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2 FLYING GEESE PATTERN OF ECONOMIC DEVELOPMENT
The flying geese paradigm is a doctrine of industrial development in latecomer economies of Japanese Origin. The model was originally developed in the early 1930s by the Japanese economist Akamatsu Kaname4 (1896-1974), but after his death, it has been further rehashed by numerous scholars who, in different times, revisited and extended one or more parts.
This section, addressing only some key aspects of the FGM, should be regarded as an introduction to the model, where the Akamatsu’s original formulation is updated with few key concepts by Kojima and Ozawa, the Japanese economists who, according to the author, brought the most valuable contribution to the original formulation adapting it to the latest developments of the world economy. This chapter neither tries to be an overarching presentation of all the different formulations5, nor claims to assess the empirical validity of the model.
2.1 The Original FGM
The flying geese paradigm of economic development is a theory that explains the economic growth of underdeveloped countries once they enter the international economy (Akamatsu, 1961). Professor Akamatsu Kaname coined the term “Ganko-Keitai” (gankō keitai がんこうけいたい) in the mid-1930s and then translated it into
“wild-geese-flying pattern” when he presented his theory to the international arena in the early1960s.
The name of the model was inspired by the shape of three time-series curves indicating import (I), domestic production (P) and export (E) of manufactured goods, resulting from the statistical study of the prewar Japanese economy and industrial development since the Meiji era (Akamatsu, 1962). As shown in a schematic illustration in Figure 2, the shape of these curves is close to that of a symmetric V-shaped flight formation of migratory birds.
Wild geese fly in orderly ranks forming an inverse V, just as airplanes fly in formation.
4 For Akamatsu’s detailed biographical information refer to Korhonen (1994).
5 For an exhaustive description of changing interpretation of the flying geese model, refer to Schröppel and Mariko (2002).
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2.1.1 Fundamental pattern
The sequence of import, domestic production and export, makes up what is known as “fundamental” pattern and describes how in a developing country a single industry grows following the sequential order of I-P-E from t1 to t4.
In t1, the underdeveloped economy enters for the first time the international economy, manufactured consumer goods are imported into the domestic market from the advanced countries, and some special native handicrafts are exported in exchange for them.
In t2, starts the domestic production of the previously imported consumer goods; these are sold in the domestic market where increasing consumption makes their production profitable. At the same time, the economic relation with the advanced countries changes; if on one side the import of the consumer goods decreases, on the other side, machinery and capital goods start being imported.
A third stage starts in t3. Domestic consumer goods industry turns into mass production and starts exporting to overseas markets; first to underdeveloped nations, and later also to the developed ones. By this time starts also the production of hitherto imported capital goods which brings about a decline in the import from the advanced countries.
Finally at t4, as the country has attained the same standard of the advanced countries, in the specific industry it is no longer less advanced. Capital goods are now exported but since consumer goods are produced in other developing countries, the production and export of these products starts to decline. Consumer goods had been imported from advanced countries in t1, domestically produced and exported in t2 and
t1 t2 t3 time
Volume
Import production export
t4
Figure 2: Fundamental pattern
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t3, and now they are imported again from less advanced countries. This phenomenon is known as “reverse import” or “boomerang effect” (kojima, 2000).
2.1.2 Variant pattern
Noticing that both consumer goods and capital goods vary in terms of kind and quality, Akamatsu added a second pattern to the one just presented. This one discusses industry upgrade from consumer goods to capital goods and from simple to refined products and assesses that the sequence of I-P-E occurs not only in the development from consumer goods to capital goods, but also from simple goods to elaborate goods.
Figure 3 shows how the three I-P-E curves of the fundamental pattern can be further decomposed into simple and refined goods maintaining the symmetric V-shaped flight formation pattern. For a certain industry, crude goods are imported first (t1), than produced domestically (t2) and then exported (t4). Meantime, the import of these goods declines but the import of elaborate goods rises (t3) in line with the increasing national income. At t5 the level of the national production raises from crude to elaborate goods and at t6 the same kind of upgrade happens in the export.
Kojima (2000), who named this pattern “variant”, further developed it introducing a theoretical model (Kojima Model I) in which accumulation of physical and human capital is the input for an industry to diversify its products and rationalize its production methods. The process of intra-industry diversification leads to the development of new products within an existing industry and superior mode of production; inter-industry pluralization leads to the development of wholly new
t1 t2 t3 time
Volume
Import
Production
Export
t4 t5 t6
Figure 3: Variant pattern
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industries. Over time, companies adopt these two strategies in their business plans as medium term and long term business goals, respectively (Tachiki, 2005).
