POLICY RESEARCH WORKING PAPER 2197 Production Sharing Components have been a East Asia dynamic leacing sector in in East Asia East Asian imports and exports EastAsian global Who Does What for Whom, exports of parts and components totaled $178 and Why? billion in 1996, imports, $ 12 billion less Components now Francis Ng account for a fifth of East Alexander Yeats Asian export, of manufactures The World Bank Development Research Group Trade U October 1999 POLICY RESEARCH WORKING PAPER 2197 Summary findings Ng and Yeats analyze empirical informarion on the Why did production sharing expand? nature and magnitude of, and motivatio-i for, Analyses of traditionalty revealed comparative international production sharing in East Asia. T o do so, advantage use export statistics to determine whether a they use a largely untapped source of data on inter- and country has a comparative advantage in the production intraregional trade in parts and components. Some of of a good. T'he same indices, calculated using import their findings: statistics for components, can show whether a country Last Asian trade in components is considerably has a comparative advantage in the assembly of a greater than often recognized. Regional global exports of product. Using statistics on comrponent imports, Ng and parts and components totaled $178 billion in 1996, and Yeats find that imports of those products about S12 billion less. J Japan, Singapore, and Taiwan (China) - which are Components now constitute one-fifth of East Asiul exiting most assembly operations - increased their exports of manufactures. specialization in the manufacture of components. * Imports of components, measured as a share of all Assembly operations, which are labor-intensive, tend to manufactures, are growing considerably faster in East migrate to low-ve,age East Asian countries. Asia than in OECD Europe or North An:erica. The value Indonesia, Malaysia, and Thailand have the broadest of East Asian global imports of components rose more and most mature assembly capacity for components. But than ninefold over the period 1985-96. Almost three- no East Asian country has developed its domestic quarters of all East Asian imports of telecommunications assembly operations as much as Mexico, which has a equipment are components for further assembly. comparative advantage in 70 percent of all component * East Asian global exports of components grew faster groups. than any other major product group over I 984-96, Collectively, East Asian countries are strengthening when their exchange increased 15 percent a year their comparative advantage in the production of (compared with 11 percent for all products). Although components; the results are inixed for assembly Japanese exports declined slightly in 1997, shipments operations. from most other East Asian countries incireased 9 to 16 percent. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to improve the growth prospects of developing countries. Copies of the paper are available free from the World Bank, 1818 H Street N7, Washington, DC 20433. Please contact Lili Tabada, room MC3-333, telephone 202-473-6896, fax 202-522-1159, Internet address ltabadalilworldbank.org. Policy Research Working Papers are also posted on the Web at http:// -wwvw.worldbank.org/htmljdec/Publicationsf,\lN(- rkpapers: home. html. The authors may be contacted at fng@worldbank.org or ayeats(t worldbank.org. October 1999. (57 pages) Ikhe Policv Research !,Vorking Paper Series disse,inates [he orvdiugs of wvork ito progress to encourage the exchan-ge of ideas about I evelopnent Iissues. A;, objective ofnt is to get lfi pne n,gd out quickly, even7 if the presentations ate less than fully polished. The papers carry the naies of the authors and s0on U oe cited accoraliglgy. The findinigs, interpretations, ancd conciusions expressed in this paper are entirely those of the authors. The 00o n' t 0' ecessac'ly vepresent the tiew of the W&orld Bank, its Executive Directors, or the colontries the'> represent. Produced hy ilC Policy Resoarch 6Dissemination Center Production Sharing in East Asia: Who Does What for Whom and Why? Francis Ng and Alexander Yeats Staff Members Trade Team, Development Research Group The World Bank Sumrnary This study's primary purpose is to analyze empirical information on the nature, magnitude and motivation for international production sharing in East Asia. To accomplish this objective it utilizes a, heretofore, largely untapped data source on inter- and intra-regional trade in parts and. components. The following are some of the main points emerging from these data; * East Asian trade in components is considerably greater than often recognized. Regional global exports of parts and components totaled $178 billion in 1996, while Asian imports of these products were about $12 billion lower. Components now constitute