Asian Production Networks Research Articles

Evolving Asian Production Networks, the Belt and Road Initiative, and the Role of China

Evolving Asian Production Networks, the Belt and Road Initiative, and the Role of China

From globalising to regionalising to reshoring value chains? The case of Japan’s semiconductor industry

AbstractThis study evaluates the current situation and challenges of reshoring in the Japanese manufacturing industry, focusing on the semiconductor industry, which once dominated the world. After a recent document analysis and qualitative interviews with firms’ representatives and policymakers, it is apparent that the globalised semiconductor industry is unlikely to reshore to Japan even amid supply chain disruptions due to the coronavirus disease 2019 pandemic. A review of Japan’s semiconductor-related industries, such as semiconductor manufacturing materials, validated that they are embedded in Asian production networks and need to be optimised within a regionalised production system.

The Impact of COVID-19 and the US-China Confrontation on East Asian Production Networks

International production networks (IPNs) in East Asia are facing two challenges, i e , COVID-19 and the US-China confrontation COVID-19 has generated three kinds of shocks on IPNs: negative supply shocks, positive demand shocks, and negative demand shocks IPNs have adequately managed these shocks thus far and have been strengthening the relative position of Factory Asia in the world Nevertheless, the US-China confrontation and its consequences of weakening the rule-based trading regime have enhanced uncertainties in the operations of IPNs The decoupling pressure may come from either the US or China for middle powers in-between, even with the US Biden Administration This study posits that the construction of a mega-free trade agreement (FTA) network may partially reduce policy risks and help form a pro-trade middle-power coalition

Comments on Economic Integration and Network Trade: A Comparison of East Asia and the European Union

Prema-chandra Athukorala, Australian National University: This paper undertakes a comparative analysis of production networks in Europe and East Asia in the global context, with emphasis on determinants of export patterns and intra-regional linkages. The findings suggest that: exports of intermediate goods (used as a proxy for parts and components or “middle products” exchanged within production networks) are more sensitive to trade barriers than total goods exports; regionalization of production networks is primarily determined by greater sensitivity of intermediate goods trade cost associated with distance that overwhelms cost advantages arising from advances in transportation and communication technology; and the production network in these two regions are being guided by distinct factors with geographic distance and remoteness playing a more significant role in East Asia than in the EU. Overall, this is an interesting paper on an important subject. However, I would like to suggest that the authors pay attention to the following methodological imitations in their further research.Trade within global production networks (“network trade”) is based on “global production sharing”—breakup of the production process of a given product into vertically separated stages/tasks carried out in several countries. Therefore, network trade essentially has two components: trade in parts and components (involving the “middle layer” of the production process) and trade in final assembly (Jones and Kierzkowski 2001; Obashi and Kimura 2018). The empirical analysis of this paper uses “intermediate goods” (delineated using the UN Broad Economic Classification Broad Economic Categories [BEC] at the 3-digit level of commodity classification) rather than parts and components and completely ignore final assembly.BEC-based intermediate goods include both parts and components and the standard intermediate goods such as iron and steel, industrial chemicals, and metal products. These two categories of intermediate goods have different characteristics as traded goods. Unlike standard intermediate goods, which are normally traded based on market-determined prices, trade in parts and components are mostly characterized by “relationship specificity” among the user firms (Athukorala and Khan 2016). Therefore, the former is not a good proxy for latter. In addition, data relating to intermediate goods (based on the BEC classification) significantly overstate the magnitude of bilateral trade links within global production networks of resource-rich countries, such as Malaysia and Indonesia.According to my calculations, final assembly accounts for 53.2 percent of total world network exports in 2006–07 (two-year average) (Athukorala 2014). More importantly, this share varies notably among countries: For instance, final assembly bulks large in network exports from China because it is the world's finally assembly center, where as parts and components (mostly exported to China) account for much of networks exports from the other countries in the region. Given this fundamental structural feature of production sharing, ignoring final assembly significantly underestimate the relative importance of network trade in global manufacturing but also the underestimation bias varies significantly among countries, giving rise to a bid problem in econometric analyzing of trade patterns using multi-country data, as has been done in this paper.I believe that the finding of this paper relating to regional rather than global integration of East Asian production networks is a statistical artefact resulting from the omission of final assembly from the commodity coverage of network trade. China accounts for more than half of final assembly exports from the region and more than 70 percent of these exports are to markets in North America, Europe, and the rest of the world. If network trade is measured appropriately, capturing both parts and components and final assembly, you will find a China-centered global (rather than regional) production network in Asia. The other Asian countries export parts and components to China, and China exports final assembly largely to the rest of the world.The empirical analysis of the paper is a direct application of the gravity equation specified by Anderson and van Wincoop (2003) to analyze determinants of “total” trade flows. No attempt has been made here to modify it to suit analyzing trade flows within global production networks informed by the theory of global production sharing (Jones 2000; Jones and Kirzkowski 2001; and many other papers). The “missing prince from Hamlet” is the “lead firm” (multinational enterprise [MNE]). There is no variable in the model to capture the pivotal role of MNEs within production networks. The standard variable used for this purpose is foreign direct investment. The production location decision of the lead firm is determined by the “relative cost” (mostly relative wages) among countries and the “service link cost” associated with undertaking different tasks of the production process and smoothly linking/coordinating these tasks. There is no relative cost variable in the model. I think per capital gross national income is a reasonably good proxy, if data on manufacturing wages are not available. Inclusion of most of the other variables (distance, remoteness, colonial links, RTAs, common language) can be theoretically justified as capturing “service link cost.”

