Production sharing in East Asia : who does what for whom, and why?

The authors analyze empirical information on the nature and magnitude of, and motivation for, international production sharing in East Asia. To do so, they use a largely untapped source of data on inter- and intra-regional trade in parts and components. Some of their findings: East Asian trade in components is considerably greater than often recognized. Regional global exports of parts and components totaled $178 billion in 1996, and imports of those products about $12 billion less. Components now constitute one-fifth of East Asian exports of manufactures. Imports of components, measured as a share of all manufactures, are growing considerably faster in East Asia than in OECD Europe or North America. The value of East Asian global imports of components rose more than ninefold over the period 1985-96. Almost three-quarters of all East Asian imports of telecommunications equipment are components for further assembly. East Asian global exports of components grew faster then any other major product group over 1984-96, when their exchange increased 15 percent a year (compared with 11 percent for all products ). Although Japanese exports declined slightly in 1997, shipments from most other East Asian countries increased 9 to 16 percent. Why did production sharing expand? Analyses of traditionally revealed comparative advantage use export statistics to determine whether a country has a comparative advantage in the production of a good. The same indices, calculated using import statistics for components, can show whether a country has a comparative advantage in the assembly of a product. Using statistics on component imports, the authors find that: Japan, Singapore, and Taiwan (China)--which are exiting most assembly operations--increased their specialization in the manufacture of components. Assembly operations, which are labor-intensive, tend to migrate to low-wage East Asian countries. Indonesia, Malaysia, and Thailand have the broadest and most mature assembly capacity for components. But no East Asian country has developed its domestic assembly operations as much as Mexico, which has a comparative advantage in 70 percent of all component groups. Collectively, East Asian countries are strengthening their comparative advantage in the production of components; the results are mixed for assembly operations.