one-fifth of East Asian exports of manufactures * Asian imports of components, measured as a share of all manufactures, is growing considerably faster than in OECD Europe or North America. The value of Asian global imports of components rose more than nine-fold over 1985-1996. Almost three-quarters of all Asian imports of telecommunications equipment now consist of components for further assembly * Asian global exports of components grew faster than any other major product group over 1984-1996 when their exchange increased at an annual rate of 15 percent (as opposed to 11 percent for all products). Intra-regional trade outpaced the rapid expansion in global components exports as the share of this exchange in total trade almost doubled from 25 to 46 percent. * Available statistics (through 1997) indicate the recent Asian econoimic slowdown has not had a major detrimental impact on regional trade in parts and components. Although Japanese exports declined slightly in 1997, shipments from most other East Asian countries increased by between 9 to 16 percent . Since Asian trade in components has been such a dynamic leading sector in regional imports and exports there is an obvious interest in monitoring future changes in this exchange. To help analyze the motivation for the expansion of production sharing this study employs an empirical approach that can indicate whether a country has a comparative advantage in either the production or assembly of components. Traditionally revealed comparative advantage (RCA) analyses use export statistics to determine whether a country is at a comparative advantage in the production of a good. However, if these indices are calculated using import statistics for components they can show whether a country has a comparative advantage in the assembly of a product. The application of this empirical approach to import statistics for components reveals several important points: * Assembly operations are tending to migrated to the relatively low wage Asian countries, while countries like Japan, Singapore, and Taiwan increased their specialization in the manufacture of components. Overall, the revealed comparative advantage profiles conform to predictions based on factor proportions theory. Low wage countries have a disproportionately high revealed comparative advantage in assembly operations (most of which are assumed to be labor intensive in nature), while the wealthier Asian countries have high RCAs for the production of components. * East Asian assembly operations have become quite diverse with 5 of the 10 regional countries having RCAs above unity in 40 percent, or more, of the component groups. However, no Asian country has yet developed its domestic assembly operations to the same extent as Mexico which has a comparative advantage in 70 percent of all component groups. * Collectively, East Asian countries are strengthening their comparative advantage in the production of components, but the results are mixed for assembly operations. Nine of the ten countries increased the percentage of component industries in which they have a production comparative advantage over 1985-1996, with Thailand and Taiwan's share doubling. In contrast, the corresponding shares for assembly operations fell, or held constant, for 7 of the 10 countries. * A "stages" approach analysis of Asian RCA profiles shows Indonesia, Thailand and Malaysia have the broadest and most mature assembly capacity for components. However, these Asian profiles are less developed than Mexico's which suggests the former may still have the capacity to further expand these operations. RCA profiles for Singapore, Taiwan and Japan indicate these countries are in a "sunset" stage and are exiting most assembly operations. e Cross correlations between East Asian countries' RCA indices often fail to achieve statistical significance. One possible explanation is that locational, wage and communications costs, along with the specific mix of skills and infra-structure required for assembly in specific component industries are more binding than sometimes thought. Correlations between specific country's 1985 and 1996 RCA assembly profiles are often highly significant indicating these operations may not be as "footloose" as is sometimes suggested. Finally, this study stresses the fact that important detailed data sources are available (including the newer harmonized system statistics) for empirical analyses of factors leading to the remarkable growth in global production sharing, and those influencing the motivations for, and nature of, this activity. Since United States trade statistics tabulate international transport and insurance costs for all components and assembled products, these data seemingly constitute an important statistical source for research on the geographic location of production sharing. Production