Asian Trade and Global Linkages

In the run-up to the 2008 global financial crisis, many thought that Asia would be exempt from economic shocks from Europe or North America. These arguments were largely based on the rapid expansion of intraregional trade in Asia. This paper examines the trade linkages among Asian countries and between Asia and other regions, paying particular attention to the role of production sharing processes diversified across geographically diffuse networks. Little or no evidence is found of Asia decoupling from the business cycles of the G-3 economies (United States, European Union, and Japan). Instead, there is a substantial linkage between growth in the G-3 and Asia, particularly since the 1997–1998 Asian financial crisis, because production networks in Asia expanded in response to G-3 demand for final products. The critical factor is the role of the People’s Republic of China as an assembly center in the vertical production integration.