Re-emergence of Asia and the Rise and Fall of the Japanese Economy in Super Long Waves of Capitalist World Systems

ABSTRACTAfter the global financial crisis of 2007–2008, we are facing the beginning of the end of the post-war capitalist world system. The 1920s was in the middle of the social, political and economic interregnum, a period of discontinuity in the social order, accompanied by widespread unrest, wars and power vacuums. In this article, that framework of the long and super long waves in the capitalist world systems is used to examine the recent interregnum that marks the re-emergence of Asia. Within the framework of the long and super long waves a new “flying geese” theory is built by incorporating the theory of dynamic industries with Akamatsu’s theory. In the 1980s, Japanese integral production architecture improved quality and productivity in the automobile and electrical machinery industries. In the 1990s, the USA’s open modular production architecture enabled China’s compressed industrialisation, and the China-centric Asian production network replaced the Japan-led Pacific Rim triangular trade regime. In the 2000s, the knowledge-and technology-intensive (KTI) industries have established themselves as the new dynamic industries. The USA is the leading country to develop KTI industries. China is catching up quickly and has leapfrogged Japan in KTI industries. In conclusion, it is argued that these changes mark an approaching second interregnum.

Global-Local Dynamics in the Transformation of the Jakarta Metropolitan Area into a Global City-Region

This paper investigates the way in which factors at the global and local level interact in the emergence and development of “global city-regions”, which are deemed to be the contemporary growth machines of the global economy. To this end, this paper takes the Jakarta metropolitan area (JMA) as a case to investigate its evolution in the context of the intertwined dynamics of foreign direct investment (FDI) inflow and state intervention over the past three decades. The findings indicate that from a macro-level perspective the JMA has maintained its position as the country's hotspot for manufacturing investment embedded in East Asian production networks. In addition, we find that the national state has continuously privileged the JMA as the main grounds for national economic development in spite of the country's shifting political system. We reveal how the nexus between “global” forces (incoming FDI) and “local” conditions (the state's strategic intervention) has led to the development and restructuring of the JMA as a global city-region.

Strong China-US Trade Relations Despite Occasional Squabbles

Trade relations between China and the United States continue to strengthen. Meanwhile, widening bilateral imbalance persists, as China becomes increasingly central in the Asian production network. New trends have emerged since 2011. China’s trade with its immediate neighbours have weakened in relative terms and the importance of process trade declined. China’s surging trade surplus is increasingly domestically originated. Bilateral economic relations face many challenges, especially when the new US administration has stronger inward-looking tendencies.

Is Indian automobile industry getting integrated with Asian production network?

