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Global Production Sharing, Trade Patterns, and Determinants of Trade Flows in East Asia

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Abstract

Global production sharing—the breakup of a production process into vertically separated stages that are carried out in different countries—has become one of the defining characteristics of world trade over the past few decades. Any analysis of trade patterns or its determinants that ignores this phenomenon, and the trade in parts and components that it generates, is likely to result in erroneous conclusions. This study examines the extent and pattern of these flows, focusing on East Asia, and probes its implications for the analysis of the determinants of trade flows. World trade in parts and components increased from about 18.9% to 22.3% of total exports between 1992/93 and 2005/06. Most of this growth emanates from East Asia, with its share in total world exports increasing from 27% to 39% over the same period. There was a notable decline in Japan’s share toward the end of this period, but this was more than offset by the rising importance of the People's Republic of China (PRC). In East Asia, most of this trade is in electronics. The econometric analysis reveals that parts and components are remarkably less sensitive to changes in relative prices; as a result, the sensitivity of aggregate trade flows to relative price changes diminishes as its share increases. This implies that exchange rate policy may be less effective in balance of payments adjustment, in countries where component trade is high and growing.

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Bibliographic Info

Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 41.

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Length: 76 pages
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:ris:adbrei:0041

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Keywords: Global production sharing; product fragmentation trade; determinants of trade flows; exchange rate policy;

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Cited by:
  1. Park, Yung Chul & Song, Chi-Young, 2011. "Prospects for Monetary Cooperation in East Asia," ADBI Working Papers 314, Asian Development Bank Institute.
  2. Prema-chandra Athukorala & Nobuaki Yamashita, 2009. "Global Production Sharing and Sino-US Trade Relations," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(3), pages 39-56.
  3. Witada Anukoonwattaka & Mia Mikic, 2011. "Prospects for India and lessons for latecomers," STUDIES IN TRADE AND INVESTMENT, in: India: A New Player in Asian Production Networks?, Studies in Trade and Investment 75, chapter 6, pages 137-142 United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  4. Prema-chandra Athukorala, 2007. "The Rise of China and East Asian Export Performance: Is the Crowding-out Fear Warranted?," Departmental Working Papers 2007-10, The Australian National University, Arndt-Corden Department of Economics.
  5. Fukunari Kimura & Ayako Obashi, 2011. "Production Networks in East Asia : What We Know So Far," Microeconomics Working Papers 23216, East Asian Bureau of Economic Research.
  6. Witada Anukoonwattaka & Mia Mikic (ed.), 2011. "India: A New Player in Asian Production Networks?, Studies in Trade and Investment 75," STUDIES IN TRADE AND INVESTMENT, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), number tipub2624, December.

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