The Implications of Global Production Chain Xiaoping Chen Nanyang Technological University CA-EAUI Summer School 2014 FTA in East Asia Workshop Korea University, Seoul
Outline The Implications of Global Production Chain The Global Production Chain Gross Trade and Value-Added Trade Production Sharing and Specialization Macroeconomic Interdependence and Volatility Optimal Trade Policy with Global Production Chain Firm Behavior in the Global Production Chain Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 2 / 13
The Global Production Chain Modern production Global sourcing International fragmentation Global production network Spider Snake Apple s iphone production for example Production sharing and input linkage Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 3 / 13
Gross Trade versus Value-Added Trade Gross trade is the volume crossing the border. China exports iphone to Singapore Value-added trade is the part of domestic-created value that is finally consumed abroad. Assembly value added into iphone in China Value-added Trade Ratio: VAX Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 4 / 13
Value-Added Trade over Gross Trade country ISO code Composite Sector Ag & Nat. R Manuf. Services Aggreagate 1995 2000 2005 1995 2000 2005 1995 2000 2005 1995 2000 2005 Austrilia AUS 0.95 0.90 0.88 0.46 0.43 0.42 1.62 1.62 1.63 0.88 0.86 0.86 Brunei Darussalam BRN 0.50 0.74 0.84 1.58 1.83 1.85 1.61 1.23 1.18 0.68 0.85 0.91 China CHN 3.05 2.92 5.94 0.56 0.49 0.41 1.91 2.25 2.27 0.86 0.78 0.68 Hong Kong HKG 0.45 0.47 0.63 0.25 0.27 0.25 2.41 2.34 2.22 0.60 0.63 0.62 India IDN 1.29 1.36 1.25 0.50 0.46 0.51 2.00 2.44 1.40 0.82 0.80 0.80 Indonesia IND 1.90 1.90 1.61 0.45 0.45 0.41 2.02 1.44 1.24 0.89 0.87 0.79 Japan JPN 2.46 2.99 3.08 0.60 0.60 0.58 2.90 2.71 2.18 0.91 0.88 0.84 Cambodia KHM 0.95 0.47 0.41 0.26 0.38 0.38 1.10 0.97 0.91 0.71 0.56 0.54 South Korea KOR 2.82 3.85 3.08 0.53 0.46 0.43 1.77 1.73 1.64 0.75 0.66 0.62 Malaysia MYS 0.88 1.13 1.10 0.29 0.27 0.28 1.52 1.40 1.40 0.56 0.50 0.51 New Zealand NZL 1.56 1.31 1.06 0.42 0.40 0.43 1.49 1.42 1.38 0.82 0.78 0.79 Philippines PHL 1.12 1.05 1.01 0.47 0.27 0.29 0.92 2.52 2.02 0.70 0.50 0.51 Singapore SGP 0.37 0.32 0.52 0.23 0.24 0.23 1.47 1.33 1.24 0.45 0.41 0.42 Thailand THA 4.80 4.24 2.73 0.39 0.38 0.37 1.17 1.34 1.27 0.63 0.61 0.57 Taiwan TWN 1.24 0.92 1.76 0.38 0.38 0.35 2.73 2.90 2.19 0.61 0.63 0.55 Vietnam VNM 0.78 0.74 0.63 0.40 0.38 0.36 1.17 1.33 1.58 0.74 0.69 0.62 Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 5 / 13
Production Sharing and Specialization Production sharing Intra-industry trade index Value-added sourcing Specialization Export sophistication: Gross terms vs. Value-added terms Comparative advantage Comparative advantage in aggregate sector Comparative advantage in dis-aggregate industries Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 6 / 13
Sourcing in Value-Added Terms AUS BRN CHN HKG IDN IND JPN KHM KOR MYS NZL PHL SGP THA TWN VNM ROW AUS BRN CHN HKG IDN IND JPN KHM KOR MYS NZL PHL SGP THA TWN VNM ROW Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 7 / 13
Sourcing in Value-Added Terms, cont AUS BRN CHN HKG IDN IND JPN KHM KOR MYS NZL PHL SGP THA TWN VNM ROW AUS BRN CHN HKG IDN IND JPN KHM KOR MYS NZL PHL SGP THA TWN VNM ROW Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 8 / 13
Sourcing in Value-Added Terms, cont AUS BRN CHN HKG IDN IND JPN KHM KOR MYS NZL PHL SGP THA TWN VNM ROW AUS BRN CHN HKG IDN IND JPN KHM KOR MYS NZL PHL SGP THA TWN VNM ROW Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 9 / 13
Macroeconomic Interdependence and Volatility Implications for Macroeconomics: International business cycle co-movements Intermediate inputs sharing Elasticity of substitution with domestic inputs Input linkage between countries Demand elasticity along the production chain Upstream-ness and downstream-ness Macroeconomic-shock spillovers Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 10 / 13
Optimal Trade Policy with Global Production Chain Implications for Trade Policy: Optimal trade policy Depends on trade elasticity Trade elasticity: the sensitivity that trade responds to trade cost/price changes This elasticity is generated from the global production network Policy on intermediate inputs trade Third country effect in regional trade agreement Effective rate of protection Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 11 / 13
Firm Behavior in the Global Production Chain Implications on Firm Behavior: Ownership Structure along the Production Chain Vertical integration Output Volatility and External Finance Dependence Financial development; Third-country effect R&D Investment and Technology Adoption Specialization along the value chain Technology transfer from the North to the South Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 12 / 13
The End. Thank You! I look forward to your comments and discussions. Xiaoping Chen (NTU) Implications of Global Production Chain CA-EAUI Summer School 13 / 13