Regional Value Chains for Asia and the Covid-19: An Empirical Study

Hyeon-seung Huh, David Kim and Cyn-Young Park ()

No 2024-23, Working Papers from University of Sydney, School of Economics

Abstract: We examine the value-added trades in 38 countries of which 12 Asian countries including the ASEAN5 plus Three (PRC, Japan and Korea) are selected. Using a large set of bilateral trade flows from the Multi-Regional Input-Output Tables (MRIOT) of the Asian Development Bank, we examine how domestic and foreign value-added trades in the global value chain (GVC) have been shaped over the period 2007–2021, with a particular focus on the Asian region. By estimating a gravity equation for the pooled sample, we examine what leads to increased GVC trades in Asia and non-Asia, respectively. We also estimate a difference-in-difference model to examine whether the US-China trade war had a significant impact on Asia’s value-added trades different from other parts of the world. To further examine the resilience of the regional value chain in light of the COVID-19 pandemic, we estimate an array of bilateral panel VAR models for each of the 38 economies against the trading partners and use the model to project conditional forecasts for the COVID-19 period spanning 2020-2021, to allow a counterfactual analysis of the impact of and resilience to the disruption caused by the COVID-19 pandemic. We find that Asia’s regional value chain rebounded strongly from 2021 but there has been a steady increase towards more domestic, rather than foreign, value-added activity. The future of the GVC in Asia is likely to depend on how political and institutional developments unfold.

Date: 2024-11
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