Enjoying the Fruits of their Labor: Redirecting exports to Asian consumers

There has been an explosion of parts and components traded within East Asian production networks. China has emerged as the final assembly point for the goods produced. These goods then flow primarily outside of the region. When the Global Financial Crisis (GFC) occurred, the decrease in Western demand led to a synchronized decline in Asian exports. If more final goods could flow to Asian consumers, this would provide insurance against another slowdown in the rest of the world. This paper uses a gravity model to investigate if emerging Asia is importing fewer consumption goods than predicted. The results indicate that, after the GFC, China and the Association of Southeast Asian Nations (ASEAN) have imported more final goods than expected. Nevertheless, the ratio of China's imports per capita relative to gross domestic product (GDP) per capita remains much lower than the corresponding ratio for other countries. This highlights the need to address structural issues such as tariffs that can lead to the under-importing of final goods.