It is widely acknowledged that foreign direct investments (FDI) play an important role in developing countries. FDI benefit the recipient country in a number of ways: they provide additional capital resources to finance investment activities in the country; and they are often accompanied by technology and, therefore, the country benefits from the new technologies introduced. Furthermore, FDI enable the country to have access to overseas markets since the foreign investors often have international market links before they come to the country.

There are strong links between international trade patterns and foreign investment patterns, especially since the majority of FDI are accounted for by MNCs (multinational companies). A number of theories have been developed to explain the relationships between the MNCs, FDI and international trade.

Tsuyoshi Koizumi (1987) has reviewed the literature on FDI in Asian LDCs. Among the general theories of FDIs and MNCs, the one developed by Dunning explains the ability and willingness of firms to serve markets, and the reasons why they choose to exploit this advantage through foreign production rather than through domestic production, exports or portfolio resource flows. According to Dunning's hypothesis, a firm will engage in FDI if three conditions are satisfied:

1. It must possess net ownership advantages over firms of other nationalities in serving particular markets. These ownership advantages largely take the form of the possession of intangible assets, which are, at least for a period of time, exclusive or specific to the firm possessing them;

2. When the net ownership condition is met, it must be more beneficial to the enterprise possessing these advantages to use them itself rather than to sell or lease them to foreign firms, that is, to internalize its advantages through an extension of its own activities rather than externalize them through licensing and contracting with independent firms;

3. When the first two conditions are met, it must be profitable for the enterprise to utilize these advantages in conjunction with at least some factor input (including natural resources) outside of its home country; otherwise foreign markets would be served entirely by exports and domestic markets by domestic production.

Today many nations, once believed to be completely consolidated, are challenged by “sub”-nationalisms and separatist movements within and across their borders. The essays in this volume occupy a space opened up by the increasing intensity of this ethno-nationalism, directing our attention to the insurrections and rebellions of, amongst others, the Shan, Karen, Hmong, and Wa. The authors represented here also draw on recent theoretical developments, developments which suggest that it is no longer possible to regard “ethnicity” as unproblematic, that to do so is to ignore a process of cultural construction that is integral to the working out of relations between ethnic minorities and the nation-states within which they are encompassed. While these analytical profiles do not present any unified problematic they are all concerned with the dynamics of change, pointing, I will argue, to the possibility of a suspension of belief in fixed identities of either the cultural or the political kind.

Theoretical Approaches

Confidence in the notion of fixed identities reached its high point in the era of functionalist theory. Long the reigning paradigm in ethnographic writing, functionalism rejected the “conjectural history” of evolutionism choosing, instead, to highlight the contribution of practices and beliefs to the maintenance of putatively isolated wholes (Wolf 1982, p. 14). Within this framework, societies and cultures were attributed a spurious coherence and integration (Keesing 1989, p. 28). This view of society as a closed system operating in a state of homeostatic equilibrium thus effected an exclusion of diachronic processes that has, by now, been loudly denounced (for example, Cohn 1980, p. 205).

Societies that could not be incorporated within this model of stasis were thought to be “disintegrating”; this rhetorical construct legitimated the search for funds required by “salvage” ethnography. In the vocabulary of this obituary mode the notion of the inherent fragility of cultures when confronted with the onslaught of the new was fundamental.

Introduction

The literature explaining the success of the Asian four little Dragons — Korea, Taiwan, Hong Kong and Singapore — is immense, even though the phenomenon is of relatively recent origin. There have been many thousands of books and articles by economists, management theorists, political scientists, sociologists, anthropologists and assorted journalists, that seek to explain the Asian economic miracle. Perhaps because the subject is too important to be left to economists, noneconomists have played a major role in trying to unravel the mystery. An eminent sociologist explains the attraction: “An art collector will naturally be drawn to Florence, a mountain climber to the Himalayas. In very much the same -way a social scientist interested in modernization will have his attention fixed on East Asia, to the point where he may reasonably conclude that this is the most interesting region in the world today” (Berger and Hsiao 1988, p. 3).

