Asia and Global Production Networks Implications for Trade, Incomes and Economic Vulnerability

EE_1439_Ferrarini_OL.indd 1 22/09/2014 08:06 Asia and Global Production Networks Implications for Trade, Incomes and Economic Vulnerability Edited by Benno Ferrarini Senior Economist, Economics and Research Department, Asian Development Bank, Philippines David Hummels Professor of Economics, Department of Economics, Purdue University and Research Associate, National Bureau of Economic Research, USA co-PuBlIcatioN oF THE AsIAN DEVEloPmENT bank AND EDwArD ElGAr PuBlIsHING Edward Elgar cheltenham, uk • Northampton, mA, usA © Asian Development Bank 2014 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing limited Edward Elgar Publishing, Inc. The lypiatts william Pratt House 15 lansdown road 9 Dewey court cheltenham Northampton Glos Gl50 2JA massachusetts 01060 uk usA The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequences of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Asian Development Bank 6 ADB Avenue, mandaluyong city 1550 metro manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org A catalogue record for this book is available from the British library library of congress control Number: 2014938802 This book is available electronically in the Elgaronline.com Economics subject collection IsBN 978 1 78347 208 6 (cased) IsBN 978 1 78347 209 3 (eBook) Typeset by servis Filmsetting ltd, stockport, cheshire Printed and bound in Great Britain by T.J. International ltd, Padstow contents List of contributors vii Foreword by Changyong Rhee ix List of abbreviations and acronyms xi 1 Asia and global production networks: implications for trade, incomes and economic vulnerability 1 Benno Ferrarini and David Hummels 2 Developing a GTAP- based multi- region, input–output framework for supply chain analysis 16 Terrie L. Walmsley, Thomas Hertel and David Hummels 3 The vulnerability of the Asian supply chain to localized disasters 81 Thomas Hertel, David Hummels and Terrie L. Walmsley 4 Global supply chains and natural disasters: implications for international trade 112 Laura Puzzello and Paul Raschky 5 Vertical specialization, tariff shirking and trade 148 Alyson C. Ma and Ari Van Assche 6 Changes in the production stage position of People’s republic of china trade 179 Deborah Swenson 7 External rebalancing, structural adjustment, and real exchange rates in developing Asia 215 Andrei Levchenko and Jing Zhang 8 Global supply chains and macroeconomic relationships in Asia 249 Menzie Chinn 9 Mapping global value chains and measuring trade in tasks 287 Hubert Escaith v vi Asia and global production networks 10 The development and future of Factory Asia 338 Richard Baldwin and Rikard Forslid Index 369 contributors Richard Baldwin is Professor of International Economics at the Graduate Institute, Geneva, switzerland; a visiting research Professor at the university of oxford, uk; Director of the center for Economic Policy research (cEPr), uk; and Editor- in-Chief of Vox. Menzie Chinn is Professor of Public Affairs and Economics at the robert m. la Follette school of Public Affairs, university of wisconsin, usA. Hubert Escaith is the chief statistician of the world Trade organization, switzerland and research Associate at the centre de recherche en Développement Économique et Finance Internationale, GrEQAm/ DEFI Aix-Marseille university, France. Benno Ferrarini is senior Economist in the Economics and research Department of the Asian Development Bank, Philippines. Rikard Forslid is Professor, Department of Economics, stockholm university, sweden. Thomas Hertel is Distinguished Professor of Agricultural Economics at Purdue university, usA and founder and Executive Director of the Global Trade Analysis Project (GTAP). David Hummels is Professor of Economics, Department of Economics, Purdue university and a research Associate of National Bureau of Economic research, usA. Andrei Levchenko is Associate Professor, Department of Economics, university of michigan, usA; Faculty research Fellow, National Bureau of Economic research, usA; and research Fellow, centre for Economic Policy research, uk. Alyson C. Ma is Associate Professor of Economics, university of san Diego, usA. Laura Puzzello is senior lecturer in the Department of Economics at monash university, Australia. vii viii Asia and global production networks Deborah Swenson is Professor of Economics, university of california – Davis, usA and a research Associate of National Bureau of Economic research. Paul Raschky is senior lecturer in the Department of Economics at monash university, Australia. Ari Van Assche is Associate Professor of International Business at HEc montréal and research Fellow at cIrANo, canada. Terrie L. Walmsley is an Honorary Associate Professor in the Department of Economics at the university of melbourne, Australia and chief Economist at ImpactEcoN llc, usA. Jing Zhang is senior Economist at the Federal reserve Bank of chicago, usA. Foreword The past few years have witnessed the emergence of a large and growing body of research on global value chains (GVcs), that is the creation of final goods and services through interlinked stages of production scattered across international borders. Although GVcs are hardly a new phenom- enon, the attention devoted to the topic largely is. After years of neglect, policy makers, practitioners and scholars in the field of international economics have come to agree that global value chains should figure more prominently in policies, advice and research. To be fair, there has been earlier work in the business and economics literature, focused primarily on measurement of the extent, geographic orientation, and growth in GVcs. But such work was sporadic, and only during the past three years or so has GVcs as a topic been receiving the full attention of the international policy community. Efforts have been directed mainly to gathering necessary statistics and correctly measuring the value- added trade associated with production fragmentation, as opposed to gross trade statistics, which mask the true origin of the value added embodied in goods and services traded internationally. Notably, the world Trade organization (wTo) secretariat launched its ‘made in the world’ initiative in 2010, and has collaborated since with the organisation for co- operation and Economic Development (oEcD) and other agencies to establish a statistical platform (oEcD-WTo TIVA) that quantifies GVcs and to increase the measurement capacity of the national and international statistics agencies. other notable efforts include the united Nations conference on Trade and Development uNcTAD- Eora GVc database, as well as the world Input–output Database (wIoD), which was established by a consortium of universities, think tanks and international bodies with funding by the European commission and launched in 2012. Proper measurement is an important first step in understanding the extent of GVcs, and a wealth of path breaking statistics and insights have accrued from recent efforts in that direction. But what remains is a far harder task: to understand how GVcs change the nature of global economic interdependence, and how that in turn changes our understanding of policies appropriate in this new environment. This volume ix x Asia and global production networks attempts to take on some of this task, with particular focus on two broad themes. The first explores the impact of greater integration and interdependence on economies’ exposure to adverse shocks elsewhere in the world, such as natural disasters, political disputes, or recessions. Various chapters inves- tigate to what extent do global value chains serve to transmit and even magnify shocks across national borders and, when a national economy absorbs the blow from an international shock, how firms respond. The second theme looks at the evolution of global value chains at the firm level and how this will affect competitiveness in Asia. Various chapters explore theory and data at the firm level to understand the evolution of GVcs within and across countries. In this volume, authors bring to bear a wide variety of methodologi- cal tools and data, and perspectives ranging from the firm-level micro economy to the global macro economy to help understand how GVcs are reshaping interdependence in Asia. with its emphasis on analysis, rather than policy, this volume aims at providing scholars and stakeholders with an analytical toolbox useful to conceptualizing and assessing the relevant phenomena. Future work will have to complement these analytical aspects with in- depth discussions about the policy and regulatory implications stemming

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