Sharing in East Asia: Who Does What for Whom and Why? Francis Ng and Alexander Yeats I. INTRODUCTION Published studies that utilized trade statistics from, at least, the 1 960s document the remarkable increase in international production sharing as reflected in far above average growth rates for the exchange of components or partially assembled manufactured goods.' In its most recent form, production sharing involves the development of specialized (often) labor-intensive activities within vertically integrated international manufacturing industries. As an example, electronic semi-conductors, valves, tuners and other components are now assembled for multinational firms in places like Mexico, Malaysia, or the Philippines. Parts of wearing apparel and leather goods are assembled in Jamaica and the Dominican Republic for re-export to the US market - one estimate by the World Bank (1 994b) puts the value of assembly exports from the Caribbean at over $3 billion. AJmong the many other industries where major parts of a production process were transferred abroad include television and radio receivers, sewing machines, calculators and other The authors are staff members with the Trade Team of the Development Research Group, World Bank, Washington, D.C. 20433. The views expressed in this paper need not reflect those of the World Bank or its staff. Production sharing is here defined as the internationalization of a manufacturing process in which several countries participate in different stages of a specific good's fabrication. The process is of considerable economic importance since it allows stages of production to be located where they can be undertaken most efficiently. If production sharing is increasing in relative importance this implies countries are becoming more economically interdependent. 2 office equipment, electrical machinery, power and machine tools, typewriters, cameras and watches (USITC 1996). Theoretical analyses that examined the motivating factors for international production sharing generally agree on two key points: (i) that manufacturing processes for some goods can be separated into distinct stages (like the cutting of cloth for eventual sewing into clothing), and (ii) due to differences in the nature of the processes at each stage significant differences may exist in the comparative advantage of countries over a manufacturing chain.2 There is a presumption in much of this literature that manufacturing stages that are labor intensive in nature (like many assembly operations) would be transferred from richer to poorer developing countries where wage costs are relatively low. However, recent statistics published by the USITC (1996, p. B-4) showing that Japan and Germany are among the major suppliers of finished goods that utilized US parts and components assembled abroad seemingly are at odds with this assumption. Using a, heretofore, largely untapped data source on production sharing this study provides new empirical information on the magnitude, direction and motivation for this operation in East Asia. East Asia was chosen for study because the available evidence indicates regional production sharing is expanding at a far faster pace than in either North America or Europe. 2 There exists a fairly broad number of empirical studies that examined the size of and motivations for this exchange. Many earlier analyses focussed on the effects of United States and European tariff provisions for the further assembly abroad of domestically produced components. Under these provisions, components (say) produced in the United States could be shipped abroad for further assembly and then re-exported back to the U.S. with a tariff applied only to the value added component of the processed good. Finger (1975)(1976) authored some of the most influential early studies on this activity. More recently, the US International Trade Commission was mandated by Congress to provide annual reports on the magnitude and economic effects of production sharing in North America and Europe. See, for example, US1TC (1991)(1996). 3 The paper proceeds as follows. First, it describes the nature of the newer data sources on production sharing and assesses it strengths and limitations for empirical analysis. Second, it employs the available statistics to analyze the magnitude, composition and direction of production sharing in East Asia. Third, the paper describes a methodological procedure that determine which countries have a comparative advantage in either the assembly or production of components of a specific manufactured good., and also indicates how a country's further developmental potential for these operations might be assessed. This new methodological approach is then applied to statistics on East Asian trade in components in order to determine what motivates the regional pattern of this