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Vertical Specialization and Economic Integration in East Asia


Edited by Daisuke Hiratsuka and Yoko Uchida
Published in March 2008
Edited by Daisuke Hiratsuka and Yoko Uchida Input Trade and Production Networks in East Asia Edward Elgar, November 2010
Preface pdf (186KB) / Daisuke Hiratsuka
Chapter 1
East Asia has had significant trade growth over past three decades. In East Asia, intermediate input trade has played an important role to the trade growth. Intermediate input trade increases as a result of vertical production network in which countries are specialized in each production stage in the context of international division of labor, otherwise known as vertical specialization (VS). In this paper, we examine vertical specialization trade in East Asia following Hummels Ishii and Yi (2001). We find that VS as a share of export increases over time in most of the countries. Ranges of the total VS shares are from 0.16 (China) and to 0.59 (Singapore). The results show that if a country has a large domestic market, VS tends to be small. In small developing countries show that total VS has high contribution to explain trade growth, but large countries do not have these trend. From the geographic orientation, we find the North are still dominate big share, but it is decreasing its role. The interesting findings are that labor intensive industry has inverted U shape relationship between VS share and per capita income. This means that as per capita income increases, VS for small country increases till the economy reaches certain level. After that, the economy decreases its share of VS.

Chapter 2
This paper argues that a variety of firm specificity supported by sophisticated inter-firm relationships is an essential element to understanding the mechanics and spatial structure of international production/distribution networks in East Asia. By mapping the two-dimensional fragmentation framework (Kimura and Ando (2005)) into geographical space, the paper proposes the concept of four layers of transactions in production/distribution networks: (i) local, (ii) sub-regional, (iii) regional, and (iv) the world. The concept effectively bridges geographical extensions of production/distribution networks and the nature of transactions in terms of intra-firm vs. arm’s-length as well as technological/managerial conditions.

Chapter 3
One of the most striking facts in international trade in the last two decades is that the rapid growth in trade among East Asian countries. A careful investigation identifies that the main source of the expansion of trade in East Asia has been parts and components trade rather than final good trade. This paper studies the structure of parts and components trade in East Asia, and the impact of production network and free trade agreement (FTA) on East Asian parts and components bilateral trade flows. Using panel gravity approach, I show that production network in East Asia and ASEAN FTA (AFTA) actually promote parts and components trade in this region, although the size of effects vary across industries.

Chapter 4
This paper, interim report of 2-years study, examines characteristics of production networks of Japanese firms in East Asia, focusing on regional breakdown of their corporate purchases and sales. The production networks of Japanese firms have well developed in East Asia, with increasing transactions of intermediary inputs across the border. The networks involve the third countries as well as host and home countries in Asia for procurements. Such intra-regional purchases of intermediary goods by Japanese affiliates are observed in Europe also, however, not in other developing world like Middle and South America. The Japanese affiliates seem to shift weights of procurement origin from Japan to overseas locations gradually after the Asian financial crisis. However, the formulation is different among industrial sectors, especially between electric machinery and transport machinery. And there also seems a difference between US affiliates and Japanese ones that Japanese affiliates are more likely to relay intermediary supplies on their mother country than US affiliates, regardless of the locations of affiliates.

Chapter 5
We do not know well about the overall picture and features of production fragmentation and networks in East Asia. What perspective can we have on production fragmentation in East Asia? This short paper tries to provide some answers to those research questions, The paper addresses that low labor costs in East Asia enables not only low production costs but also low service link costs, and that sophisticated logistic operation and twenty-four hours production operation make “just in time” production possible.

Chapter 6
This paper made effort to examine development of vertical specialization in Laos. It first looked through definitions of vertical specializations, and selected rather narrow definitions of it by focusing only on cross countries vertical specialization. It found that vertical specialization in Laos, at present, exists mainly in garment sectors which take part in final stages of vertical production processes. Besides garment sector, this paper also found evidences of very few examples of vertical specialization in other sectors such as electronics, not at the final, but in the middle of vertical production processes. The operation of non-garment factories participating in cross border vertical production processes can not be observed at the macro level because they are still very small in terms of numbers. However micro level statistics have shown clearly their operations which were rivaling those of garment factories in terms of export values with relatively smaller number of workers.

Chapter 7
This paper reconsiders meaning and theoretical foundations of the competitiveness measures. Firstly, we can identify two approaches for measurement of the competitiveness, namely, multi dimensional approach and national competitiveness approach. Secondly, there are three important factors which determine competitiveness. They are resources, outcomes, and process which transform the resources into outcomes. Taking these into consideration, the paper reviews, in the second section, the competitiveness measures based on export shares (Constant Market Share, Revealed Comparative Advantage, and technological content of the exports). In the third section, we review indicator approaches which focus of factor cost, productivity, and technology. Final section, we draw some issues for refinement of the competitiveness measures. In that section, we identify issues regarding the theoretical specification of the process linking resources and competitiveness outcomes, the process linking FDI (or economic integration) and a national technological potential.