The Role of China, Japan, and Korea in Machinery Production Networks

ABSTRACT

China, Japan, and Korea have been the three largest players in East Asian machinery production networks. This paper employs a new method of analyzing finely disaggregated international trade data that applies the concept of zero trade flows, least-traded goods, and intensive/extensive margins of trade growth and scrutinizes changes in the role of China, Japan, and Korea in machinery production networks between 2007 and 2013. We find, first, that China became a dominant player in the global machinery production networks in terms of both export values and the diversity and density of product-destination pairs. Second, the growth of Korea as machinery parts and components suppliers was also salient while Korea's dependency on China was sharply enhanced. Third, Japan kept being stagnated, and the machinery production links between Korea and Japan were substantially weakened.

KEY WORDS:

• Zero trade
• intensive and extensive margins
• least-traded goods
• product-destination pairs
• machinery industry
• parts and components trade

JEL CLASSIFICATIONS:

• F14
• F23

Acknowledgements

The authors would like to thank the organizers, particularly Professor Tomoo Kikuchi, and the participants of the Inaugural International Conference, Centre on Asia and Globalization, Lee Kuan Yew School of Public Policy, National University of Singapore held in Singapore on 16–17 September 2015.

Notes

1 East Asia here is defined as so-called ASEAN+6, namely, the Association of Southeast Asian Nations (ASEAN) member countries, China, Japan, Korea, Australia, New Zealand, and India.

2 The import statistics that we use are originally reported based on the HS 1996 classification or are converted to the HS 1996 classification if a country originally reported based on the other version of classification. We employ the HS 1996 classification although a substantial number of countries reported based on a newer version of classification, even for 2007, because Indonesia, which is one of East Asian countries of particular interest to the authors, reported based on the HS 1996 classification for 2007. The available annual data for 2014 already account for more than 90% of the world trade value, according to the UN Comtrade (accessed on 16 October 2015), and consist of a number of reporter countries; however, we use 2013 as the latest year of our analysis because Vietnam, one of the East Asian countries of interest, has yet to be included as a reporter in the data for 2014.

4 See the Appendix for a list of countries included in the dataset.

5 The aggregated total values of imports to the selected 136 reporter countries from 138 partner countries (= 136 + 3–1) account for more than 90% of annual total imports to all reporter countries available in the UN Comtrade Database from all partner countries with which ISO 3166-1 alpha-3 country codes are assigned, both for 2007 and 2013.

6 See Kimura and Obashi (2010) for the list of machinery parts and components at the HS (four- and) six-digit level for different versions of the HS classification.

7 We here simply employ a cut-off of $0 to determine whether a good is traded or not in a particular period, although employing an alternative cut-off when analyzing the importance of the extensive (relative to intensive) margin of trade growth in Sections 3.5 and 4.3.

8 To the authors’ knowledge, Besedeš and Prusa (2011) is one of few previous studies that examine changes in a country's exports to the world by decomposing the extensive margin into the new product margin and the new destination margin. We follow Besedeš and Prusa's way of thinking of the extensive margin. Other studies such as Kehoe and Ruhl (2013) focus only on the new product margin because they examine changes in trade patterns for a selected country pair.