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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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  • Athukorala, Prema–Chandra & Menon, Jayant, 2010. "Global Production Sharing, Trade Patterns, and Determinants of Trade Flows in East Asia," Working Papers on Regional Economic Integration 41, Asian Development Bank.
  • Handle: RePEc:ris:adbrei:0041
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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. Kiichiro Fukasaku & Bo Meng & Norihiko Yamano, 2011. "Recent Developments in Asian Economic Integration: Measuring Indicators of Trade Integration and Fragmentation," OECD Science, Technology and Industry Working Papers 2011/3, OECD Publishing.
    3. 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.
    4. Prema-chandra Athukorala, 2009. "The Rise of China and East Asian Export Performance: Is the Crowding-Out Fear Warranted?," The World Economy, Wiley Blackwell, vol. 32(2), pages 234-266, February.
    5. Kimura, Fukunari & Obashi, Ayako, 2011. "Production Networks in East Asia: What We Know So Far," ADBI Working Papers 320, Asian Development Bank Institute.
    6. repec:era:wpaper:dp-2015-51 is not listed on IDEAS
    7. Naudé, Wim & Szirmai, Adam & Lavopa, Alejandro, 2013. "Industrialization Lessons from BRICS: A Comparative Analysis," IZA Discussion Papers 7543, Institute for the Study of Labor (IZA).
    8. 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).
    9. Andrew Jia-Yi Kam, 2013. "International production networks and host country productivity: evidence from Malaysia," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 27(1), pages 127-146, May.
    10. 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.
    11. Naudé, Wim & Szirmai, Adam, 2012. "The importance of manufacturing in economic development: Past, present and future perspectives," MERIT Working Papers 041, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    12. Veysel Avsar & Kemal Turkcan, 2013. "Exchange Rate Volatility and U.S. Auto-Industry Exports: A Panel Cointegration Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 772-787.
    13. Millanida Hilman, Rafiazka & Widodo, Tri, 2015. "Global Production Sharing in Machinery and Transport Equipment Industry in the ASEAN4," MPRA Paper 79663, University Library of Munich, Germany.

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    Keywords

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

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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