To some extent, trade is almost synonymous to a country’s welfare. More specifically, some research pointed out export as an engine of economic growth. From this stand point, it is important to measure export sustainability to the economy, which in this section export among the CJK become the main focus.
As already explained earlier, Japan, China and Korea are experiencing golden period in doing export among them. Economic welfare is the most notable goal which links in this activity, but is it sufficient to boost the economy in the long run? A pure market driven activity without specific regional trade agreement might sometime create bias. It is clear that Japan, Korea and China are lacking of such agreement among them as described in the table 1.
To make an effective regionalism, Japan, China and Korea should support each other. Therefore, intra regional cooperation within the CJK must take place by which can create sustainable growth in East Asian region. The following sections serve to prove export sustainability to economic growth, in the absence of trade arrangements, for the short and the long run. Engle-Granger Cointegration and Error Correction Mechanism test are then employed for this cause. This test employs time series quarterly data of GDP and for Japan, China and Korea ranging from 1985 to 2004. The data is taken from CEIC database. In these equations, JPGDP, CHGDP and KRGDP are Japan’s GDP, China’s GDP, and Korea’s GDP respectively while Export JP, Export CH and Export KR are the variables of export destinations to Japan, China and Korea. It would be possible to co integrate Export and GDP since the trend in export and GDP would offset to each other, creating a stationary residual. The residual is called a co integration parameter. In the data, if we find that the initial regression of the residual (ut) gives stationarity it means that ut is stationary at order 0 (level) and it is notated as I. But if ut is stationer in first difference, the variables of Export and GDP will be co integrated in the first difference which can be notated with I.
We have seen the long run relationship between Export and GDP. However, in order to make it objective, we should also see the short run since it is still plausible to perceive disequilibrium.
Thus, Ut = GDPCountryXt -b0 -bExportCountryYt could be noted as equilibrium error. This error then could be used to relate the behavior of the short run Japanese GDP The technique to correct short-run disequilibrium to its long run long run equilibrium is called Error Correction Mechanism (ECM).
In this equation, DGDPCountryX is the difference in GDP for Japan, Korea and China, while AExportCountryYt is the difference in export from country X to Country Y. As for example, AGDPJapant = b0 + b1AEx^portChinat + b2ut-1 + et applies for the effect of Japan’s export to China on Japan’s GDP. From the above model we can see that the long run relation between Export and GDP in Japan, China and Korea would be balanced by the previous error.
Greater economic interdependence between Japan, China and Korea will act well as the base of creating regionalism. In this sense, triangular trade agreements that dismantle trade barriers will smooth the progress of improved trade flows among these countries by means of greater market access. But unfortunately, this supporting environment only operates as fact in a sheet. The process of regionalism in this area is proven to be difficult.
These countries may have aggressively reached other countries in making FTA’s and EPA’s but none of which have been progressing among them (see table 1). The reason of it will be a subject for another research, while this section tries to focus on the effect of such agreement to the economy. The lack of trade arrangements is being noted as the main factor that contributes intra regional trade ineffectiveness in north East Asia. This hypothesis will be proved in the following sections to come.
Table 1. Japan, China and Korea FTAs/EPAs
|Concluded||Chile, ASEAN, Hong Kong, Macao|
|China||Under Negotiations||NZ, Australia, Pakistan, Singapore, GCC, SACU|
|Under Considerations||Iceland, India, Japan-Korea-China, FTAAP, Switzerland|
|Concluded||Chile, Singapore, EFTA, ASEAN, USA|
|Korea||Under Negotiations||India, Mexico, Canada, EU|
|FTAAP, China, Mercosur, NZ, South Africa,|
|Under Considerations||Japan-China-Korea, Australia, GCC|
|Concluded||Singapore, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia|
|Japan||Under Negotiations||India, Vietnam, Australia, Switzerland, Korea, GCC, ASEAN|
|Under Considerations||FTAAP, Japan-China-Korea, South Africa|