Globally, automobile industry is subject to fragmented production system leading to long value chain spreading across the countries. More recently, literature encompasses the issue of international trade, forward and backward linkages, collaboration in R&D, product development and differentiation, etc., leading to a new concept of international production network (IPN). India is now one of the major automobile producers and exporters. In this context, the paper has made an attempt to comprehend India's engagement in IPN and more specifically its participation in ASEAN network. It uses various trade analytic tools such as intra-industry trade, quality margin, participation index, share of foreign value added in exports, sources of foreign value addition, etc. to analyse India's growing competency in the sector.

Is Indian automobile industry getting integrated with Asian production network?

Globally, automobile industry is subject to fragmented production system leading to long value chain spreading across the countries. More recently, literature encompasses the issue of international trade, forward and backward linkages, collaboration in R&D, product development and differentiation, etc., leading to a new concept of international production network (IPN). India is now one of the major automobile producers and exporters. In this context, the paper has made an attempt to comprehend India's engagement in IPN and more specifically its participation in ASEAN network. It uses various trade analytic tools such as intra-industry trade, quality margin, participation index, share of foreign value added in exports, sources of foreign value addition, etc. to analyse India's growing competency in the sector.

Changing Comparative Advantage, Real Exchange Rate Impact and Sino–Japanese Trade Fluctuations

AbstractChina, as an important source country in the global value chain, especially in the East Asian production networks, has exerted significant influence on Sino–Japanese trade fluctuations. This paper explores the real factors that lead to the fluctuations in Sino–Japanese trade. Using the Hodrick–Prescott filter technique and OECD–WTO Statistics on Trade in Value Added from 1995 to 2011, the impact of the changing comparative advantage between the two countries is also examined. The empirical results indicate that determinants of the fluctuations in Sino–Japapese trade include changing comparative advantages, the volatility of the real exchange rate and quite a few external shocks. Some policy suggestions are put forward in regards to the stability of trade between the two countries.

Economic Integration in East Asia: Production Networks and Small and Medium Enterprises

International production networks in manufacturing, particularly in machinery industries, have rapidly developed over the last two decades, resulting in dramatic increases in intra-regional and intra-industry trade, providing a key source of regional growth, integration and development in East Asia. This book provides a better understanding on how to effectively further increase SME participation in East Asian production networks, and in doing so identifies key challenges and issues that they need to address. This book aims to not only fill the theory-practice gap, but also to lay solid foundations for designing national arrangements and a regional institutional frameworks to further encourage and support SME engagement and participation in regional and global production networks. The book contains several country case studies and by drawing upon individual country experiences, at various stages of economic development, this book demonstrates the varying difficulty faced by SMEs in ASEAN member countries attempting to participate in regional production networks and highlighting differences in needs and policy priorities. This book offers both a more focused theme on the assessment of globalization and a rather unique approach by focusing upon the particular importance of SMEs, and by utilizing micro-level data at the firm or plant level. Its policy insights and the richness and uniqueness of the empirical findings will make the book an invaluable contribution to understanding East Asian production networks.

Comment on “Connectivity in East Asia”

