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 <integration index by gravity model> 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 1995-2005 ▫ 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 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 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. 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) / Σl 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) / Σl 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 = Am(I-Ad)-1 Export Am=import coefficient, Ad=domestic coefficient Sliced by bilateral trade vsik = u Amk (I-Adk)-1 EXik Intermediate Import Production at j Export of j 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> VS related indicators (conceptual fig.) ICE P1 vs 1k EPE … P2 Pn vs 2k vs nk K ex k Exports vs f1 S vs s1 REI Vs sn P1’s ICE Pn F’s intermediate exports that are consumed in P 1 vs k2 P1 P2 … F ex 1 … vs fn ex 2 Pn’s ICE ex n Exports F’s intermediate exports that are consumed in P n imd.ex fn =intermediate exports from f to n Import contents of exports (ICE) by industry group Total Manufacturing Higher technology manuf. 1995 2005 1995 2005 Services Lower technology manuf. 1995 2005 1995 2005 Australia 14% 14% 28% 25% 16% 20% 10% 11% China 16% 25% 22% 34% 15% 20% 10% 14% Chinese Taipei 35% 48% 45% 55% 34% 53% 14% 19% India 10% 13% 16% 21% 12% 18% 8% 6% Indonesia 15% 18% 40% 36% 20% 21% 9% 13% Japan 8% 15% 9% 16% 12% 22% 4% 7% Korea 30% 39% 32% 41% 34% 42% 19% 23% Malaysia 39% 52% 49% 65% 40% 45% 13% 31% New Zealand 18% 18% 27% 26% 20% 19% 15% 14% Philippines 32% 42% 56% 60% 45% 35% 17% 16% Singapore 56% 59% 69% 71% 68% 78% 24% 30% Thailand 33% 50% 57% 67% 29% 47% 13% 22% 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.3 15-23, 25-28, 36-37; services sector is ISIC Rev.3 50-95. 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 Partner’s Exports (EPE) (Percentage of World Exports in Goods and Services) CHN / JPN has high export elasticities to world trade 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1995 2000 2005 Re-exported Intermediate Exports (REI) (Percentage of a Country’s Total Intermediate Exports Country size is irrelevant. High in Goods and Services) values for earlier stage of production network 60% 50% 40% 30% 20% 10% 0% 1995 2000 2005 MRIO-based indicator • Domestic effects and intercountry spillover effects (unit increase in final demand) A B of MRIO Leontief inverse are A -1 B D ¤ (I-R) , C and D (I-R)-1 - D ¤ (I-R)-1 , respectively where R=intercountry input coefficient matrix , D is diagonal block, ¤represents cell-by-cell product operation. C D 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 Inter-country spillover effects(1995-2005) Asia/Oceania americas Europe row Asia/Oceania americas Europe row Austria 1995 Asia/Oceania americas 2005 Europe row Asia/Oceania americas Germany 1995 2005 Europe row Increased intercountry spillover effects for neighbor European countries and Asian countries Inter-country spillover effects(1995-2005) United States Asia/Oceania americas Japan Asia/Oceania americas Europe row 1995 China Europe row Asia/Oceania americas 1995 Asia/Oceania americas 2005 Europe row Europe row 1995 Asia/Oceania americas 2005 Europe row Asia/Oceania americas 2005 Increased inter-country spillover effects particularly in Asia Europe row 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 Measurement of international interdependence based on gravity Traditional gravity model: model and𝑻trade data = 𝑨 ∙ (𝑮𝑫𝑷 ) ∙ (𝑮𝑫𝑷 ) ∙ (𝒅 ) 𝒓𝒔 𝒓 𝜶 𝒔 𝜷 𝒓𝒔 𝜸 𝑻𝒓𝒔 : country r’s import from counry s 𝒅𝒓𝒔 : physical distance (time distance) between r and s 𝐥𝐧 𝑻𝒓𝒔 = 𝐥𝐧 𝑨 + 𝛂𝐥𝐧 𝑮𝑫𝑷𝒓 + 𝛃𝐥𝐧 𝑮𝑫𝑷𝒓 + 𝜸 𝐥𝐧 𝒅𝒓𝒔 + 𝝁𝒓𝒔 𝑻 𝒓𝒔 𝒓 𝜶 𝒔 𝜷 = 𝑨 ∙ (𝑮𝑫𝑷 ) ∙ (𝑮𝑫𝑷 ) ∙ (𝒅 Total Resistance (TR): 𝐓𝐑 𝐫𝐬 =𝒅 𝒓𝒔 𝟏 𝝁𝒓𝒔 𝜸 ∙ 𝒆 Non Geographical Resistance (NGR): 𝑵𝑮𝑹 = 𝟏 𝒓𝒔 (𝒆𝝁 )𝜸 𝒓𝒔 ∙ 𝟏 𝒓𝒔 (𝒆𝝁 )𝜸 )𝜸 Regression results Year (Intercept) log(GDPr[, year]) 2000 2001 2002 2003 2004 2005 2006 10.296 10.357 9.953 9.706 9.448 9.472 9.507 0.872 0.856 0.871 0.867 0.880 0.880 0.880 39.52 <2e-16 *** signf. Codes ***: 0.001 47.77 <2e-16 *** t value (2006) Pr(>|t|) (2006) log(GDPs[, year]) log(disance[, 1]) 0.971 -0.896 0.953 -0.878 0.942 -0.838 0.947 -0.824 0.957 -0.819 0.964 -0.833 0.964 -0.842 52.33 <2e-16 *** -35.49 <2e-16 ***