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
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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
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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
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Value-Added Trade over Gross Trade
Composite Sector
Ag & Nat. R
country
ISO code
1995
2000
2005
1995
2000
2005
1995
2000
2005
1995
2000
2005
Austrilia
Brunei Darussalam
China
Hong Kong
India
Indonesia
Japan
Cambodia
South Korea
Malaysia
New Zealand
Philippines
Singapore
Thailand
Taiwan
Vietnam
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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)
Manuf.
Services
Implications of Global Production Chain
Aggreagate
CA-EAUI Summer School
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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
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Implications of Global Production Chain
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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
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Implications of Global Production Chain
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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