East Asian Production Networks Go Beyond the Gravity Prediction

Abstract

This paper provides empirical evidence that supports the continuing importance of machinery international production networks (IPNs) in East Asia. We first confirm their robustness and resilience, even during the coronavirus disease (COVID-19) pandemic, as well as the significance of East Asian countries as suppliers of machinery final products and parts and components for the world. Then, we demonstrate how deeply East Asian countries are committed to machinery IPNs by applying a gravity equation to pre-pandemic bilateral machinery trade and comparing actual values with fitted values of the estimated equation. The gravity estimation exercise indicates that machinery trade is basically regional—within Factory Asia, Factory America, and Factory Europe—but Factory Asia also has strong inter-regional linkages. It also verifies that ASEAN has played an important role in Factory Asia, going far beyond the gravity prediction, for the development of machinery IPNs.

Supply Chain Decoupling: Geopolitical Debates and Economic Dynamism in East Asia

“…The definition of machinery parts and components is based onKimura and Obashi (2010).3 East Asia's exports of general machinery final products already exceeded their pre-pandemic levels in April 2020, partly due to the drastic expansion of the demand for laptop computers etc.4 Miroudot (2020) explains the terms "robustness (less likely to be interrupted)" and "resilience (more likely to be resumed even if being interrupted). "5 SeeHayakawa et al (2023b) on the mitigating effects of e-commerce for the import declines due to the COVID-19.6 Among the top 20 countries in the world exporting machinery in 2019, East Asian countries account for half of general and electric machinery and precision machinery parts and components, and 30% to 40% even for their final products(Ando et al, 2022).7 The unit price of exports for memory ICs was the highest in May and fell to be less than half of this in December in 2022(Momomoto, 2023).8Hayakawa (2023) examines the effects of US export control measures on exports of ICs from Korea and Taiwan to China. He finds that the strengthening the FDPR in 2020 significantly reduced exports from Korea but did not change those from Taiwan.…”

“…6 6 Among the top 20 countries in the world exporting machinery in 2019, East Asian countries account for half of general and electric machinery and precision machinery parts and components, and 30% to 40% even for their final products (Ando et al ., 2022). …”