##ido corridor of japan where economic distance between suppliers and assemblers was reduced through investments in efficient transportation and other infrastructure. what was traditionally done at one plant location under the same roof got outsourced to many distinct companies located within striking distance in the same region. thus intra - regional trade in tasks arose : the way the production process was organised in the region locally has now been extended through to its logical conclusion across borders through long distances. if task trade could be done within a region, with the fall in transportation and communication costs it can be done across borders and long distances as well. as venables mentioned, " the product market effects can be long range – firms in new york may benefit from a large market in california, and reductions in international shipping costs will increase market access for firms from a continent away ". to the extent that a good deal of the off - shoring activity is concentrated in asia, there are good reasons for it. the strategy of concentrated spatial development in urban concentrations was emulated by the flying geese of asia mentioned by venables. the focus of growth in the 1970s and 1980s shifted to the tigers like singapore, hong kong, south korea and taiwan. singapore and hong kong being city states naturally exhibited strong natural economic concentration. furthermore, economic activity got concentrated in seoul / pusan in south korea, and in taipei / kaohsiung in taiwan. by the late 1970s / early 1980s, 70 per cent of urban population in south korea was concentrated in the seoul and pusan regions. this concentrated pattern of development later spread from the tigers to the cubs, the bangkok region in thailand, jabotobek ( jakarta and its environs ) in indonesia, and kuala lumpur in malaysia. it then moved on to the coastal regions of china - specifically to pearl river delta special economic zones and shanghai. once again even a large country like china decided to concentrate economic activity in specified coastal regions. what were the common characteristics of all these regions? first, there was heavy investment in transportation links with rest of the world, such as, airports, ports and communication infrastructure. second, export oriented outward oriented labor using manufacturing gained prominence while consistently ascending the technology ladder over time. did all these lead to a death of distance? consider the following. an urban coastal corridor emerged from tokyo to sydney, through seoul, taipei, shanghai, hong kong, kuala lumpur, singapore and jakarta. if we extend venables ’ argument on productivity enhancement through increase in size of urban ag

do we then to look at exchange rates as equilibrating price mechanisms? does this mean that shifts in the chinese exchange rate determination will have no effect on other variables? given the complexity of trade patterns and offshoring of tasks, and complex production patterns behind many products, it would perhaps not be surprising that exchange rates are no longer to be seen to reflect fundamentals. if a product consists of a large number of components that have been produced over a dozen different countries, and even assembled across two countries, how will any bilateral exchange rate changes be expected to affect trade patterns? moreover, with the proportion of value added in upstream ( e. g., research and development and design ) and downstream ( e. g., marketing and trading ) activities increasing, the role of exchange rates in effecting trade flows becomes even more complex. in fact we have seen low pass through of exchange rate depreciation to inflation – both in developing and developed countries. i would like to reflect on a few other contemporary puzzles as well. low consumer inflation in the presence of abundant liquidity and increasing asset prices first, we have been experiencing low global inflation despite abundant liquidity in the last few years, with little sign of change. is this a result of globalisation or effective worldwide monetary policy? kenneth rogoff in his paper has argued plausibly that high productivity asia, particularly china, could not have exported deflation. as he says, " but hyper - competitive chinese exports only affect the relative price. as long as the central bank targets inflation in the overall price level, which it can over sufficiently long horizons, cheap goods from china simply imply that other goods must become expensive. from this perspective, we might actually say that china is exporting inflation to other sectors of the global economies ". whereas i naturally find kenneth ’ s theoretical argument persuasive, is it borne out empirically? the global economy is currently awash with liquidity. as we all know, around eight years ago, the us fed responded to the ` low probability but highly adverse events ’ ( blinder and reis, 2005 ) leading up to the russian debt default and the ltcm collapse by an emergency cut in interest rates in september, october and november 1998. even though the reduction was just 25 basis points each month, it shifted the monetary policy stance to accommodation. later, prompted by a deflation scare, the fed fund rate was cut over a 42 - month stretch from december 2000 to june