activities have increased drastically in the region. Gaulier et al.(2006) noted that vertical production/distribution networks in the region have formed a‘‘triangular trade’’ pattern, where the multi-national corporations use China as anexport base for the final assembly, in order to export final good to the USA and theEuropean Unions.

China as the one of the follower-geese must be well prepared not only in acceptingnew industries transferred from the more advanced countries especially Japan, but alsoin being leaved by industries, which might be reallocated to the next follower geese.The key success in attracting new industries and keeping established industriesoperating in the domestic economy is by creating more comparative advantage thanthe other countries. It relates with how countries prepare the domestic infrastructure,taxation, industrial cluster, low cost in doing business, competitive factor prices, andbetter quality of factors (including human resources).

5. ConclusionsThis paper examines the FG pattern in the East Asia region. First, the evolution of FGconcept starting from the original Akamatsu’s one to the modern one is brieflydescribed. There are two crucial variables in the FG model, i.e. comparative advantageand trade balance (export–import). Industries will be transmitted from the lead-goosecountry to the follower-geese countries based on their comparative advantage. Thesuccessful catching process for a specific industry in specific country is reflected by thecountry’s trade balance. Second, from the FG concept, we make an analytical toolnamely the ‘‘products mapping’’ which is constructed by combining the two crucial

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variables. This paper uses the RSCA index as the indicator of comparative advantageand the TBI as the indicator of export–import (implicitly also domestic production)activities.

Then, the analytical tool is applied to examine empirically the FG pattern in EastAsia region. This paper empirically shows that the FG pattern exists in the case ofEast Asia region. The industries in the first round of the FG pattern are unskilledlabor-intensive industries followed by human capital-intensive industries in the secondround and technology-intensive industries in the third round. In the case of first round,this paper finds empirically that there has been a clear indication of industrial transferfrom Japan as the lead-goose to Korea and then to ASEAN and China as the followergeese. Currently, China as well as Thailand and Indonesia have comparative advantagein unskilled labor-intensive industries. In the case of second round (human capital-intensive industries), China has already caught up Japan. Until recently, Japan has stillkept having high comparative advantage in technology-intensive industries. China stillhas to compete intensively with Korea and Singapore in technology-intensiveindustries.

Notes

1. Therefore, this paper applies trade balance (net-importer or net-exporter) as one crucialvariable in the analytical tool which is developed in part 3. By using trade balance, wecan firmly assert the position of a specific country, i.e. whether it lays in the period t1t*(net-importer), t�t4 (net-exporter) or beyond as a net-importer (due to the reverse import).

2. The three-digit SITC Revision 2 is suitable for this paper since it provides appropriatelythe detailed groups of commodities as well as the range of available data. The three-digitgives more detailed and distinctive descriptions than the one-digit or the two-digit. Italso avoids the massive information when the four-digit or the five-digit is used. Sincethis paper aims to analyze the dynamic shifts in comparative advantages, it requirestime series in the long-term sense. The SITC Revision 2 has been available since1976 and has been used as the standard report in the International Trade StatisticsYearbook – the United Nations.

3. The two SITC have been not reported since 2001 in the world market. Technically, theRSCA index, which is extensively employed in this paper, is not defined when there is notrade in the world market. For 1976-2000, the average share of export of the two SITC inthe world export was only 0.13 per cent.

4. See Appendix for the detail classification.

5. For this reason also, the terms industries and products are interchangeable in this paper.

6. It is argued that production is represented well by both export and import. In the earlystage of import-substitution, domestic production is low, there is no export and import isstill high. When economies scale is reached, domestic production becomes efficient andproduct has comparative advantage in international market, export will increase andimport will decrease. Beyond time t* (after the catching-up process) at Figure 1 (panel a)for example, domestic production and export increase meanwhile import decreases. SeeBalance et al. (1987) for a good discussion.

7. This preliminary analytical tool has been presented by the author in the 10thInternational Conference Society for Global Business and Economic Development‘‘Creativity and Innovation: Imperative for Global Business and Development’’, Kyoto,Japan, 8-11 August 2007. The author would like to thank Dr Xu Ming (China TextileUniversity), Dr Katsuo C. Yamazaki (Shizuoka Sangyo University) and all participantsin the conference for the valuable comments.

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8. This paper finds that RSCA and TBI indexes have skewed distributions. Therefore, themedian is better measurement of the central tendency than the mean (McClave et al.,2001).

9. The alternative names are frequently used such as ‘‘vertical specialization’’ and ‘‘slicingthe value chain’’.

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About the authorTri Widodo is an Associate Professor of Faculty of Economics and Business and a researcher ofCenter for Economic and Public Policy Studies, Gadjah Mada University, Indonesia. His researchinterests include international trade and economic integration in East Asia. He has publishedin journals such as Asia Europe Journal, Economics and Finance in Indonesia, GAMAInternational Journal of Business, HUE Journal of Economics and Business and Journal ofEconomics and Business Indonesia. Tri Widodo can be contacted at: ui55t003@pcnet.hue.ac.jp,kociwid@yahoo.com

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Appendix

Table AI.The productsclassification

Products classification Three-digit SITC Rev. 2

1. Primary products 001, 011, 012, 014, 022, 023, 024, 025, 034, 035, 036, 037, 041,042, 043, 044, 045, 046, 047, 048, 054, 056, 057, 058, 061, 062,071, 072, 073, 074, 075, 081, 091, 098, 111, 112, 121, 122, 211,212, 222, 223, 232, 233, 244, 245, 246, 247, 248, 251, 261, 263,264, 265, 266, 267, 268, 269, 271, 273, 274, 277, 278, 281, 282,286, 287, 288, 289, 291, 292, 322, 323, 333, 334, 335, 341, 351,411, 423, 424, 431, 941

2. Natural-resourceintensive products

524, 611, 612, 613, 633, 634, 635, 661, 662, 663, 667, 671, 681,682, 683, 684, 685, 686, 687, 688, 689

3. Unskilled-labor intensiveproducts

651, 652, 653, 654, 655, 656, 657, 658, 659, 664, 665, 666, 793,812, 821, 831, 842, 843, 844, 845, 846, 847, 848, 851, 894, 895

4. Technology-intensiveproducts

511, 512, 513, 514, 515, 516, 522, 523, 541, 562, 572, 582, 583,584, 585, 591, 592, 598, 711, 712, 713, 714, 716, 718, 721, 722,723, 724, 725, 726, 727, 728, 736, 737, 741, 742, 743, 744, 745,749, 751, 752, 759, 764, 771, 772, 773, 774, 775, 776, 778, 792,871, 872, 873, 874, 881, 882, 883, 884, 893, 951

5. Human capital-intensiveproducts

531, 532, 533, 551, 553, 554, 621, 625, 628, 641, 642, 672, 673,674, 675, 676, 677, 678, 679, 691, 692, 693, 694, 695, 696, 697,699, 761, 762, 763, 781, 782, 783, 784, 785

6. Others 911, 931, 961, 971, 999

Source: The ETA, available at: http://people.few.eur.nl/vanmarrewijk/eta/

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