The Impact of Japanese Economic Cooperation on Asian Economic Development

Abstract

The quality of aid has been a worldwide concern in the wake of September 11, 2001. On the other hand, Japan's massive amount of Official Development Assistance (ODA) to the Asian economies has been questioned by the Japanese people. The main objective of this paper is to overview the developments of Japan's ODA and assess, in a quantitative manner, their economic impacts on Asian countries. Japan was the world's largest donor during the 1990s, although its ODA to GNI ratio remains lower than the UN target of 0.7 per cent. Notable features of Japan's ODA include a) a high percentage of loans, in particular to Asia, and b) high weighting for economic infrastructures. Asian economies have become increasingly important trade partners for Japan. Among others, China's share increased in a distinguished manner in the 1990s and recently reached at around a tenth of Japan's trade. Although Japanese outward FDI into the Asian economies peaked sometime around the Asian crisis of 1997, ODA loans have more or less supported the volume of capital flows into these economies. Trends in Japan's ODA over time do not necessarily reflect the structural changes in Japanese trade and investment in the Asian economies. Regional and sectoral distribution of Japan's ODA will be reviewed in light of the effectiveness and efficiency of aid. The benefits of two alternative measures-one from capital formation by Japan's ODA loans and the other from import liberalization in the Japanese market-are compared in view of the relative efficiencies of the economic policy measures. Those economy-wide impacts of aid and trade on six Asian countries-China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam-are estimated by a CGE model of global trade, incorporating a certain mechanism of dynamic capital formation. Japan's ODA loans are effective for economic growth in the Asian countries. Real GDP gains range from 0.1 to 1.6 per cent annually. Trade liberalization is an efficient way to improve economic welfare. Utility gains range from 0.2 to 1.9 per cent, which exceed those on account of Japan's ODA. Variations in those economic impacts are much more significantly observed when examined by sector.