Contenidos, criterios de evaluación y estándares de aprendizaje evaluables del Ámbito

Sharply increasing domestic demand tends to have negative effects on net trade in the shon run due generally to sluggish production adjustment. However, the theory of dynamic comparative advantage, incorporating the representative demand hypothesis, suggests that, in the longer run, rapid economic growth in a developing country may generate not only increases in steel production and domestic demand but also improvement of the trade balance and comparative advantage in steel. This relationship can be analysed by examining the long-run trends and correlation of intensities of steel production and consumption and changes in the relative sizes of net trade to GDP in real terms (Figure 5.3).

17. The variable (RTJ is particularly useful in a regression analysis, which will be conducted later in this chapter, since, unlike NTt and RCAj, RTj always has a positive sign and a logarithmic form can be employed, if necessary.

s e l e c t e d c o u n t r i e s , 1 9 6 7 - 8 8

a. Distribution of (9, ti) and correlation coefficients"

0.10 - 0.08 - 0.06 - 0.04 - 0.02 - 0 India (-0.65) ^^ . ••• ^ ® A A - Korea ^ ^ © (0.92)

Net imports <= (jr = 9) => Net exports

n '

Australia; USA; Canada; UK; France; Italy => Total (0.84) (0.93) (0.98) (0.97) (0.98) (0.99) (0.88)

China (0.48); Turkey (0.50); Mexico (0.09) => Total (0.66)

0.02 b. Growth path of (9,n) 0.04 1- 0.06 0.08 0.10 (7r = 9) 1 (6) 0.04 0.02

Notes a n and 9 denote 'consumption intensity' and 'production intensity', respectively. Correlation coefficients between n and 9 in parentheses.

The relationship between two variables, X = (xu xi,..., Xn) and y = (yi, >>2,..., jn), can be represented by correlation coefficient {pxr). The equation for the correlation coefficient is:

n -

1 "

where -\<p^<\\ c^^ Co\Qi,Y) = (^i" A t X j i'

<•=1

= ^ U - ^ x ) ' ; and ^ ^ t { y i - ^ r f •

Hxior, /if) and c ^ (or, d e n o t e ' m e a n ' a n d ' s t a n d a r d deviations'of X (or 7), respectively.

b Steel trade surpluses, when (9, n) at time / locates at the right-hand side of the line (n = 9). Trade deficits, when (9, tt) is at the left-hand side of the line (j: = 9 ) .

c OLS regression of ;:'s on 9's for all the listed countries except India and Taiwan provides: ir = 0 . 0 1 3 + 0.6159 with = 0.86.

The straight line n is the fitted line of the regression.

124 Figure 5.3a shows combinations of steel production intensity (tc) and consumption intensity (0) in the world's major steel-making developing and developed countries over the period 1967-88 plotted on the (0,7u) co-ordinates. The figure confirms that, in most of the world's major steel-making countries, intensities of steel production and

steel consumption over the long run are positively correlated, except for a few countries such as India and Brazil. Then, the time series and cross-country data of (0,7t)'s form an upward-sloping band on the (0 ,n) co-ordinates. The estimate of the slope of the band, which are obtained by a simple regression of Tt's on 0's, is (dS / d0) = 0.615, and the fitted line of the regression (11) has a positive intercept term, crossing the line (0 = t:) from the left (see note c in Figure 5.3). The positive slope and intercept term of n suggests that, in a country where the steel industry grew rapidly, steel production intensities rose in general faster than consumption intensities in the long run, and that the size of net trade in steel, expressed as a ratio to real GDP, increased over time.

According to Figure 5.3, surpluses in steel trade were achieved mostly by the countries where both production and consumption intensities were relatively high (the countries in 'Stage B' and/or 'Stage C, except the United States). If a point (0,7c) for a country at time t locates at the right-hand side of the line (7: = 0) in the (0,7t) co- ordinates, the country has steel trade surpluses and the horizontal difference between the line (7r=0) and the point (0,7t) is the size of the surpluses relative to GDP, (X-M)/GDP. There are steel trade deficits when (0,7u) is at the left-hand side of the line (71 = 0), and the vertical difference between the line (7t = 0) and the point (0,7i) is the size of the deficits relative to GDP, (X-M)/GDP. Figure 5.3 shows that the long-run growth path of (0,7t) in Korea in the 1970s and 1980s moved from the left-hand bottom to the right-hand top crossing the line (7U=0) at levels of production and consumption intensities of around 0.06. Even though sharp rises in consumption intensities relative to production intensities in some years increased trade deficits or reduced trade surpluses, the overall pattern was that, in the long run, production expansion surpassed consumption growth and the size of net trade relative to GDP also showed an increasing trend. Nevertheless, Figure 5.3 shows that sharp rises in steel consumption intensities relative to production intensities after the mid-1980s reduced the horizontal distance between the point (0,7c)'s in the period and the line (tu = 0), implying declines of the size of net trade in steel relative to income levels. This may be due to either declines in comparative advantage or to tiie persistent short-term effects of rapidly rising domestic demand pressure, or both.

