Table of Contents

1.0 Introduction ............................................................................................................ 2 2.0 The Three Aspects of the Model ........................................................................... 3 2.1 Intra-Industry Trade (IIT) .................................................................................... 3 2.2 Inter-Industry Aspects .......................................................................................... 5 2.3 International Aspects ........................................................................................... 6 3.0 The Weaknesses of the Model ............................................................................... 8 4.0 Conclusion .............................................................................................................. 9 5.0 References ............................................................................................................. 10

THE FLYING GEESE MODEL

1.0 Introduction
In the 1930s, a Japanese economist, Kaname Akamatsu, introduced the Japanborn FlyingGeese (FG) theory that is frequently cited in media when news about Asias phenomenal economic growth is reported. The model is often used as a frame of reference for both further conceptual elaborations and empirical explorations. According to Akamatsu (1935) himself, the flying geese pattern denotes the development after less advanced countrys economy enters into economic relationship with the advanced countries. Akamatsu presented his theory graphically and verbally, with good argumentation and elaborations of the mechanism at work. Basically, the theory based on the three time series curves denoting import, domestic production and export of manufactured goods in less advances countries. Moreover, it defines an alternative pattern in which industries are assorted and enhanced from consumer goods to adopt more efficient production methods diversification paths are repeated in moving the economy towards the higher stages of production and export. Besides, FG model utilized to energize the regional markets and develop new hubs of production networks that will encourage more intraregional trade and help address the negative impacts of the economic crisis. However, FG Model has been used to described Asias regional growth pattern and explains economic growth in Asia after the Second World War. Therefore, this assignment will explain theoretically about the FG phenomena using the Southeast Asian countries as a model and elaborate the weaknesses of the model itself.

2.0 The Three Aspects of the Model

The economic progress of Asia is one of the remarkable developments of the 20th century. Based on the Akamatsu theory, there are three aspects of the FG model. Firstly, Intra-industry aspects it is product development within a particular developing country, with a single industry growing over three time-series curves (Import [M], Production [P], and Export [X]). Secondly, Inter-industry aspect it is sequential appearance and development of industries in a particular developing country, with industries being diversified and upgraded from consumer goods to capital goods. Lastly, International aspects it is the subsequent relocation process of industries from advanced to developing countries during the latters catching-up process.

2.1 Intra-Industry Trade (IIT)

Akamatsu formulated the basis of Japans experiences to explain how the import-production-export sequence of activities consistently occurs for particular product in the industrialization process. According to Grubel-Llyod (1967), the more advanced and develop an economy, the more specialized its trade structure will be industrialized countries has greater IIT. Besides, there are three periods in describing intra-industry dynamic; the period start with the domestic demand actuate manufactured goods to be imported from develop countries abroad establish demand with activate domestic production of the goods. As production exceeds domestic demand, the country starts exporting and imports will basically decreases.

The graphic bellows presented the three-time series curves for each product from the first stage (begin import foreign goods) to the second stage (import-substituting production) and lastly the third stage (local production increases and begin to be exported) approximate an inverted V-shaped flying formation of wild Geese.

Figure 1, Akamatsu Graph presentation (1961)

The aim of flying geese is to use imports to establish a domestic demand and a technology level capable of production in order to move on to the next phase and start exporting. However, some countries begun straight away at export phase and

skipping the import substitution phase because they do not goaled at immersing their own domestic market, merely relied on serving others. For instance; since 1983, Malaysia produced their domestically car that known as Proton, based on the automobile industry is operated in very competitive environment due to numerous rising and already existing brand imported car (TOYOTA) from Japan. By then, the domestic demands increasing and Proton expand their market internationally by exporting to Africa, Asia, Europe, Australia, Middle East and South America. Thus, Imports in Malaysia decreased from RM 49387.30 Million to RM 49029.91 Million in December 2012. (See figure 2)

Figure 2, Malaysia imports from Jan 11 until March 2013 (source: http://www.tradingeconomics.com/malaysia/imports)

2.2 Inter-Industry Aspects

As the second FD aspect, Akamatsu (1961) stated that Inter-industry is a sequence of structural changes in industrial development, the aspect here is a gradual upgrade from manufactured goods - mainly customers goods - to capital intensive goods (such as; machines, Auto, or technology). Likewise, the upgrading process depends on the level of domestic demand, that is, domestic production of consumer goods increases and creates demands for an efficient production of the necessary inputs to the production of the goods. Besides, it is also argues that inter-industry as well as the intra-industry, regarding the transformation of goods and industries go thought the Import- Production export sequential resulting efficiency and development in the domestic economy.

Akamatsu mentioned that the import of manufactured products first advance to improve of domestic agriculture, making domestic production and the subsequent substitution of foreign products by domestic products possible. Basically, every countries have limited sources, henceforth imported from foreign countries are decisive in order to conduct domestic production. However, Foreign Direct Investment (FDI) also plays significant role in the economic development and Akamatsu is aware of its importance. It helps the country to procure foreign knowledge and technology resulting into production domestically. To exemplify the above theory - Indonesia has a huge potential for domestic production due to high natural resources that they have. In 1990s, Indonesian governments economic policy had been promote FDI in the broad based manufacturing sector in order to stimulate an export oriented and diversified economy. It was undoubtedly that FDI in Indonesia had functioned as a new engine of growth and major source of domestic production. Therefore, Indonesias trade with ASEAN market has been increased - Indonesia export to ASEAN-4 (Singapore, Thailand, Malaysia and Philippine) has been always higher than its import this means that Indonesia trade is always surplus (X>M) or in other words, the domestic demands of the ASEAN-4 to Indonesias goods is practically high. (See figure 2).

