Economic
Decoupling (1): Concept
Dr.Kriengsak
Chareonwongsak
Senior Fellow,
Harvard Univerisity
From the Subprime crisis to Lehman’s bankruptcy, economic instability
has triggered apprehension as to its possible effect on Thailand ’s
economy.
Conventional International Economics is
based on the concept of a world economy that is at this time profoundly
interdependent. This being so, an economic crisis in one country will affect
others through export and import, and when a country faces an economic crisis,
which by definition means a decline in national income, it will inevitably
reduce import from other countries. Moreover, if the crisis takes place in a
big country, such as the USA ,
which is a major trade partner of the rest of the world, a decrease in US import will therefore
sharply decrease other countries’ export, ultimately leading to economic slumps
all over the world.
A chapter in Thai history may
corroborate the above theory. During the 1930’s, the Great Depression in USA affected Siamese
fiscal balance so severely that a political revolution followed.
Surprisingly, amidst the current
globalization trend is the fresh idea of Economic Decoupling, which
refutes the traditional theory that a crisis in US will unnecessarily affect
other countries.
Supporters of Economic Decoupling
suggest that intraregional trade is now becoming more and more significant and that
some populated countries such as China and India –possibly
including Russia
and Brazil
–now enjoy high economic growth rates.
Therefore, USA may not be “Big Brother” any more,
and should the US
economy collapse, the rest of world may not experience such harsh, crippling results.
However, there is opposition to Economic
Decoupling in that, although export to USA is on the wane, a substantial quantity
of export is intermediate goods, which are imported as materials for other
production processes, whereas USA
is still a major final goods importer.
For this reason, though Thailand does
not export to USA directly, if Thai exported goods are intermediate goods which
become materials for producing final goods consumed by US consumers, then US
import reduction will affect Thai export and, finally, the Thai economy.
Next time, we will analyze some data
to see how that theory is substantiated.
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