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Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication.
Email: wthorbecke@adbi.orgWillem Thorbecke is a senior research fellow at ADBI in Tokyo. Nimesh Salike is a Lecturer, Xi'an Jiaotong-Liverpool University, Department of Business, Economics and Management, Suzhou, China. Willem Thorbecke acknowledges an intellectual debt to Dr. Masaru Yoshitomi.The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent, or the views of the IDB or its member countries, ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan
AbstractWe recount East Asia's experience with foreign direct investment (FDI). We document that, contrary to the Rybczynski theorem, capital flows in the region cause the host country's labor-intensive industry to expand and its capital-intensive industry to decline. We also present narrative evidence that sheds light on how FDI is affected by the host's country's locational advantages, whether Asian FDI is footloose, and how the PRC has become the center of Factory Asia. Finally, we show that the evolution of production networks in the region can be explained partly by changes in the service cost of linking geographically separated production blocks relative to the cost saving arising from slicing up the value chain.