Fragmentation and Production Network in East Asia
This paper explains that the intra-regional trade in East Asia has progressed remarkably due to the increase of intermediate goods trade. Increasing presence of multinational firms has been the driving force of this process leading to the fragmentation of production. Our theoretical analysis identified that the interaction between the scale economy and transportation cost is the key factor for the emergence of fragmentation. Through the empirical analysis, we found that the border effect in costal regions of China is as low as that of Japan. Yet, there is significant border effect in inland regions of China. This result provides an evidence for concentration of the Japanese direct investment in China in the costal regions.
Volume (Year): 52 (2008)
Issue (Month): (February)
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