The success of these four Asian economies are of considerable popular interest, and, in recent years, journalists have been major contributors to the debate. The London Financial Times, for example, recently published a 12-page 40,000-word survey of the four Dragons (Housego 1988), and the Economist Intelligence Unit devoted an issue to a survey of China, Japan, and the Asian NIEs (EIU 1988).

Obviously, it is impossible to survey more than a minute fraction of this literature. However, we can touch on most of the highspots, direct our attention to a few central questions, and, wherever possible, refer the reader to existing surveys and substantive bibliographies. To provide a focus to the survey, attention is directed to a few interrelated questions: How is success explained and how satisfactory are the explanations? Tb what extent can success be attributed to the policies that were adopted rather than to other factors? Are there lessons for other developing countries? The easiest, if not the most original, approach is chronological.

The Years 1960-69

Around 1960 the four Dragons began to breathe fire, but the economists of the day were looking in other directions. In the early 1960s, Rosenstein-Rodan (1961) peered 15 years into the future and predicted that by 1976 Sri Lanka would have a higher per capita income than either Taiwan or Korea, where the average income would be barely 20 percent higher than that of India.

Introduction

The heads of governments of the Association of Southeast Asian Nations (ASEAN) — Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand — met in December 1987 at the ASEAN Summit in Manila. The fact that the Summit was not postponed nor moved to another venue and that no untoward incident happened despite the strained and potentially explosive situation in the country was viewed in the Philippines as a distinct signal of political stability. It also gained for the government some degree of political mileage.

However, we should not be distracted from the substance of the Summit meeting where new initiatives, especially for economic cooperation, were considered and approved. After all, the Summit was simply the mechanism for which more innovative schemes to move the ASEAN cooperative spirit forward were launched.

This paper looks into the economic context of the ASEAN Summit and its prospects for regional economic cooperation. Do set the tone for the paper, the relevant framework is examined briefly in the next section. In subsequent sections, previous attempts at economic cooperation in ASEAN and the reasons for their shortcomings are also reviewed, and the Summit proposals for economic cooperation are laid out in general terms. In the final section, the paper concludes with the implications of the Summit proposals and their contribution toward greater ASEAN economic cooperation.

Theory and Tradition

The theoretical rationale behind regional economic integration is the notion in trade theory that a partial move towards freer trade improves welfare among the member nations. The removal or reduction of tariffs among the member countries should improve resource allocation and expand markets. In addition, there is a greater scope for improved efficiency if the countries produce similar products. Thus, whether integration is only beginning, such as in the case of a free trade area, or will move along higher forms (for example, a customs union, a common market, or an economic union), freer trade will be beneficial.

In the theory of the second-best, however, we are warned that not every move towards free trade is welfare-improving (Viner 1950; Lipsey 1960). If integration leads to trade diversion away from efficient sources under a nondiscriminatory situation to an inefficient partner source under the integration scheme, then resource misallocation takes place. If this trade diversion outweighs the trade creation, then integration may not be welfare-improving overall.

Introduction

Modern economic growth, as emphasized by Simon Kuznets, is always accompanied by structural change. Thus the early phase of modern economic growth in Singapore and in Hong Kong was marked by the rise of the manufacturing sector at the expense of the stagnating or declining entrepȏt trade sector. In Korea and Taiwan, the expansion of the manufacturing sector was marked by the relative decline of agriculture. But structural change is not confined to intersectoral adjustment, it also takes place within the manufacturing sector. Given sufficient institutional flexibility and minimal market distortion, a dynamic economy will carry out structural transformation continuously and concurrently with growth, with new activities rapidly rising to replace old operations and sunrise industries displacing sunset industries. In such a dynamic economy, rapid economic growth facilitates faster structural change, which, in turn, provides new sources for further growth.

Tn 1979, Singapore, after having experienced two decades of high economic growth averaging 8.8 percent for the period 1960-70 and 8.4 percent for the period 1970-79, introduced drastic measures with a view to speed up the process of economic restructuring. The move, which was publicized in Singapore as the “Second Industrial Revolution”, was initially received with some misgivings and skepticism, especially since “high wages policy” was a key policy instrument to spearhead the restructuring. In 1985, as the Singapore economy plunged into a severe recession with negative economic growth, some critics even pointed a finger specifically at the restructuring policy itself for causing the recession.

