Outsourcing of Intermediate Manufacturing Products in Asian Economies

1. Outsourcing of Intermediate Manufacturing Products in Asian Economies Yushi Yoshida Faculty of Economics Kyushu Sangyo University ETSG2006 (Wien, Sep7-9)

2. Objectives of the paper • Investigate (1)intra-regional “intermediate manufacturing products” trade among the Asian economies & (2)the effect of FDI on these trades. • Has the role of each Asian economy changed? • Ranks in quality ladder • General picture • China effect? • Rapid economic growth and inward FDI • Bilateral trade with Japan? • Fragmentation /outsourcing ETSG2006 (Wien, Sep7-9)

3. Background • increase in intra-regional trades among the Asian economies (Table 1) • well-documented intra-industry trade • fragmentation / outsourcing • Jones(2000) and Arndt and Keirzkowski (2001) • export-platform FDI • Motta and Norman (1996) and Yeaple (2003) ETSG2006 (Wien, Sep7-9)

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5. Globalization in Automobile industry • Two forces • World automobile conglomerates • GM, Ford, Toyota, Daimler Crysler, Volkswagen, Renault, PSA, Hyundai • World prodction networks ETSG2006 (Wien, Sep7-9)

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9. Data for Automobile components products • Trade data (30 products) • HS 6-digit classification (COMTRADE, UN) • Appendix 1 and Appendix 2 • HS 9-digit classification (Japan, MOF) • FDI data (OJCD) • automobile makers • components suppliers ETSG2006 (Wien, Sep7-9)

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12. Changing roles for intermediate production in the Asia (1) • Bilateral trade with Japan (the number of product variety) • Korea and Taiwan have exported most of the sample products • the number of product variety increased for the rest of the Asia ETSG2006 (Wien, Sep7-9)

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14. Changing roles for intermediate production in the Asia (2) • Quality ladder • unit price proxy • products might be different in size, but unit price approximates value-added over one unit of material used. • ex) bumper and its components • ranking measure shows convergence ETSG2006 (Wien, Sep7-9)

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17. Empirics • Estimation Model • Panel estimation • Annual bilateral export data (1993 - 2003) • Exporting countries: • Japan, China, Korea, Hong Kong,Malaysia, Thailand, Philippines, Indonesia, India • Importing countries: 9 + US ETSG2006 (Wien, Sep7-9)

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19. Expected signs • PROD + • FDI : (M or P) FDI (X or M) • MakerFDIX - if local procurement increases • MakerFDIM + increase in demand for components • PartsFDIX + increase in supply capacity (export-platform FDI) • PartsFDIM + if complements / - if substitute ETSG2006 (Wien, Sep7-9)

20. (-) (+) (+) (?) ETSG2006 (Wien, Sep7-9)

21. Empirical results (1) • General results • FDI effects are different for makers’ investments and suppliers’ investments • Makers’ FDI in importing countries promotes components trade • Suppliers’ FDI in exporting countries also promotes components trade • Suppliers’ FDI in importing countries has complementary effect for components trade ETSG2006 (Wien, Sep7-9)

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23. Empirical results (2) • China effect • Makers’ investments in China decreases component trade between other countries in the Asia. Shift to China • Suppliers’ investments in China promotes component trade between other countries. • Complementarity among intermediate products ETSG2006 (Wien, Sep7-9)

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25. Empirical results (3) • Bilateral trade with Japan • Japanese exports • No effect of FDI for importing countries • Japanese imports • Positive effect for suppliers’ FDI • No effect for makers’ FDI ETSG2006 (Wien, Sep7-9)

26. Conclusions • (1) Convergence in product variety and quality for automobile components trade among the Asian economies • (2) Distinct effects of FDI by makers and suppliers on component trade • (3) Large inflow of FDI in China affects components trade among other countries in the Asia. • (4) Some evidence of vertical-FDI in bilateral trade with Japan. ETSG2006 (Wien, Sep7-9)