Value chains in east asian production networks: An international input-output model based analysis

This paper extends the quantitative measures of vertical specialization proposed by Hummels, Ishii, and Yi (2001) into a framework that includes many countries based on an international input-output model. It not only distributes foreign value added in a country's exports to its original sources, but also further decomposes domestic value added in a country's exports into direct exports and indirect intermediate exports via third countries, thus completely slicing up the value-chain. This extended measure of vertical specialization allows us to estimate each country's net contribution of value-added in East Asian production networks at the industry level, providing systematic quantitative evidence for the nature of East Asian value chains and their growth from 1990 to 2000. Our data include nine major economies in East Asia (Japan, China, Korea, Taiwan, Singapore, Thailand, Malaysia, Indonesia, and the Philippines) plus the United States. Our results show that East Asian developing economies became more deeply integrated into the East Asia production network in the 1990s. This integration is indicated by both a dramatic increase in the developing-country share of value added in final goods supplied by East Asia to the United States, and by an increase in their indirect value added embodied in exports via other Asian countries. We also report interesting heterogeneity in the value chain across sectors. The electronics industry has the most integrated global production network, with value shares becoming more evenly distributed among East Asian economies in the period. In contrast, wearing apparel became more concentrated in Asian developing countries, with a shift in value-added away from industrialized Asian countries and the rest of the world between 1990 and 2000. The automobile industry experienced less change in the period; production still mainly involved Japan and Korea in 2000, with developing Asia just starting to show up in the chain.