International Production Networks and a New Development ... · APO-Keio Special Lecture Dale W....
Transcript of International Production Networks and a New Development ... · APO-Keio Special Lecture Dale W....
APO-Keio Special Lecture Dale W. Jorgenson
Samuel Morris University Professor, Department of Economics, Harvard University hosted by Asian Productivity Organization (APO) and Keio Economic Observatory, Keio University
(May 22, 2014)
International Production Networks and a New Development Strategy in East Asia
Fukunari Kimura
Professor, Faculty of Economics, Keio University
Chief Economist, Economic Research Institute for ASEAN
and East Asia (ERIA) 1
1. The 1st to the 2nd unbundling
• The international division of labor: from industry-by-industry to production process/task wise
• The 2nd unbundling in East Asia, most advanced, particularly in manufacturing
– Dominance of machinery industries
– Fragmentation of production and the formation of industrial agglomeration
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The 2nd Unbundling
2012/02/03 3
Bay B Bay A
Bay C
Bay B
Bay A
Bay C
1st 2nd
ICT
The 2nd unbundling, i.e., international division of labor in terms of production processes and tasks, has developed since the 1980s, based on drastic reduction in coordination costs due to ICT revolution.
The 2nd unbundling in the manufacturing sector is most advanced in East Asia.
Source: Baldwin (2011).
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The fragmentation theory: Production blocks and service links
PB: production blocks
SL: service links
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PB
PB PB
PB
PB
SL
SL
SL
SL
SL
After fragmentation
Before fragmentation
Large integrated factory
Tradeoff between the reduction in production costs in PB and the enhancement of SL costs. Fragmentation of production occurs particularly between countries at different development stages (Jones and Kierzkowski (1990)).
Two-dimensional fragmentation: An illustration
Source: Kimura and Ando (2005).
OEM contracts
Subcontracting
Internet auction Competitive spot bidding
Cross-border intra-firm
fragmentation
Disintegration
(National border) Distance
(Boundary of firm)
Origin
Domestic intra-firm
fragmentation
Domestic arm's length
fragmentation
Cross-border arm’s length
fragmentation
Outsourcing
EMS
Industrial agglomeration International fragmentation
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The evolution of the 2nd unbundling
The United States
Mexico
Consumers
Headquarters or affliates
Unrelated firms with same firm nationality
Unrelated firms with different firm nationality
The United States
Consumers
Consumers
Japan
Korea
Vietnam
Malaysia
The Philippines
Taiwan
Internet
auction
Agglomeration
Agglomeration
Cross-border production sharing (back-and-forth; intra-firm)
Production networks (“networks”; fragmentation and agglomeration;
intra-firm in short distance, arm’s length in long distance)
6 Source: Ando and Kimura (2010).
36.4
36.1
29.7
20.6
15.3
12.3
10.5
10.4
0.8
0.0
18.0
10.1
2.6
1.2
0.9
0.6
9.6
10.9
11.2
1.4
3.2
12.3
50.8
0.0
2.7
5.2
0.2
0.1
19.6
15.6
10.1
19.6
24.8
21.4
31.4
25.6
12.1
21.6
14.9
32.5
30.3
19.7
1.0
0.6
4.0
4.2
0.8
3.6
2.8
2.5
0.8
1.6
1.8
2.4
2.0
2.9
4.6
6.4
5.3
7.0
10.3
6.1
2.8
3.2
3.1
4.2
8.2
6.6
6.3
5.5
19.7
14.5
20.2
18.4
13.7
17.4
17.6
14.2
3.7
20.8
17.2
10.9
10.9
13.8
13.8
8.1
4.8
4.4
6.6
6.5
6.9
6.5
3.4
12.3
7.3
7.0
8.2
10.3
0.1
7.4
6.4
5.6
7.2
17.8
11.8
12.9
6.1
28.8
16.0
10.9
19.3
16.8
4.0
10.7
10.0
9.3
10.2
13.4
13.1
12.3
19.3
10.6
14.0
14.4
20.1
29.7
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Myanmar
Cambodia
Laos
Vietnam
Indonesia
Philippines
Thailand
Malaysia
Brunei
Singapore
India
China
Korea
Japan
Industry shares of value added, 2010
Agriculture,hunting,forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Wholesale and retail trade, repair of vehicles and household goods, hotels and restaurants
Transport, storage and communications
Financial intermediation, real estate, renting and business activities
Community, social and personal services
Data source: APO Productivity Database by the courtesy of Koji Nomura. 7
15.5
46.6
29.1
22.3
11.8
3.2
9.5
13.9
4.1
63.7
5.9
7.8
8.2
1.7
