# 2. **Economic Structure and Trade Patterns in APEC Econoniies**

Our APEC model is constructed around a nine-region, twelve-sector, four-factor, Social Accounting Matrix estimated for the year 1992.6 This section outlines the structure of production, demand, income, taxation and trade patterns in the base year for each economic region included in the model, and briefly describes the patterns of protection among the relevant regions.<sup>7</sup> Table 1 presents data on factor endowments, intensities, and costs for the regions included in the model, and indicates the enormous differences in size, role of trade, factor endowments and factor cost among these regions. Low-income APEC economies (Indonesia, Thailand, Philippines, and China) as well as Korea & Taiwan exhibit broad similarities: exports and imports represent around 25-35 percent of GDP, Singapore & Malaysia have trade shares over 100 percent, and the much larger OECD economies (Japan, US, and EU) depend on trade for only around 10 percent of GDP. The low-income developing countries are more poorly endowed with capital relative to labor: capital-labor ratios are lower, the share of agriculture labor in the total labor force remains around one half, and the rental-wage ratio is much higher. The pattern is reversed for Japan, the European Union, and the United States, while Korea & Taiwan and Singapore & Malaysia fall between the advanced industrial countries and the poorer Asian developing countries. Their agricultural labor share is larger than that of the industrial economies, but is much smaller than that in China and ASEAN4. Compared to Japan, the European Community, and the United States, they have a lower capital intensity and a higher relative capital-labor price.

International trade theory generally identifies two different types of international trade. Trade among developed industrial countries with sirnilar endowments and technology is largely "intra-industry," with high exports and imports within sectors, whereas trade between high and low-income economies (with very different factor endowments and technological processes) is largely inter-industry, with more sectoral specialization.<sup>8</sup> With a tremendous range in factor endowments and income levels among the APEC economies, there is ample scope for Heckscher-Ohlin forces (based on different factor endowments) to influence trade.

Table 2 presents the share of each region's exports and imports in total world trade from the base data used in the model. The OECD economies dominate the machinery and equipment sector, while China and Korea & Taiwan are major participants in the textiles and apparel sectors (along with the EU). The export market shares for manufactured goods in developing ASEAN economies indicate that Indonesia has significant shares only for textiles and apparel (around 4 percent) and wood and paper (5 percent), while Thailand is best represented in the food processing, apparel, and othe light manufactured sectors.

6 The data set is drawn primarily from the GTAP 1992 dataset, version 2, which is described in Hertel (1996).

For model regions that are made up of mnore than one national economy (Korea & Taiwan, Singapore & Malaysia, China, and EIJ), all figures on exports and imports reported in these tables (and used in the model) refer to trade with economies _outside_ that region, and thus exclude trade that occurs among members of the same region. In constructing the regional data sets, this "within region" trade is netted out and treated as another source of domestic demand. Thus care must be taken in comparing trade shares and structure with other published sources on regional trade flows that do not adjust for intra-regional trade.

I 'Intra-industry" in this context refers to the two-way trade between industries which produce commodities that are similar in input requirements and highly substitutable in use, such as similar televisions manufactured by different producers.

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