Most developing countries in the 1970s and the 1980s (and Korea, Taiwan and Brazil in the late 1960s and tiie early 1970s) were at 'Stage A', the early stage of steel industr>' development. Both production and consumption intensities were rising but

developing countries domestic steel demand exceeded production at this stage, resulting in net imports of steel products. As these economies grew, however, the relative size of the steel trade deficit to GDP reduced gradually.^^

Nevertheless, not many developing countries in 'Stage A' experienced significant growth of steel production and/or consumption intensities, the levels of both remaining below 0.04 throughout the 1970s and the 1980s. Only Korea and Taiwan moved out of this stage in the early 1970s, achieving rapid growth in production and consumption intensities. While in Taiwan consumption intensities were much higher than production intensities throughout the 1970s and the 1980s, Korea exhibited growing intensities of steel production at rates higher than those of steel consumption in the 1970s and became a net exporter in the early 1980s.^' Thus, Korea became the only developing country to enter 'Stage B ' , as depicted in Figure 5.3, with not only relatively high steel production and consumption intensities but also with increasingly important steel trade surpluses in a rapidly growing national economy.

As shown in Figure 5.3, Japan and West Germany were the only two developed countries at 'Stage B' in the 1970s and the 1980s. West Germany's intensities of both steel production and consumption had already been falling from the late 1960s. The path of (0,7:)'s in Japan was also on a downward trend after reaching a peak in the early

1970s. Both countries in the late 1980s entered 'Stage C', where most developed countries experienced a declining steel industry relative to a national economy with the path of (9,::)'s in general on the downward trend (Figure 5.3).The intensities of steel production and consumption in the 'Stage C' countries in the 1970s and the 1980s both declined from about 0.06 kilograms to 0.02 or 0.03 kilograms throughout the period. As argued by Howell et al. (1988), the fall in demand in developed countries following the establishment of steel consuming infrastructure and either sharp declines or cyclical fluctuations in the heavy steel-consuming industries were the principal cause of the slowdown in the world steel industry after the mid-1970s. Nevertheless, most of these countries, with the exception of the United States and to a lesser extent Italy, were still

18. A few emerging steel-makers in developing countries such as Brazil, Mexico and Turicey became net exporters at this stage followed by low levels of consumption but relatively high production levels. Among them, Brazil's achievement in steel exports was remarkable (Table 4.6a).

19. Even though Korea and Taiwan were the only two which moved out the 'Stage A' in Figure 5.3, there were structural differences between these countries' growth paths in production and consumption intensities. Figure 5.3 shows that Taiwan's consumption intensities were exceptionally hieh relative to steel production intensities throughout the 1970s and the 1980s and that its growth pa'th of (6,7r) departs significantly from the general trend shown by the other steel-making countries. This led to Taiwan becoming a net importer of steel throughout the 1970s and 1980s, despite the fact that its production intensities were much higher than those in many net-exporting developed countries. Other East Asian NlCs with relatively small sizes of land and population, such as Singapore and Hong Kong, also showed high and rapidly rising steel consumption intensities but very low production intensities in the 1970s and the 1980s.

126 net exponers of steel.

Korea entered 'Stage B' following West Germany and Japan, with its steel production and consumption intensities continuing to increase in the early 1980s up to 0.09 and 0.06 kilograms per GDP, respectively. Thereafter, steel production intensity fell slightly to above 0.08 kilograms, while consumption intensity rose to more than 0.07 kilograms. These changes in the path of (0,7r)'s, lowering the ratios of steel trade surplus to GDP from the mid-1980s, are consistent with the fall in the net trade ratios to total trade (Table 4.6b) and with the declining shares of the steel industry in Korean manufacturing output, employment and exports (Table 4.3) in the same period. This suggests, on the one hand, that Korea's continuous rapid economic growth relative to the rest of the world in and after the mid-1980s led to greater specialisation in industries that required more capital and higher technology than steel-making, reducing the imponance of the steel industry in the national economy. On the other hand, this data also suggests that, even though the absolute size of the Korean steel industry and its share in world output and expons were still rising (Tables 4.4a, 4.4b and 4.5), comparative advantage in the Korean steel industry was being weakened in and after the mid-1980s.