Brooks (2016) paper attempts to account for rising connectivity and integration in East Asia. The paper explains how improvements in logistics and infrastructure services have influenced Asia's trade in goods and services. It also discusses the role of information and communication technologies and cross-border direct investment on production networks and intra-firm trade in East Asia. The paper is on an important topic, and provides interesting analyses and conclusions. The extent of connectivity and integration of East Asian economies has increased significantly, both regionally and globally. Empirical findings suggest that economic interdependence between emerging East Asian and major industrial countries continued to increase in the recent decades. In addition, Asian economies have become increasingly interdependent (Kim & Lee, 2012). China plays a central role in Asian production networks, and segmented production for global supply chains has stimulated trade and direct investment in the region, with China as a hub. Linking locations to enable the flow of goods, services, finance, technology, and people are certainly beneficial to the connected economies. As emphasized in Brooks (2016), a high degree of economic openness and integration was a vital ingredient of East Asia's success. Outward-looking export-led industrialization helped Asian economies grow rapidly by exploiting large external markets and imitating advanced technologies. Nonetheless, Brooks seems too credulous with the benefits of connectivity and integration. The global financial crisis of 2008–2009 highlights the risks of Asia's excessive dependence on exports. The region took a hit from the sharp decline in the demand for its exports, and saw many of its economies shrink. While Asian emerging economies were relatively resilient during the global recession, as strong and stable growth in China supported export-led recovery for the rest of Asia, the recent slowdown in Chinese economy triggers worries about sustained growth of Asian economies. The growth rate of China was 6.8% in 2015, the slowest since 1990, and it is expected to continue slowing down, which is a significant threat to the rest of Asia, in particular exporters of commodities and capital goods. It is debatable whether Asian economies should continue to promote integration and pursue export-led growth. Under current uncertain global environments and downside risks in China, emerging Asian economies must pursue appropriate policy measures to rebalance sources of growth and improve productivity (Kawai & Lee, 2015). Lee and McKibbin (2014) suggest that enhancing productivity in the service sector in Asia is critical to more balanced and sustainable growth of Asian economies. Whether enhancing connectivity in financial flows is as beneficial as trade connectivity is an important issue. Financial flows as well as direct investment have been significantly active within the region, contributing to interconnected Asian economies. Since the Asian financial crisis, Asian governments have promoted cross-border financial transactions through financial market deregulation and capital account liberalization. The measures for the extent of financial integration—quantity- and price-based measures—show significant progress in Asia's financial integration (Kim & Lee, 2012). Cross-border financial integration helps each country to be insured against country-specific income risks. It often contributes to the development of the domestic financial system and regional financial cooperation. In contrast to these general benefits, greater financial integration can also incur costs by increasing the sensitivity to external shocks and spillovers. Indeed, the Asian financial crisis in 1997–1998 and recent global crisis 2008–2009 exposed weaknesses in emerging Asia's financial sectors. The region's financial systems still remain inefficient, unable to maintain the pace of change and transformation occurring in real sector. Asian countries must pursue right policies to reap the benefits of financial integration. To strengthen the financial environment against the volatile external shocks, Asian economies need to improve financial sectors' weaknesses while developing more effective financial supervision and regulation and macroeconomic policy frameworks. An interesting question is whether Asian economies should push for greater regional trade interdependence, rather than globally, when larger global markets can bring larger welfare gains to trading partners. Brooks points out a number of cases supporting regional integration. For instance, it is pointed out that while geographical distance becomes less important for trade in goods and services, “comparative advantage of the region matters as much as that of the country when it comes to joining a global value chain.” The state of physical and ICT infrastructure is quite diverse across economies. The costs and benefits of intra-regional integration and specific cross-border infrastructure investment should be assessed accurately in order to design effective policies (for example, in terms of the area and sequencing of cross-border infrastructure investments) that can maximize the benefits of connectivity in the region.

Network Trade and Development: What Do Patterns of Vertically Specialized Trade in ASEAN Tell Us About India’s Place in Asian Production Networks?

At a time when regional production networks have been resurgent, especially in Asia, why has India’s integration in regional markets not been deeper? Using highly disaggregated trade data and firm level field interviews, the paper found that despite low volumes, vertically specialized trade has been growing between India and ASEAN. Overall, we find that there is significant potential for deepening India’s engagement in ASEAN by expanding intermediates exports in the machinery sector, expanding into higher value specialty chemicals exports, unlocking the underexploited potential for growth in the electronics sector and moving up the value chain in the road vehicles and, telecommunications sectors where network exports are already important. Our field level interviews bear out these findings and show that besides the usual policy costs associated with supply side constraints in Indian manufacturing three factors hamper India’s deeper integration in Asian production networks: (i) low value addition in Indian manufacturing which translates into low-value component exports and a high degree of reliance on expensive imports creating a perverse effect on both learning and trade balance; (ii) a janus faced effect on technological change and productivity stemming from relatively low quality standards associated with cost-sensitive demand from domestic buyers and weak exports. This leads to technological stagnation on the one hand, and a growing capital intensity of routine operations on the other. (iii) and finally, despite the rise of export oriented industrial parks and SEZ’s there is a striking lack of an effective institutional eco-system of industrial advantage that agglomeration economies and colocation of interdependent, sectorally specialized firms can bring. Instead, sectoral fragmentation adds to manufacturing costs despite co-location. Although some firms have found innovative ways to cope, the coping costs are high.