Figure 2, ASEAN: Export and Import (source: www.asean.org, 2011)

2.3 International Aspects

It is a sequential positioning of the developing countries that are lined up behind the advanced nations so that the former can emulate, learn from, and capitalize on growth stimuli/externalities via economic interactions. (Akamatsu, 1962). The last aspect of the Flying Geese theory is International Aspect, which is the aspect by interchange industries with different countries with different degrees of development and industrialization from advanced countries to the less advanced countries. Countries across the world are at the different stage of development and growing at different speeds of structural transformation. According to Ozawa (2001), the countries could interact with each other in a complementary and mutually augmenting way to growth regressions explanatory power. Through correlation with 6

another country, the less advanced country can secure more than just a stream of revenue, merely it can tap its links with more advanced firms to acquire knowledge, technology, and market share or the things beyond the countrys limited resources. In contrast, this pattern of FG model may be utilised as a general way of describing latecomer catch-up industrial dynamics Akamatsu clearly stated that countries should strive to seed new industries when the technologies and capital equipment become available. As an example given in Akamatsu theory, Japan adopted a strategy of extreme domestic self-sufficiency in terms of capital, while scouring the world for technology to enable it to build industries that could compete with those of the advanced countries (such as; from black and white to colour TV, videocassettes and HDTV) by which time Japan had caught up and was an industrial leader in its own right. For instance, Thailand is one of the worlds thirteenth-largest exporter of agricultural products since 1961, and food with a market share 2.2 percent of world food export (sugar, rice, rubber, cassava, shrimp, and canned tuna) from 1988-2010 the annual growth rates of agricultural and food export were impressive Respectively averaging 10.5% and 12.2%. However, Thailand is aiming to diversify its export markets not only in agricultural goods but as well as technology and textile. Therefore, Thai Garment Manufacturers Association 2012 highlight that Thai textile and garment industry is enthusiastic to ensure its benefits from the ASEAN Economic Community (AEC), a liberalized common market of ASEAN countries to be established from 2015. Another example is Vietnam that used international aspect huge diversification for their domestic industry to change their industry from agriculture to manufacturing. By allowing other countries to invest their line. Moreover, where there are some areas with strong growth potential in Vietnam, it opens opportunity to build linkages between resource-based manufactures and low-tech manufactures, allowing the country to capture a greater share of value added. Thus, the experience of supplying international markets, including the improvement of quality standards and process technologies has provided Vietnamese firms with valuable experience that could form the basis of diversification efforts into new products and market.

3.0 The Weaknesses of the Model

Weaknesses of FG 1. Incomplete in its Financial Dimension 2. Does not Justify the lost of competitiveness 3. Lack of clarification of Technology from Exporting country to Importing Country 4. Mechanism and phase of import left unknown 5. Unexplained Theory for export and import if the country face Financial Crisis
Figure 3, Summary of the Weaknesses (self-made)

Based on Kojima (2000) the FG model is incomplete in many respects, especially in its financial dimension. Comparatively, every theory has its own weaknesses. In FG models, in term of imports Akamatsu did not really elaborate about the mechanism/phase is left unknown - the lack of clarification in Akamatsu theory on the mechanism of technology transfer through trade (apart from the aforementioned, ambiguous reference to demonstration effects), all sorts of speculations may be possible. The same goes with export; he did not basically explain how the technology is basically transferred from exporting to the importing country. Moreover, different countries has different formation, the evolution of the model will not certainly the same. In terms of linkages between both countries, Akamatsu does not justify if competitiveness is happen to be lost or domestic production terminated - it remains unclear how local firms that have been impoverished due to the competitive pressures of imports could overcome their overwhelmingly unfavorable situation. Afterward, this weaknesses consistently lead to emanation of economic nationalism, which often spinoff the struggle for economic in a country. As an illustration in Asia, the weakness for the FG theory is the Financial Crisis faced by the countries. There is no applicable method defined by Akamatsu to overcome the crisis. Nonetheless, the most obvious areas impacted by Financial Crisis are export and import, which have declined sharply across the region. The global crisis had been hardly hit the sharp of demand in the developed economies and 8

elsewhere in Asian economies. Most countries in the region were showing double digit declines in export even those countries that were faring relatively better were experiencing large export declines (Japan, Korea, Singapore, Indonesia, Thailand, Malaysia, including RRC and India) (see figure 4). Along with the drop in exports, industrial production were falling as well as domestic demand in a number of countries. Henceforth, FG theory requisite to be more provisional in order to growth strength in the economy in a country.

Figure 4, export growth in Asia economies in 2008-2009 (source: Masahiro Kawai, 2009

4.0 Conclusion
In conclusion, this assignment has critically interrogated the Flying Geese model of Akamatsu as a model of industrial learning in Southeast Asia. It explains how stepped-up integration with the outside economy via trade and investment can assist any aspiring developing country to jumpstart and sustain rapid structural metamorphosis and economic growth. The FG model has proved its merits in the form of remarkable economic performance of countries, even thought the theory is more verbal and lacks of some applications, it has continued to guide the economic movement of Asian countries. Therefore, if a country intends to industrialize and catch up in economic and technological development, to open up its economy and submit itself to the forces of globalization. 9

5.0 References

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