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

18 Pages Posted: 10 May 2006  

Sven W. Arndt

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: June 2004

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

JEL Classification: F11, F15, F32

Suggested Citation

Arndt, Sven W., Trade Integration and Production Networks in Asia: The Role of China (June 2004). Available at SSRN: https://ssrn.com/abstract=900417 or http://dx.doi.org/10.2139/ssrn.900417

Sven W. Arndt (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

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