Abstract
There has been an explosion in the amount of parts and components traded within East Asian production networks. The People's Republic of China (PRC) 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, it 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 since the GFC, the PRC and the Association of Southeast Asian Nations (ASEAN) have imported more final goods than expected. Nevertheless, their consumption imports per capita are orders of magnitude lower than those of developed economies. This highlights the need for further growth in emerging Asia.
Highlights
The value of intermediate goods traded among East Asian economies increased 40 times between 1980 and 2012
After the People’s Republic of China (PRC) joined the World Trade Organization (WTO) in 2001, there was a surge in foreign direct investment (FDI) and parts and components exports from East Asian economies to the PRC
This paper investigates whether the economies involved in East Asian production networks are importing fewer final goods than one would expect
Summary
The value of intermediate goods traded among East Asian economies increased 40 times between 1980 and 2012. In 2012, more than $450 billion in intermediate goods was traded within the region.1 This explosion in intraregional trade reflects the development of intricate production networks. In the late 1980s, both wages and exchange rates in these economies skyrocketed, and the locational advantage of assembling labor-intensive goods in the newly industrialized economies declined. After the People’s Republic of China (PRC) joined the World Trade Organization (WTO) in 2001, there was a surge in foreign direct investment (FDI) and parts and components exports from East Asian economies to the PRC. The PRC quickly became the final assembly point of intricate production and distribution networks It imported hundreds of billions of dollars of parts and components from East Asia and exported the final assembled products throughout the world
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