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Trade integration in East Asia : the Role of China and production networks

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Haddad, Mona
Abstract

Production networks have been at the heart of the recent growth in trade among East Asian countries. Fragmen tation trade, reflected mainly in the trade in parts and components, is expanding more rapidly than the conventional trade in final goods. This is mainly due to the relatively more favorable policy setting for international production, agglomeration benefits arising from the early entry into this new form of specialization, considerable intercountry wage differentials in the region, lower trade and transport costs, and specialization in products exhibiting increasing returns to scale. The economic integration of China has deepened production fragmentation in East Asia, countering fears of crowding out other countries for international specialization. International production fragmentation in East Asia has intensified intraregional trade but has depended heavily on extraregional trade in final goods. While production networks centered on China have contributed significantly to growth in East Asia, they also breed vulnerabilities. They have not automatically led to technology spillovers and have led to an extreme interdependence across East Asian countries.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4160.

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Date of creation: 01 Mar 2007
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Handle: RePEc:wbk:wbrwps:4160

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Keywords: Economic Theory & Research Free Trade Trade Policy Trade Law Technology Industry

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  15. Albert G. Z. Hu & Gary H. Jefferson, 2002. "FDI Impact and Spillover: Evidence from China's Electronic and Textile Industries," The World Economy, Blackwell Publishing, vol. 25(8), pages 1063-1076, 08. [Downloadable!] (restricted)
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  19. JEFFERSON, Gary & HU, Albert G. Z. & GUAN, Xiaojing & YU, Xiaoyun, 2003. "Ownership, performance, and innovation in China's large- and medium-size industrial enterprise sector," China Economic Review, Elsevier, vol. 14(1), pages 89-113. [Downloadable!] (restricted)
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  21. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February. [Downloadable!] (restricted)
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