Expansion of Production Networks from Southeast Asia (ASEAN) to East and South Asia

What is it about?

This study analyses the impact of the extension of the ASEAN single production base region to a wider scope of ASEAN Plus Six (China, S. Korea, Japan, India, Australia, and New Zeeland) under the optic of production sharing structures. The study employs a global input-output dataset covering 29 endogenous countries and 35 sectors. This study evaluates changes in the pattern of Vertical Specialization in the ASEAN Plus Six region, and the change in the role played by ASEAN when the region strengthens connects with booming Asian partners (East and South Asian partners), which is a strong driver of trade and growth. This study through the production networks approach reveals the importance of these structures in the rapid expansion of trade in the ASEAN region, stronger regional integration and less global links with North America and European regions.

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Photo by frank mckenna on Unsplash

Photo by frank mckenna on Unsplash

Why is it important?

Indonesia and ASEAN partners (South East Asian countries) experienced a substantial liberalization of markets in the last two decades, accompanied by a deep regional integration. ASEAN achieved a large removal of tariffs and non-tariff barriers, engaged in trade facilitation programs, and worked in coordination, rules of origin, and other initiatives. Nevertheless, the Intra-ASEAN patterns of trade, while expanding fast, have remained structurally similar to 2000 levels, while benefiting more from extra-ASEAN trade. Global value chains are characterized by been highly fragmented as a number of industries across countries participate in the production process, adding some of the value (rather than all of it). ASEAN members gained in participation within the global value chain, turning ASEAN into a region with the largest share of trade under production sharing structures. Still, ASEAN has a large dependency towards foreign inputs, particularly with East Asia. Both exports and imports of intermediate goods are regional, suggesting that ASEAN has become less global and turned more regional, although in value terms it has increased its global exports. ASEAN is growing its trade flows in East Asia, keeping its Intra-ASEAN rates of vertical integration, and losing steam with Europe and NAFTA. The largest changes in patterns of vertical trade for ASEAN arise as it increased its participation by joining the GVC. The single production project of the ASEAN region does not seem to be the engine of a more integrated ASEAN, or at least it is not changing the pattern of regional integration. The dynamics in ASEAN growth appear as being a part of the dynamic Asian network, meaning a larger scope of integration might help the region to expand more. East Asia and India are changing their pattern of trade towards larger shares of final goods and less intermediate exports, opening opportunities for ASEAN to complement them by supplying parts and components (IPC), and re-locate IPC production.

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