Regional integration or disintegration in the world production network

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

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

3. Economic integrations? Significant transformation of trade network particularly in Asia-Pacific region in 1995-2005 Less trade friction (transport cost, custom union, ICT difusion) Substitution ? Complementary International specialisation Geographically integrated?

4. 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 10 countries�s leading exports Chn, jpn, europ, eu4, ASEAN, E. Eur Shift to machinery sectors, specialization Bric 10 countries�s leading exports Chn, jpn, europ, eu4, ASEAN, E. Eur Shift to machinery sectors, specialization Bric

5. International specialisation(increased shares 1995-2006, 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

6. 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 1995 ? 15.1% in 2005), intra-NAFTA and Europe has decreased.

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

10. Structural changes in demand hubs in Asia/Pacific (intermediate goods) Lower the threshold, and see more countries. example of asia.Lower the threshold, and see more countries. example of asia.

11. Single country based production fragmentation indicators Import contents of exports also well-known as vertical specialization (e.g. Hummels et al. 2001) vs = Am(I-Ad)-1 Export Am=import coefficient, Ad=domestic coefficient Sliced by bilateral trade vsik = u Amk (I-Adk)-1 EXik

12. VS related indicators (equations) Import contents share of k�s exports (ICE) = (vs1k+vs2k+�+vsnk) / exk <demand-side perspective, affected by country economic size> Induced exports by partner�s exports (EPE) =(vsk1+vsk2+�+vskn)/ (ex1+ ex2+�+ exn) <supplier�s perspective> Re-exported K�s intermediate exports (REI) =(vsk1+vsk2+�+vskn)/ (imd.exk1+imd.exk2+�+imd.exkn) <supplier�s perspective>

13. VS related indicators (conceptual fig.)

14. Import contents of exports (ICE)by industry group Affected by country economic sizeAffected by country economic size

15. Induced Intermediate Exports by Partner�s Exports (EPE) (Percentage of World Exports in Goods and Services)

16. Re-exported Intermediate Exports (REI)(Percentage of a Country�s Total Intermediate Exports in Goods and Services)

17. 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.

18. OECD I-O and BTD based Inter-country I-O table 48 countries (30 OECD countries), 37 sectors 1995-2000-2005 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

19. Inter-country spillover effects(1995-2005)

20. Inter-country spillover effects(1995-2005)

21. 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

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

23. Measurement of international interdependence based on gravity model and trade data

24. Regression results