Today, the Singapore economy has resumed its economic growth momentum. At the same time, it has grown and changed under the impact of the restructuring policy for almost a decade. This is therefore a good time to assess Singapore's industrial restructuring strategies and policies in an objective manner, with a view to drawing some valuable lessons for the other Asian NIEs that are in a similar process of development.

Growth and Structural Transformation

Singapore's successful industrialization drive during the past 25 years is a familiar story. After the present People's Action Party (PAP) government took office in 1959 under the pragmatic leadership of Mr. Lee Kuan Yew, every effort was made to transform Singapore from a country based on entrepȏt trade to one that is based on manufactured exports and tradeable services.

The dynamic economic performances of the East and Southeast Asian nations have caught the attention of many around the world. During the 1970s and 1980s, these economies as a group grew faster than most other countries in the world. Over the period 1970-79, for example, real GDP grew at an annual average rate of more than 9 percent in the newly industrialized economies (NIEs) — -which include Hong Kong, Korea, Singapore, and Taiwan — and more than 7 percent in most of the ASEAN (Association of Southeast Asian Nations) countries. Even in the Philippines, real GDP grew at 6 percent in the 1970s, which was higher than growth in most other developing countries in the world in the same period. In the 1980s, despite the turndown in the global economy, the trend has continued with real GDP in the NIEs and the ASEAN economies (again except for the Philippines) growing at about 7 and 5 percent, respectively.

As a result of their phenomenal performance, these countries have increased their shares of world output and have also raised their share of world exports. In 1970, the NIEs and ASEAN countries comprised 0.8 percent and 1.0 percent of total world output. By 1987, these shares had increased to 1.8 percent and 1.2 percent, respectively. The growing importance of these economies in terms of world exports is even more dramatic. From 2.2 percent and 1.6 percent in 1970, the share of exports from the NIEs and ASEAN countries to total world exports have grown to 8.3 percent and 2.4 percent, respectively, in 1988.

Indeed, this is the only region where some countries have graduated or are graduating from the ranks of the Third World. The successful development experiences of these Asian economies can serve as a laboratory to enrich economic theory and a large number of projects have been devoted to studying and analyzing their development strategies. In addition, the success of the NIEs and the nations of ASEAN has had a very favorable demonstration effect. As a result, countries such as China, India, and nations in Latin America have shown a great deal of interest in the development experiences of the East and Southeast Asian economies.

This volume represents a comprehensive collection of papers covering a wide range of development issues and problems the East and Southeast Asian economies have encountered, are facing, or -will be confronted with in the near future.

Introduction

The relationship between agricultural growth and food imports in developing countries has recently attracted renewed interest among agricultural and trade economists. This is largely in reaction to the strong opposition by farm lobbies in the United States to development assistance programs abroad that promote foodgrain production allegedly to the detriment of U.S. agricultural interests, which in turn was stimulated by the substantial fall in U.S. farm exports since 1981.

The major food crops, including cereals, roots and tubers, pulses, groundnuts, plaintains and bananas, account for the bulk of total calorie intake in developing countries. Although they are net exporters of noncereal food staples, developing countries as a group import cereals much more heavily. For example, developing countries' exports of noncereal food crops averaged 7.8 million tons annually during the period 1979-83 which was only about one-sixth of their net cereals imports over the same period. It seems reasonable, therefore, to use the terms “food imports” and “net cereal imports” interchangeably in this paper.

Nine years ago, Bachman and Paulino (1979) observed a strongly positive effect of agricultural growth on food imports of developing countries during the period 1961-76 and concluded that “staple food exporters have little cause to worry about the rapid growth of food production in the developing countries” (p. 35). A number of more recent studies have also documented the historical and cross-country correlations between agricultural growth and food imports through the early 1980s (Kellogg 1985; Lee and Shane 1985; Houck 1986; Timmer 1987).

