Trade Integration and Production Networks in Asia: The Role of China

Sven Arndt ()
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Sven Arndt: Lowe Institute of Political Economy, Claremont McKenna College

No 403, Working Papers from Lowe Institute of Political Economy

Abstract: This paper examines the implications of cross-border component sourcing and production networks for trade competitiveness and welfare. Offshore sourcing of components in which it has comparative disadvantage, enables a country to enhance its comparative advantage in the final product. This option provides emerging countries with an important alternative to capital accumulation and technical change as paths to economic development. In addition, production sharing changes the nature of trade-balance accounting and tends to reduce the sensitivity of trade flows to movements in exchange rates. This has important implications for trade policy and for the choice of exchange-rate regime. In the context of regional trade areas, for example, deeper integration allowing for production sharing has welfare effects superior to those of standard preferential trade liberalization.

Keywords: cross-border sourcing; trade integration; production sharing; exchange rate elasticities (search for similar items in EconPapers)
JEL-codes: F11 F15 F32 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004
New Economics Papers: this item is included in nep-cna, nep-int, nep-net, nep-sea and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:loi:wpaper:0403

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