Comments by Shigeyuki Abe, on Global Value Chains and East Asian Trade in Value-Added

Abstract

Shigeyuki Abe: This paper empirically analyzes global value chains (GVCs) in East Asia since the mid 1990s using the World Input Output Database. Estimations are carried out to identify the determinants of East Asian trade in value-added, incorporating the Heckscher-Ohlin model, the Ricardian model, and the gravity model. The empirical result reveals that world trade patterns can be better explained over time by capital–labor ratios and productivities. In the case of East Asia, high-skilled labor productivity has not contributed to the trade in value-added since the mid 2000s; instead, the importance of the distance variable has been rising significantly. East Asia has not been a technological innovator, meaning it has not fully benefitted from GVCs. Policy implications for Asian countries to follow include improving labor productivity, putting less importance on developing free trade agreements (FTAs), lowering tariffs further because of the acceleration of cross-border trade in intermediate goods promoted by GVCs, and keeping sufficient inventory to minimize the market risks.