The volume of food imports to developing countries actually increased in the 1980s, but other developed countries have gained larger market shares than the United States. It would seem then that the observed decline in U.S. agricultural exports in the 1980s has been caused by factors other than the growth of farm output in developing countries, involving the “international recession, currency exchange rates, bumper crops around the globe, international debt repayment problems, political maneuvering, and trade-strangling policy adjustments” (Houck 1986, p. 2).

The positive correlation between agricultural growth in developing countries and increases in their food imports is typically specified at a high level of country aggregation; as some writers have pointed out, there are some exceptions to the general rule (Paarlberg 1986).

Malaysia and Thailand are members of the Association of Southeast Asian Nations (ASEAN), a regional grouping formed in 1967 with the declared aim of fostering greater regional co-operation among member-states. The other members of ASEAN are the Philippines, Indonesia and Singapore. Brunei's admission as the sixth ASEAN member was more recent. Thus far, ASEAN co-operation has been largely limited to the political and cultural spheres but it is anticipated that there will be more co-operation in the economic sphere in the near future (Mahathir bin Mohamad 1989). The Malaysian Prime Minister has argued that although co-operation in agriculture may be more difficult because of the similarity of climate and other geographical factors, co-operation and complementation in industrialization rather than competition will not only be desirable but may even be necessary for the ASEAN countries in the face of protectionism and other economic developments in the industrialized nations. Given the importance of such regional co-operation, particularly in future industrialization, it will be useful to examine the situation vis-à-vis foreign investments in resource-based industries in the other ASEAN countries as well, so as to be able to place the RBI developments in Malaysia and Thailand within the ASEAN regional context as well as to make comparative evaluations. Since the focus of this study is Malaysia and Thailand, time and other resource limitations only allow a brief examination of the situation in the other ASEAN states.

Among the other ASEAN countries, the Philippines, Indonesia and Brunei are rich in resources. Indonesia and Brunei are particularly well endowed with petroleum resources whereas agricultural and related activities are important in the Philippines and in Indonesia. As in the case of Thailand and Malaysia, Indonesia and the Philippines too began shifting the emphasis of their industrial strategies from the 1970s, from import substitution to promoting industrial exports. Brunei has remained primarily a petroleum exporter and has no substantial industrial development. On the other hand, industrial development is an important facet of the Indonesian and Filipino economies and resource-based industries are important in both these nations.

In 1960 Leach argued that colonialism had imposed artificial boundaries on a unified ethnographic region which we may see as encompassing parts of northern Thailand, Laos, and Vietnam, the Shan states of Burma, and southwest China. Of course there is a sense in which this is true and important; undeniably the impact of colonialism on the region has been considerable, in economic as well as in political terms, and it seems clear that very different notions of territorialism must have prevailed in the region in the pre-capitalist period, whether these were the notions of the lowland rulers of states and empires, or those of the smaller, more dispersed groups whom Leach rightly depicts as practising various methods of shifting cultivation in less fertile or more “marginal zones”. Leach's analysis was also of value in drawing attention to the role of colonialism in the formation of the modern Southeast Asian nation-state, work which has been built upon by that of Geertz (1980), Tambiah (1976), Anderson (1983), and Keyes (1987). Yet today the border is a reality, and has affected the lives of the ethnic minorities who find themselves on one side or the other or both of it, to a very considerable degree.

The reality of the frontier, and the sovereignty of the nation-state which it symbolizes, has led to the increasing vulnerability of ethnic minorities in border areas to manipulation and exploitation by centrist administrations. At the same time it has led to their increasing strategic importance in terms of the power relations between different states. Much of the trade conducted across these (admittedly permeable) borders is classified as illicit, as is also much of the human movement across them. In the discourse of modern nationalism, one is dealing with economic phenomena classified as “smuggling” and human mobility categorized as “refugee” or “illegal immigrant”, rather than the free movements of commodities and agents which we are to suppose characterized the pre-colonial past.

The Karen number approximately 2.2 million in Burma and some 242,000 in Thailand. Although there are many Karen who continue to live within the Socialist Republic of the Union of Burma (now known as the Union of Myanmar), there is an active, intransigent Karen separatist movement with a predominantly Christian leadership. The separatist movement, which came into existence soon after the end of World War II, operates from bases along the Thai-Burmese border. In Thailand, no such movement has emerged. In the past, movements with political features have been essentially politico-religious millenarian movements and, historically, such movements among the Karen have been found on both sides of the Thai-Burmese border.

