From global factory to global mall: East Asia’s changing export composition
Matthias Helble, Boon-Loong Ngiang08 September 2014
Over the past two decades East Asia has been highly successful in building up and joining global supply chains, and has been described as Factory Asia. This column argues that East Asia, apart from being the centre of global manufacturing, is now also emerging as one of the world's leading final markets for consumption goods.
Over the past decades, East Asia has been the most successful region in the world in building up cross-border supply chains and has subsequently become described as “Factory Asia” (Baldwin 2008). In a form of “triangle trade”, advanced countries in East Asia exported sophisticated parts and components to less developed countries in the region, where these are assembled into final consumption goods and then shipped to rich-nation markets, especially the US and EU (Baldwin and Kawai 2013).
Supply chains, mega-regionals and the WTO: New CEPR book
Bernard Hoekman19 May 2014
The World Trade Organisation is one of the most successful instances of multilateral cooperation post-WWII. Yet WTO negotiators have yet found a way to break the recent deadlock on key elements such as the market access and rule-making dimensions on the agenda since 2001. This column introduces a new CEPR book that suggests the adoption of a ‘supply chain framework’ that could help to mobilise greater support for concluding the Doha Round and provide a basis to use the WTO as a forum for learning from regional initiatives.
In December 2013, WTO members struck a multilateral agreement at their ministerial meeting in Bali as part of the long-running Doha Round. The Bali Trade Facilitation Agreement – the first such agreements since the WTO was founded in 1995 – is important in demonstrating WTO members can ‘get to yes’ despite their differences. While trade facilitation will benefit traders around the globe, the basic challenge confronting WTO negotiators remains.
Recent research has sought to quantify the magnitude of the welfare gains from trade. One of the main findings from this literature is that the gains from trade are relatively modest. This column suggests a channel that the standard approach typically abstracts from. It argues that trade induces changes in domestic productivity through a more efficient organisation of production within the supply chain.
The theoretical result that there are gains from trade is a central tenet of international economics. Assuming perfect competition and no market failures, trade acts like a technological improvement that expands the set of feasible allocations and enables Pareto superior outcomes to be achieved. A recent body of research has sought to quantify the magnitude of these welfare gains.
Before the introduction of the euro, it was hoped that by promoting increased intra-regional trade it would increase business-cycle synchronisation within the Eurozone, and thus help it to fulfil the criteria for an optimum currency area. This column presents recent research that compares the evolution of business-cycle synchronisation in the Eurozone and east Asia. While the euro has had some impact on business-cycle synchronisation in the Eurozone, it has done so not through increased intra-regional trade intensity, but rather through some other channel – most likely financial integration.
World-leading trade lawyer, Gary Horlick, talks to Viv Davies about the 2013 WTO Bali ministerial conference and the post-Bali agenda. Horlick discusses food security, agriculture and whether mega regional trade agreements pose a threat to the future of the WTO. They also discuss the potential benefits of the post-Bali agenda for developing countries and the ‘trade transforming’ effect of SMEs and the internet. The interview was recorded in January 2014.
Alejandro Jara talks to Viv Davies about the 2013 WTO Bali ministerial conference and the recent Vox report, ‘Building on Bali’, co-edited with Simon Evenett. Jara presents his views on the post-Bali agenda, mega regional trade agreements and trade protectionism. They also discuss the extent to which the ‘global value chain revolution’ has changed the nature and focus of international trade and trade agreements. Jara concludes by presenting policy recommendations for the way forward. The interview was recorded in January 2014.
The global value chain revolution has changed trade and trade agreements. Trade now matters for making goods as well as selling them. Trade governance has shifted away from the WTO towards megaregional agreements. This column argues that 21st-century regionalism is not fundamentally about discrimination, and that its benefits and costs are best thought of as network externalities and harmonisation costs respectively. More research is needed to determine how the megaregional trade agreements across the Pacific and Atlantic will fit with the WTO.
Trade and trade agreements used to be relatively simple. Trade primarily meant trade in ‘made-here-sold-there’ goods, so 20th-century regional and multilateral trade agreements dealt primarily with barriers to goods crossing borders – especially tariffs. For governments, the key purpose of trade and trade agreements was to help their firms sell things.
Supply-chain vulnerability: An analysis of the impact of earthquakes using micro data
Yukiko Umeno Saito15 December 2013
Natural disasters severely disrupt supply chains. This article presents evidence from the Great East Japan Earthquake that the spillover effects on disaster-hit firms’ suppliers were worse than those on their customers. For those firms that shut down, however, the effects on their customers were worse, and were transmitted along the supply chain. Firms with partners inside the affected area were more likely to form new business relationships, but those whose partners shut down were not. This suggests disaster relief should be targeted to the hardest-hit firms.
Natural disasters have long-lasting consequences (Noy 2012). Two and a half years have passed since the Great East Japan Earthquake, and although many issues have yet to be resolved – including that of the evacuees – many lessons concerning economic activities have been learned from the unexpected disaster. Companies’ resilience was tested, and the introduction of business continuity management was accelerated. Supply chains have also been overhauled to surmount companies’ vulnerability.
With the rise of complex, globalised supply chains is the real effective exchange rate (REER), the most commonly used measure of competitiveness, now outdated? If it is, what should replace it? This column presents a ‘Value-Added REER’ and shows that it differs substantially from the conventional REER. Because it is possible to construct a new Value-Added REER from existing data, policymakers interested in improving their understanding of competitiveness might well consider including it in their toolbox.
Real effective exchange rates (REERs) are widely used to gauge competitiveness. Yet conventional REERs, based on gross trade flows and consumer price indexes (CPIs), are not well suited to that role when imports are used to produce exports – i.e., with vertical specialisation in trade.
Estimating trade elasticities: Demand composition and the trade collapse of 2008–09
Matthieu Bussière, Fabio Ghironi, Giulia Sestieri14 February 2012
At the height of the 2008–09 financial crisis, global trade fell by far more than global output – a pattern that defied past experience and became known as the Great Trade Collapse. This column uses a new model for analysis to argue that the collapse was caused mainly by the crash in global demand.