Regional integration or disintegration in the world production network? Norihiko Yamano (OECD) and Bo Meng (IDE-JETRO/OECD) May 2010

Outline How to measure Economic Integration ? Measurement results of integration indicators International specialisation? Trade partnership Production network Data sources Bilateral trade in goods and services Input-output database (OECD & IDE)

Economic integrations? Significant transformation of trade network particularly in Asia-Pacific region in Less trade friction (transport cost, custom union, ICT difusion) Substitution Complementary International specialisation Geographically integrated?

Industry composition of traded goods The world composition of traded goods remained stable in mid 1990s to mid 2000s, e.g. Chemicals (10% 11%), Transport eq. (12% 11%), Comm equip (8% 10%), Machinery (9% 8%), Textile (8% 6%), food (6% 5%), On the other hands, leading export compositions have changed in many countries. The differentiation and specialisation in the manufacturing sectors are apparent in recent trade statistics

International specialisation (increased shares , more than 10% share of total exports) Mining (ISIC 10-14) in CA, MX, BR, CL / RU / Textile (ISIC17-19) in IT Chemicals (ISIC24) in US / BE,DE,ES,FR, GB / IN, KR, SG, TW Machinery (ISIC29) in CZ, FI, JP Comm equip. (ISIC30) in MX / FI,HU / CN, MY, PH Computing machinery (ISIC32) in CN, TW, KR, PH, SG,TH Motor vehicles (ISIC34) in US, BR / DE, FR, PL,HU,CZ / JP, KR Emerging Asian: labor intensive -> assembly machinery

Inter and intra-regional trade High intra regional trade in Europe (major 22 EU members, 30% in 1995, 28% in 2005) While share of intra Asian trade flows (ASEAN+E.Asia+India+Oceania) increase (12% in % in 2005), intra-NAFTA and Europe has decreased.

Counting the dominant partner links to identify the demand and supply hubs Demand hub (l) Count the partners export link that depends on country ls economy at given threshold t export (k,l) / Σ l export (k,l) > t % Supply hub(k) Count the partners import link that depends on country ls economy at given threshold t import (k,l) / Σ l import (k,l) > t %

Structural changes in demand hubs in Asia/Pacific (intermediate goods)

Single country based production fragmentation indicators Import contents of exports also well-known as vertical specialization (e.g. Hummels et al. 2001) vs = A m (I-A d ) -1 Export A m =import coefficient, A d =domestic coefficient Sliced by bilateral trade vs i k = u A m k (I-A d k ) -1 EX i k Export of jProduction at j Intermediate Import

VS related indicators (equations) Import contents share of ks exports (ICE) = (vs 1k +vs 2k +…+vs nk ) / ex k Induced exports by partners exports (EPE) =(vs k1 +vs k2 +…+vs kn )/ (ex 1 + ex 2 +…+ ex n ) Re-exported Ks intermediate exports (REI) =(vs k1 +vs k2 +…+vs kn )/ (imd.ex k1 +imd.ex k2 +…+imd.ex kn )

VS related indicators (conceptual fig.) ICEEPEREI

Import contents of exports (ICE) by industry group Notes: Higher technology-intensive manufacturing group is defined as ISIC Rev.3 24, 29-35; lower technology-intensive manufacturing group is defined as ISIC Rev , 25-28, 36-37; services sector is ISIC Rev Sources: OECD Input-Output Database, March 2010; IDE-JETRO Asian International Input-Output Database, 2005; OECD Bilateral Trade Database, March 2010; OECD Trade in Services, January 2010.

Induced Intermediate Exports by Partners Exports (EPE) (Percentage of World Exports in Goods and Services) CHN / JPN has high export elasticities to world trade

Re-exported Intermediate Exports (REI) (Percentage of a Countrys Total Intermediate Exports in Goods and Services) Country size is irrelevant. High values for earlier stage of production network

MRIO-based indicator Domestic effects and intercountry spillover effects (unit increase in final demand) of MRIO Leontief inverse are D ¤ (I-R) -1, and (I-R) -1 - D ¤ (I-R) -1, respectively where R=intercountry input coefficient matrix, D is diagonal block, ¤represents cell-by-cell product operation.

OECD I-O and BTD based Inter-country I-O table 48 countries (30 OECD countries), 37 sectors The missing year data is interpolated using the available tables Trade coefficients are based on bilateral trade in goods and services The missing services trade (of early years) is filled by trade model estimates

Inter-country spillover effects( ) Austria Germany Increased inter- country spillover effects for neighbor European countries and Asian countries

Inter-country spillover effects( ) United StatesJapanChina Increased inter-country spillover effects particularly in Asia

Summary for findings Benefitted by WIOD data products European structure is stable, Asia-pacific experienced great changes Observed increase in intra-regional trade and export product specialisation The position of a country in the global production supply chain is explained by the combinations of indicators of ICE, EPE, and REI. Inter-country spillover effects increased particularly for neighbor countries regional economic integration

Estimation approaches to identify intermediate trade flows 1.Separate Input-outputs import matrix by bilateral import partner info Survey-based information used Only available for benchmark years 2.Detailed commodity aggregate (HS6 digit/BEC classification) Trade flows of intermediate, consumption, capital are separated. Difficult sectors (ISIC34) 3.MRIO approach : Intercountry Input-Output Model (WIOD goal)

Measurement of international interdependence based on gravity model and trade data

Regression results