One of the more intriguing features of Karen nationalism and the Karen separatist movement in Burma, despite its conspicuous presence in border areas, is that few Karen in Thailand identify with the nationalism at the heart of the movement or actively support it. Much has been said of the “porosity” of borders in Southeast Asia in terms of the historical and, indeed, contemporary movement of populations, and of cultural and linguistic continuities among peoples living across national boundaries. In many respects, this is well illustrated in the Karen case. Yet among the Karen themselves on either side of the Thai-Burmese border (and within these two nation-states) it is the differences that seem to be more readily apparent, and Karen nationalism in turn seems to be limited to specific groups or communities within Burma. While language or dialect differences, education, and religion — which have to do with historical reasons as much as the “imperatives of the state” in Burma and Thailand — serve to explain in part this perception of discontinuities, it appears to be the case that the notion of a “border” between existing states is intrinsic to the application of ideas about a common culture, language, and social and political organization, and their associated discontinuities.

The analysis of the current dual health care system in Singapore reveals that people enjoy a wide variety of choices, from both modern and traditional options, while most consumers tend to be educated enough to make sound decisions based on their specific needs without feeling unduly restricted by the cost of health care. These are, briefly, the basic lines in the sketch of dual utilization of health services.

The details of the situation will be presented following the guidelines introduced in Chapter 1, that is, the discussion on Singapore will be divided into four sections. The first section will focus on the providers of health services and will discuss the available modern and traditional medical services. The second section will deal with the patterns of utilization of both types of medical services. The third section will look into the pattern of dual utilization of traditional and modern medical services. The concluding section summarizes the main findings.

Singapore, as most other Third World nations, is a land of contrasts. But what makes Singapore unique is the nature and intensity of the contrasts between East and West, tradition and modernity. The political, economic, social, and religious events of the country evolve and blend in the lives of a multiethnic population of 2.7 million people sharing as their home, an island of merely 570.4 sq. km. (or 620.2 sq. km. if one counts the main island and the offshore islets). Within the confines of this small island republic, among the Chinese majority (76 per cent of the total population), Malays (15 per cent), Indians (8 per cent), and other smaller minorities, four official languages (Mandarin, Malay, Tamil, and English) and numerous dialects are spoken; and at least three world religions are represented (Islam, Christianity, and Buddhism) in addition to Taoism, Hinduism, and Sikhism, among others.

Singaporeans enjoy the second highest gross national product (GNP) per capita in Asia after Japan, that is, S$l3,088 or about US$6,087 in 1986 (Department of Statistics, 1987: 2).

Introduction

It is evident that economic conditions in Indonesia have been tied to the rise and fall of oil prices. The rapid fluctuations in oil prices resulted in considerable adjustment problems for the country. Although adjustment problems related to falling oil prices are the main preoccupation of economists these days, this paper will focus on understanding the nature of the adjustment problems that occurred during the oil boom period, with attention to the deterioration of the nonoil traded goods sector.

Substantial increases in oil prices in the 1970s provided windfall revenues to small net oil-exporting countries such as Indonesia. However, the sudden increase in oil revenues was accompanied by considerable adjustment problems related to the absorption of oil revenues into the domestic economy. The increased domestic spending placed upward pressure on the price of nontraded goods and resulted in a decline in the price of nonoil traded goods relative to the price of nontraded goods. In turn, the change in relative prices led to resource movement from the nonoil traded goods sector to the nontraded goods sector. The deterioration of this sector has been referred to as the “Dutch disease” in reference to the adjustment problems faced by the Dutch in the 1960s as a result of the Sclochteren natural gas discoveries (Neary 1984).

One of the main justifications for the 10 percent devaluation of the rupiah by the Indonesian government in 1978 was to reverse this relative price movement and thereby protect the nonoil traded goods sector. The argument was that the nonoil traded goods sector had to be protected since oil was a depletable resource that would run out in time and that the nonoil traded goods sector would then have to provide the foreign exchange needed for continued development.