exchange, and also to determine how Asian comparative advantage in production sharing is evolving. The paper closes with an evaluation of how well the observed empirical results "square" with much of the theoretical discussion and what their implications are for future research.. II. DATA SOURCES ON PRODUCTION SHARING Key Point Revisions to the original Standard International Trade Classifcation (SITC) system provide extensive new information on international trade in parts and components. The SITC Revision 2 system distinguishes between 60 broad groups of component products, but in the recently adopted harmonized system (HS) over 200 hundred such product groups are identified. As more countries begin to report trade data in terms of the HS the potentialfor empirical research on production sharing will greatly increase. In its original form, the Standard International Trade Classification (SITC) system did a less than adequate job of distinguishing between trade in final goods as opposed to parts and components. At the lowest (five digit) level the SITC identified about 800 4 individual products - only 10 of which consisted of "'parts." However, in the late 1 970s and early 1980s many countries also adopted the more detailed SITC Revision 2 system which expanded the numiber of product groups composed solely of components. The coverage of these groups was most extensive within the machinery and transport equipment sector (SITC 7) where about 60 individual three, four, and five-digit groups consisting solely of components of manufactured equipment to be assembled were identified.3 Outside this sector the SITC Revision 2 still fails to differentiate sufficiently between assembled goods and components so tabulations of the true magnitude of trade in parts are clearly downward biased. Furthermore, some developing countries did not shift to the SITC Revision 2 system until the early or mid-1980s, so it is not yet possible to fully monitor longer-term trends in this exchange.4 It should, however, be noted that the recent shift by many countries to reporting trade data in terms of the harmonized system has the potential to greatly expand future opportunities for empirical research on international production sharing. Given the potential importance of these newer data sources, we undertook several checks aimed at verifying the underlying quality of the Revision 2 trade statistics compiled This analysis is based exclusively on product groups defined as consisting solely of components. This causes estimates of East Asian production sharing to be downward biased. Specifically, some other SITC 7 product group exports (like television picture tubes) may be used for further assembly operations, but it is not possible to accurately determine whether, or to what extent, these items are used for further assembly. Some empirical studies, like Balassa (1965a), utilized product classification schemes that included groups called "intermediate input groups I ancl II' which were composed of items like yams, pig iron, leather and some chemicals. Although we do not do so, other empirical analyses of trade in components might consider the use of such products in their investigations. In the earty 1990s, countries began reporting trade statistics to the United Nations in terms of the more detailed harmonized system (HS). At its lowest six-digit level the HS distinguishes between approximately 3,600 individual items, of these some 200 consist solely of parts and components. The current disadvantage of the harmonized system is that a sufficient reporting period has not yet elapsed for adequate time series information to become available, as is the case with the SITC Revision 2 data. 5 by the United Nations. These tests, which included partner country comparisons, revealed three anomalies that should be noted: * From 1984 through 1995 the Philippines classified approximately 20 percent of all imports, and 30 percent of all exports, as SITC 931 "special transactions". Very few countries reporting to UN COMTRADE have trade shares for this item close to these levels. Partner country data suggest some exchange reported in SITC 931 involves assembly operations which are not recorded correctly. As a result, the available data probably understate the importance of the Philippines assembly operations.5 * Hong Kong's trade data consistently incorporate some of the largest negative trade balances for components observed in any UN country's statistics. For example, in 1996 component imports of $18.7 billion were reported as opposed to $3.1 billion in exports. We suspect that some transit trade with China, Macau and other East Asian countries may be incorrectly included in the data reported to the United Nations, * Singapore stopped reporting any trade with Indonesia in 1964. We contacted UN Statistical Office officials