Global Value Chains of East Asia: Trade in Value Added and Vertical Specialization

Taehyun Kwon and Jai-Won Ryou

Asian Economic Journal, 2015, vol. 29, issue 2, 121-143

Abstract: type="main">

East Asia is known for its high intra-regional trade of intermediate goods and for its high inter-regional export of final goods in the manufacturing sector. The present study analyzes how this pattern changed between 1995 and 2009, by focusing on the ratio of value added through export of the intermediate goods with respect to value added induced by total exports (VSI) and the ratio of domestic value added due to final demand of the trading partner relative to total exports to that region (VAX). Using our new index of vertical specialization, VSI, we examine the extent to which the rise of the Chinese economy has changed East Asia's role in the global value chain. Our analysis shows that an increasing visibility of China in the global production network has been accompanied by a higher share of intermediate exports, even though China's VSI ratio is still lower than that of Japan or Korea. Meanwhile, the VAX ratio has fallen for all three countries in pairwise trade with one another, much faster than in inter-regional trade with other regions. Vertical specialization has progressed in the major exporting industries in China, Japan and Korea. This seems to reflect the strengthening ability of East Asia to create value added, in contrast to advanced countries in Europe and North America.

Date: 2015
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