2.1.3 Advanced - less advanced pattern
From the observation of the economic dynamics in the Asia Pacific region, Akamatsu further expanded his model with a third pattern.
According to this third formulation, the countries of the world progress at different speed, some are dormant and some make leaping advances, their trajectories often intermingle with each other, and the ranking of every country may change overtime.
Despite that, a snap-shot of their flight formation will show that they advance in a V-shaped pattern, with the advanced countries ahead of the less advanced ones, as shown in Figure 4.
Moreover the leading geese transmit FG growth stimuli to the following geese, aligned successively behind according to their different stages of growth.
Kojima (1973, 2000) further developed this third pattern pointing out that the FG stimulus of industrialization is transmitted from a leading country A to a following country B through FDI, which transfers capital, superior technology and managerial skills. FDI facilitate structural upgrading and economic growth (Ozawa, 1992). He distinguishes three main types of direct investments; i.e., natural resource oriented, labor oriented and market oriented. In the first case the FDI results from the desire to obtain unavailable commodities; in the second case, it results from the need of cheaper labor, and in the third case, the investment is induced by the need of entering a foreign market.
US
Japan
Asian Tigers (NIEs )
Tiger Cub Economies (ASEAN4)
China
Figure 4: From advanced to less
advanced pattern:
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Kojima further distinguish between trade-oriented and anti-trade oriented FDI, but for our discussion it is enough to say that according to the FGM, FDI are taken according to the relative comparative advantage of countries in their respective stage of development, and not merely for the profit maximization of the single company. In other words industrial transmigration happens according to “comparative advantage recycling” dynamics (Cutler, Berri, and Ozawa, 2003).
2.1.4 A leading growth sector
Terutomo Ozawa is another Japanese economist that has made a number of original and significant contributions to the flying geese theory. Besides exploring the financial dimension of the flying geese growth model (1999, 2001), he also merged Akamatsu’s first and second pattern with the Schumpeterian theory of economic growth (Ozawa, 2004b). According to Schumpeter, despite a constantly increasing material production and technological progress, the economy in the long term grows in trend which has a sinusoidal form, and each economic cycle is driven by technological innovation (Schumpeter, 1934).
Ozawa’s reformulated version of the FGM is able to link every stage of the industrial upgrading to a specific industrial sector, which acts as main engine of the structural advancement.
Ozawa (1992, 2002, 2004a) distinguishes five major economic cycles. The first one to appear was natural resource intensive and labor intensive and has its best representative in the cotton textile. This one was soon followed by the physical-capital intensive and natural resource processing industries with steel and chemical as best examples. Then a third and fourth stage are those of the automobiles (assembly line based) and microchips and computers (R&D driven), respectively. The final stage is achieved with the information technology.
A paper from the investment house Allianz (2010) suggests that most recently we are in the middle of “the sixth Kondratieff”, a rising wave driven by new green technologies like renewable energy, biotech, and health.
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The merge of these six economic cycles with the concepts of intra-industry diversification, inter-industry pluralization and transmission of FG growth stimuli, is represented in Figure 5. Here the sinusoidal wave a la Kondratiev represents the economic cycles, the horizontal axis represents the climb up the ladder of industrial upgrading, and the vertical axis represents the transmission of FG growth stimuli.
We have already said that when economic growth brings about change the comparative advantage dynamics as rapid increases of labor costs or home currency appreciation in the foreign exchange market, low-tier industries that have lost competitive advantage are likely to move to other countries. This reformulated model tells us that the first industries to leave the newly industrialized countries are those most natural resource intensive and labor intensive. These will be followed by the physical-capital intensive and natural resource processing industries, and so on.
From the observation of Japanese industries, Ozawa also noticed that the processes of intra-industry diversification and inter-industry pluralization lead to industrial fragmentation. In a multi-layered industrial structure, large, medium and small firms coexist, and every level makes use of different technologies and has different labor costs. This vertical differentiation offers to developing countries the
Figure 5: Reformulated model
Japan NIEs China
ASEAN 4 Latecomers
Textile Steel and chemical
Microchip and computers
Automobiles I.T.
3
2
Green technology
Time Goose
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opportunity to accommodate not only the low-tier industries but also the low-end segments of high-tier industries, according to their wages and levels of technological sophistication. For instance, we can say that when China has a comparative advantage in the labor-intensive industries and attracts investments in the textile industry, at the same time it can host the lowest-end segments of the R&D driven industries.