pull factors. In addition, many Japanese multinational enterprises adopted a strategy to export their products to the U.S. and the European countries through their production bases abroad in order to mitigate trade frictions with those countries. Through these processes, the NIEs established their production bases to a certain degree at home and strengthened their capacity to supply tradable products.

The appreciation of the Yen triggered by the Plaza Accord in 1985 resulted in an increase of direct investment from Japan to the NIEs, though it was a transitory phenomenon. Since the NIEs had already been suffering from labour cost increases, a massive outflow of Japanese direct investment rushed into the ASEAN nations with lower wages and lower production costs. The role of the ASEAN economies in providing new production bases for Japanese manufacturers was highlighted. At the same time, through the establishment of the production bases in ASEAN, a certain change has come up in the division of labor between Japan and ASEAN. According to Hiroshi Tanaka of Research Institute of Overseas Investment, the Export-Import Bank of Japan, since 1985, the division of labor has been changing from an inter-process division of labor based on labor intensity to an inter-product division of labor at a low level, in which mass-produced goods and products with less value added are produced in ASEAN.

Along with these tendencies, the production bases in the NIEs were required to provide a supplementary function for the Japanese manufacturing sector as contracting producers with technical assistances from Japanese manufacturers and OEM contracts. The type of investment has also been changing. With a rise of consumption level in the host countries, the target of shipment has been shifting from third country markets to the host country market.

The NIEs are now encountering a plunge of price competitiveness caused by currency revaluations and the increasing trade frictions with the U.S. and other industrial countries. Under these circumstances, they could not deny the necessity to enhance changes in their industrial structures towards more technology-intensive one. Just as Japan transferred its labor-intensive industries to the NIEs and the ASEAN countries and specialized in the technology-intensive industries, the NIEs are trying to transfer their production bases of their labor-intensive industries into the ASEAN countries by the way of direct investment.

There have thus been established interdependent economic relations with deepening industrial linkages among the East Asian economies.

“Flying-Wild-Geese” pattern of economic development

Thus, the development of the East Asian economies in the latter half of the 1980's is characterized by “interdependent relationships” among the individual countries. This development was brought about by industrial transfers from relatively advanced countries to late-starting countries, which may be called as “transmission of flying-wild-geese pattern of economic development”. The late-starting countries introduced more advanced industries into themselves from more advanced countries and substitute imports with domestic production which was promoted by the introduced industries. Economic growth of the late-starting countries was accelerated by expanding exports. In the mean time, the advanced countries shifted their industrial structure to more sophisticated one by transferring their mature industries to the late-starting countries and allocating their scarce production factors to more advanced industries. Through these processes, the trade pattern between countries