Our simulations of a global macroeconomic model suggest that China's WTO accession could create significant welfare losses in the ASEAN-4 if foreign direct investment (FDI) is significantly redirected away from these countries toward China, and if the ASEAN-4 countries are unable to implement policies to make up for the slower rate of technological diffusion from the reduced FDI inflow. If the ASEAN-4 do not fall behind technologically, then they will be able to find lucrative niches within the lengthened international manufacturing production chains. The ASEAN-4 must therefore strengthen their abilities to absorb new foreign technologies quickly and to engage in indigenous technical innovations.

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