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Trade Integration and Production Networks in Asia: The Role of China

Author

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  • Sven W. Arndt

    () (Lowe Institute of Political Economy, Claremont McKenna College)

Abstract

This paper examines the implications of cross-border component sourcing and production networks for trade competitiveness and welfare. Offshore sourcing of components in which it has comparative disadvantage, enables a country to enhance its comparative advantage in the final product. This option provides emerging countries with an important alternative to capital accumulation and technical change as paths to economic development. In addition, production sharing changes the nature of trade-balance accounting and tends to reduce the sensitivity of trade flows to movements in exchange rates. This has important implications for trade policy and for the choice of exchange-rate regime. In the context of regional trade areas, for example, deeper integration allowing for production sharing has welfare effects superior to those of standard preferential trade liberalization.

Suggested Citation

  • Sven W. Arndt, 2004. "Trade Integration and Production Networks in Asia: The Role of China," Working Papers 0403, Lowe Institute of Political Economy.
  • Handle: RePEc:loi:wpaper:0403
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    File URL: http://lowe.claremontmckenna.edu/pdf/WP04-03.pdf
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    More about this item

    Keywords

    cross-border sourcing; trade integration; production sharing; exchange rate elasticities;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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