Effects on China and ASEAN of the ASEAN-China FTA: The FDI perspective

The ASEAN-China FTA (ACFTA) is a significant step in regional economic integration for both China and the ASEAN countries. While analysis of the effects of Free Trade Agreements (FTAs) most commonly focuses on the trade effects, the closeness of the link between trade and investment implies that the effect of an FTA on foreign direct investment (FDI) is also potentially significant. FTAs may stimulate FDI through the effects of market expansion and vertical fragmentation, while they may also reduce FDI through a plant rationalization effect. The overall effect of an FTA on FDI flows is an empirical question. This paper examines the impact of ACFTA on FDI flows through an econometric model that captures the influence of East Asian production networks on FDI, which we expect to be an important explanatory factor. The model finds that ACFTA has a significant and positive effect on FDI flows. A brief survey of the theoretical literature on the welfare and other related effects of FDI serves to emphasize that the extent to which individual member countries of the ACFTA will benefit from this increase in FDI will depend in important ways on the policies pursued in each country.

Value Chain Transition in East Asian Production Network

This paper applies the decomposition method proposed by Wang et al. (2013), together with the multi-national input-output tables from World Input-Output Database (WIOD) to estimate the value-chain transition in East Asian production network. Specifically, we calculate and examine the domestic value-added absorbed abroad, foreign value-added embodied in country’s gross exports, and vertical specialization measures to explore the relative positions of major East Asian countries in the global production chain over the period of 1995-2011. The analyses are at country-aggregate, country-sector, bilateral-aggregate and bilateral-sector levels. Based on our results, we answer the important question of whether Taiwan and South Korea have used China’s production chains as an intermediary to re-export their products to other countries in the world. Furthermore, we answer the question that over the 1995-2011 periods, have Taiwan and South Korea exploited cheap labor from China to add value to their products before re-exported them to the rest of the world?

Value Chain Transition in East Asian Production Network

This paper applies the decomposition method proposed by Wang et al. (2013), together with the multi-national input-output tables from World Input-Output Database (WIOD) to estimate the value-chain transition in East Asian production network. Specifically, we calculate and examine the domestic value-added absorbed abroad, foreign value-added embodied in country’s gross exports, and vertical specialization measures to explore the relative positions of major East Asian countries in the global production chain over the period of 1995-2011. The analyses are at country-aggregate, country-sector, bilateral-aggregate and bilateral-sector levels. Based on our results, we answer the important question of whether Taiwan and South Korea have used China’s production chains as an intermediary to re-export their products to other countries in the world. Furthermore, we answer the question that over the 1995-2011 periods, have Taiwan and South Korea exploited cheap labor from China to add value to their products before re-exported them to the rest of the world?

Enjoying the Fruits of Their Labor: Redirecting Exports to Asian Consumers

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.

Production Networks in Asia: A Case Study from the Hard Disk Drive Industry

Production networks have been extensively developed in East Asia. Previous studies on production networks used international trade data or input–output tables, but such aggregate data cannot explain how the networks actually operate. With the aim of understanding the features and characteristics of East Asian production networks, this paper examines the procurement system of a hard disk drive assembler operating in Thailand. This micro-level case study found that this particular production network consists mostly of arm’s-length suppliers, who are independent and on an equal footing with the assembler.

Integrating India with Asian Production Networks: Prospects and Challenges

Integrating India with Asian Production Networks: Prospects and Challenges

Industrial Agglomeration and Dispersion in China: Spatial Reformation of the "Workshop of the World"

With rising labor costs in China, some scholars assert that China's labor-intensive industries will succumb to latecomer economies, and China's era as the "workshop of the world" will end. There is, however, little agreement regarding whether labor-intensive industries, now concentrated in coastal China, are relocating to other regions. How does agglomeration affect toward this relocation? How does this relocation process affect Asian Production Network (APN)? To approach these issues, this paper examines the determinants of industrial relocation in China by using province- and city-level data from 2004 to 2010, which some scholars call the "post-Lewisian turning point." We particularly focus on the significant gap of economic development in China, especially in regard to industrial agglomeration and dispersion. The results show that the capital–labor ratio is positively related to industrial growth in coastal areas but negatively related in Central regions. Although agglomeration economies have been weak, the absolute scale of local industry includes a positive effect. In sum, both dispersion and agglomeration forces are observed, suggesting the existence of multi-force dynamics of spatial relocation in China.