0.3
15.1
1.4
4.2
1.6
1.1
5.0
0.9
3.3
0.1
2.1
1.3
0.4
2.3
1.5
4.1
2.3
3.1
2.8
2.7
5.4
2.6
3.2
14.5
24.4
21.5
30.7
26.7
21.8
15.8
15.7
3.6
2.7
2.8
3.9
3.2
0.8
6.7
3.1
3.3
1.8
3.4
1.7
2.0
2.8
0.3
11.3
9.5
17.2
8.3
21.3
24.4
34.1
42.6
62.4
30.9
44.8
51.1
0.0
3.1
0.7
4.8
0.9
3.4
0.1
4.9
1.4
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cambodia
Philippines
Indonesia
Thailand
Malaysia
Singapore
India
Japan
Korea
Industry shares of value added in manufacturing, 2010
…Food products, beverages, and tobacco products
…Textiles and wearing apparel, and leather products
…Wood and products of wood and cork
…Paper, paper products, printing, and publishing
…Coke, refined petroleum products, nuclear fuel, chemicals, rubber, and plastic products
…Other non-metallic products
…Basic metals
…Machinery and equipment
…Other manufacturing
Data source: APO Productivity Database by the courtesy of Koji Nomura. 8
Source: Ando and Kimura (2013).
The 2nd unbundling
The 1st unbundling
Export shares of machinery parts and components in total exports indicate the degree of participation in international
production networks.
9
Source: Ando and Kimura (2013).
The 2nd unbundling
The 1st unbundling
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Machinery exports and imports by regions (US$ millions)
Source: Chang and Kimura (2013). 11
0
500,000
1,000,000
1,500,000
2,000,000Ex
po
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99
3
Imp
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93
Exp
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Exp
ort
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ort
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Imp
ort
s19
93
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ort
s20
11
Imp
ort
s20
11
ROW EU27 ASEAN+6 LA NAFTA
Final Products
Parts andComponents
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The size of industrial agglomerations in East Asia
Jakarta’s cluster size
Bangkok’s cluster size
Source: ERIA.
2. Fundamental changes in development strategies
• Latecomers: jump-start industrialization by participating in international production networks
– Reduction in three types of costs
• Middle-income countries: agglomeration, industrial upgrading, innovation
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Reduction in network set-up cost
Reduction in service link cost
Reduction in production cost per se
High-level FTAs
• Investment liberalization
• IPR protection • Competition policy
• Tariff removal • Trade facilitation • Enhancing
institutional connectivity
• Liberalization of production-supporting services
• Investment liberalization
Development agenda
• Investment facilitation/promotion
• Enhancing physical connectivity (including hard and soft logistics infrastructure development)
• Reducing transaction cost in economic activities
• Upgrading infrastructure services such as electricity supply and EPZs
• Enhancing agglomeration effects through SME development
• Strengthening innovation
Policies for enhancing the 2nd unbundling
Border Development with Enhancement of Connectivity
GDP per capita (2005)
(source) Kudo and Kumagai (forthcoming) 15
1.5
2.0
2.5
3.0
3.5
4.0
4.5
300 3,000 30,000
LPI 2012 ASEAN 2012 CLMV 2007 Fitted line (LPI 2012)
Singapore
Malaysia
Thailand
Indonesia
Philippines
Viet Nam
Cambodia
Lao PDR
GDP per capita (2012, Nominal USD)
LPI 2012
Myanmar
Hong Kong
Korea
China
India
LPIs in forerunner ASEAN and East Asia are relatively higher compared with the indices obtained by regression
= higher LPI compared with GDP/GNI per capita
= better access between primary cities to primary ports
= high competitiveness in the global market
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Source: Modified from ERIA (2010)
Correlation between LPI and GDP per capita
SMEs
Innovation in
industrial agglomeration
International production networks
Access to technology Access to finance Fostering human resources Establishing industrial organizations
SME-related policies reviewed by SME Policy Index
Technology transfer/spillover Managerial knowhow
Market access
Innovation in industrial agglomeration
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Source: ERIA (2012).