The aim of this paper is to present a model to test for the Dutch disease in the case of Indonesia over the oil boom period of 1973-82. The results of the model will enable some policy recommendations to be made.

The Model

The model attempts to analyze the effects of an oil boom on sectoral outputs in a small open-economy context. The model does not consider the effects on factor returns (i.e., income distribution effects) or the issue of optimal depletion of resources. As with other models on the Dutch disease, we have adopted the small open economy, nontraded and traded goods framework of analysis.

The major works on Japanese overseas investment all appeared in the mid- and late 1970s and inevitably they reflected the specific conditions of that time. Japanese investment of that period was concentrated in resource extraction, in import-substitution manufacture for the host market, and in the production of parts and components required by final manufacturers in Japan. Within Asia, the majority of Japanese investment projects were in the newly industrializing countries (NICs).

In the decade since these major works appeared, the nature of Japanese overseas investment has changed dramatically, both in scale and character. Now export-oriented projects dominate. And within Asia, ASEAN has assumed greater importance. Most of this change has been concentrated in the past five years.

This chapter examines the new wave of Japanese investment, its motivations from the supply side, and the key characteristics of its impact on ASEAN. It begins with an explanation of what the new wave is by briefly reviewing the main characteristics of the old wave of Japanese investment from the 1960s to the mid-1980s, and then presents the key facts concerning the scale and features of Japanese investment in the region since 1984. Next, the chapter examines the processes driving Japanese capital to flow overseas on this new scale. This involves an extended discussion of structural change in the Japanese economy as background for understanding the roles of trade friction and the yen appreciation in driving Japanese capital to venture overseas. Finally the chapter examines key characteristics of new-wave Japanese ventures in ASEAN, in particular their choice of location, the establishment of networks of linked firms across ASEAN, their increased use of local content, and the changing character of the overseas investing Japanese firm. This chapter aims to show how much the new wave of investment differs from that described in the “classic” works on Japanese overseas investment by Kojima, Yoshihara and Ozawa. The theoretical and practical implications of these differences are held over until Chapter 5.

Professor Shinichi Ichimura was born in Kyoto, Japan in 1925. After being graduated from the Department of Indonesian Languages, Osaka College of Foreign Languages in 1941, he entered and was graduated from the Faculty of Economics, Kyoto University in 1949. After graduate work in economics at Columbia University in 1950-51, he moved to the graduate program at the Massachusetts Institute of Technology, where he obtained a Ph.D. in Economics in 1953. In 1963, he was awarded a Doctor of Economics (under the old system) from Osaka University.

His professional life so far may be divided into two parts. In the first period, Professor Ichimura was a member of the faculty of Wakayama University (Faculty of Economics) from 1949-56, and of Osaka University (Institute of Social and Economic Research) from 1956-68. During this period he also taught at Johns Hopkins University (1959-60), the University of California at Berkeley (1965-66), and the University of Pennsylvania (1966-67). His interests during this time included both the theoretical and empirical aspects of the then current economic issues including studies on related goods, consumer surplus, nonlinear business cycle theories, national income analysis, demand and suppy of money, international trade, and input-output analysis, and the Japanese economy. He produced a number of professional articles and books on these subjects both in English and in Japanese. In the course of this first period, his interest shifted from theoretical research to empirical studies and began to focus more on the Japanese economy. Furthermore, in 1963, he was elected Fellow of the Econometric Society, and was coeditor of Economics Studies Quarterly from 1960-65.

His move to the Center for Southeast Asian Studies at Kyoto University in 1968 signals the beginning of the second period of his professional life. At this time his interests changed dramatically and shifted to the study of the Southeast Asian economies. His research encompasses such topics as regional economic research on South Sumatra, agricultural development and the green revolution, the effect of climatic factors on the socio-economic structure of Southeast Asian countries, Japanese joint-ventures in Southeast Asia, cultural conflicts and labor-management relations, cultural and institutional factors and appropriate technology, economic development of Indonesia, the scope of economic development of Asia, political aspects of development policies, and debt accumulation in connection with the North-South problem.