International Trade and the Natural Resource 'Curse' in Southeast Asia: Does China's Growth Threaten Regional Development

Abstract

China's growth, along with its increasing integration with world markets through WTO accession, abolition of Multifiber Arrangement (MFA) quotas, and reduced trade barriers with ASEAN, is expected to have significant effects on the structure of regional production and trade. Through bilateral trade growth as well as through competition with China in global markets, Southeast Asia's resource-abundant economies will become more intensive in natural resource-based exports and much less so in low-end, labor-intensive manufacturing such as garments. Both these effects will tend to increase demand for natural resources, one through a direct product market effect, the other by driving down the price of a complementary input, low-skill labor. A question that then arises is how these trends will interact with the other major phenomenon currently sweeping through Southeast Asia, namely decentralization. With reduced national government power and little or no accountability at the local level, the potential for disastrous rates of resource exploitation is high. If sufficiently severe, the combination of increased demand for natural resources and diminished constraints on their could expose the region to reduced rates of economic growth, a variant of the "natural resource curse" argument, which maintains that resource-abundant economies grow more slowly than others.

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