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3. Impact on developed countries
• International production networks, important sources of competitiveness of corporate firms
• Can be good for the whole country, too. – Relative expansion of domestic operations by
expanding multinationals (Ando and Kimura (2012a))
• Stability/resiliency of production networks – Ando and Kimura (2012b) on Japan’s exports with the
GFC and the East Japan Earthquake
– Todo, Nakajima, and Matous (2014) on factory operations with the East Japan Earthquake
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1998-2002 2002-2006 2007-2009
Firms that do not have an affiliate in East Asia
32% 51% 41%
Firms that have affiliates in East
Asia: The number of
affiliates
Increases (including the
first direct investment)
33% 64% 52%
Keep the same number
25% 54% 43%
Decreases (including
withdrawal) 25% 50% 40%
All manufacturing firms 32% 53% 42%
Outward foreign direct investment and domestic employment by Japanese manufacturing firms: The ratio of firms that expand domestic employment
Source: Ando and Kimura (2012a). 20
4. Implication for productivity studies
• Industry-level productivity to be elaborated. – Different activities by production processes/tasks;
international relation-specific division of labor
– Mixture of multinationals and local firms
• Economic environment outside a firm matters. – E.g., service link costs crucial to production networks
– E.g., agglomeration effects (+/-)
• Evolving nature of technological progress – New type of middle-income countries
• Dependency on multinationals, tech. gaps, small R&D
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References • Ando, Mitsuyo and Kimura, Fukunari. (2012a) “International Production Networks and Domestic Operations by Japanese
Manufacturing Firms: Normal Periods and the Global Financial Crisis.” RIETI Discussion Paper Series 12-E-047 (http://www.rieti.go.jp/jp/publications/act_dp.html).
• Ando, Mitsuyo Ando Fukunari Kimura (2012b) “How Did the Japanese Exports Respond to Two Crises in the International Production Networks? The Global Financial Crisis and the East Japan Earthquake.” Asian Economic Journal, 26, No. 3: 261-287.
• Ando, Mitsuyo and Kimura, Fukunari. (2013) “Production Linkage of Asia and Europe via Central and Eastern Europe” Journal of Economic Integration Vol.28 No.2, pp.204-240.
• Baldwin, Richard. (2011) “21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules.” Centre for Economic Policy Research Policy Insight No. 56 (May) (http://www.cepr.org).
• Chang, Mateus Silva and Kimura, Fukunari. (2013) “The Evolution of Production Networks in Machinery Industries.” mimeo.
• Economic Research Institute for ASEAN and East Asia (ERIA). (2010) Comprehensive Asia Development Plan. ERIA Research Project Report 2009-7-1, Jakarta: ERIA (http://www.eria.org/publications/research_project_reports/the-comprehensive-asia-development-plan.html).
• Economic Research Institute for ASEAN and East Asia (ERIA). (2012) Phnom Penh Initiative for Narrowing Development
Gaps. Jakarta: ERIA.
• Jones, R. W. and H. Kierzkowski. (1990) “The Role of Service in Production and International Trade: A Theoretical Framework.” In The Political Economy of International Trade: Essays in Honor of Robert E. Baldwin, edited by In R. W. Jones and A. O.Krueger. Oxford: Basil Blackwell.
• Kimura, Fukunari and Ando, Mitsuyo. (2005) “Two-dimensional Fragmentation in East Asia: Conceptual Framework and Empirics.” International Review of Economics and Finance (special issue on “Outsourcing and Fragmentation: Blessing or Threat” edited by Henryk Kierzkowski), 14, Issue 3: 317-348.
• Todo, Yasuyuki; Nakajima, Kentaro; and Matous, Petr. (2014) “How Do Supply Chain Networks Affect the Resilience of Firms to Natural Desasters? Evidence from the Great East Japan Earthquake.” Mimeo. The former version of this paper is in http://www.rieti.go.jp/jp/publications/dp/13e028.pdf.
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