on this problem, but they were unable to provide an explanation as to why this was occurring. However, in 1995 Indonesia reported exports of $3.7 billion to, and imports of $2.4 billion from, Singapore. Singapore's reporting practices will bias downward some of our estimates of intra- regional components trade. In spite of these few problems, the available UN Revision 2 data reflects the relative importance of the East Asian countries' trade in components. For example, in 1996, the United States and Germany were (according to this source) the two largest exporters and importers of components, but Singapore, Hong Kong, Japan, Malaysia and China were among the 10 largest exporters or importers of these goods (see Appendix Table 1). Furthermore, the Revision 2 statistics show recent growth rates for East Asia trade in components has been above corresponding rates those for any other major regional group of countries. sThis "error" has also been incorporated in IMF data series. The reader may wish to verify that in the 1980s and 1990s the IMF Direction of Trade Statistics report sizeable Indonesian exports to, and imports fiom, Singapore. However, the Singapore statistics show no trade with Indonesia. 6 III. East Asian Trade in Parts and Components Key Point East Asian trade in components is considerably greater than often recognized. Regional exports of parts and components totaled $178 billion in 1996, while Asian imports of these products were about $12 billion lower. Components now constitute one-fifth of EastAsian exports of manufactures. Table 1 utilizes the TIN statistics to examine the composition and relative importance of the individual component product groups in East Asian trade. The table identifies each product by SITC (Revision 2) number, it provides a short description of the item, and also indicates its value and share of East Asian global imports and exports of all components (these totals include the combined trade of Japan, Hong Kong, Republic of Korea, China, Singapore. Taiwan (China), Malaysia, Thailand, Indonesia, and the Philippines). One interesting point evident from these statistics is that East Asian component trade is concentrated in a relatively few items. Specifically, 5 of the 60 SITC groups account jointly for almost 75 percent of all imports (79 percent cf exports), with parts of telecommunications equiprnent (SITC 764) alone accounting for about one-quarter of this exchange. An analysis of underlying individual East Asian country's trade statistics reveals little variation in the relative importance of these products across countries (see Appendix Tables 2 and 3). A similar high level of product concentration has also been observed in global statistics on components trade, except that motor vehicle parts were the largest single traded product group on all world markets (Yeats 1997). In East Asia, these items are the fourth largest product group. 7 Table 1. The 1996 Value and Share of East Asian Countries' Imports and Exports of Parts and Components Identified in the SITC Revision 2 Classification System. (values in US$ million) Imports Exports SITC Rev. 2 - Description* Value Share (%) Value Share (%) 711.9 Parts of Steam boilers and auxiliary plants 426.8 0.26 495.5 0.28 713.19 Parts of aircraft internal combustion engines 139.9 0.08 142.8 0.08 713.31 Parts of outboard motors 99.1 0.06 483.0 0.27 713.32 Parts of outboard motors, nes 388.7 0.23 462.9 0.26 713.9 Parts of internal combustion engines, nes 3,341.3 2.02 5,107.1 2.87 714.9 Parts of engines and motors, nes 2,362.8 1.43 889.0 0.50 716.9 Parts of rotating electric motors 1,748.3 1.06 1,385.4 0.78 718.89 Parts of water turbines and hydraulic motors 40.1 0.02 42.0 0.02 721.19 Parts of cultivating equipment 32.2 0.02 38.6 (0.02 721.29 Parts of harvesting machinery 60.7 0.04 64.3 0.04 721.39 Parts of dairy machinery 27.0 0.02 4.8 (.00 721.98 Parts of wine making machinery 9.0 0.01 4.3 (.00 721.99 Parts of other agricultural machinery, nes 54.3 0.03 17.6 (.01 723.9 Parts of construction machinery 1,245.6 0.75 705.3 0.39 724.49 Parts of spinning and extruding machinery 420.3 0.25 291.7 0.16 724.69 Parts of looms and knitting machinery 469.7 0.28 293.2 0.16 724.79 Parts of textile machinery, nes 201.8 0.12 147.2 0.08 725.9 Parts of paper making machinery 704.7 0.43 201.2 (.11 726.89 Parts of bookbinding machinery 16.7 0.01 6.3 (.00 726.9 Parts of printing and typesetting machinery 399.0 0.24 151.5 (.09 727.19 Parts of grain milling machinery 30.8 0.02 29.1 0.02 727.29 Parts of food processing machinery 24.9 0.02 1.5 (.00 728.19 Parts of machine tools for special industries 237.1 0.14 167.9 0.09 728.39 Parts of mineral working machinery 648.7 0.39 132.0 0.07 728.49 Parts of machines for special industries, nes 4,009.3 2.42 2,065.4 1.16 736.9 Parts of machine tools for metal working 1,149.6 0.69 810.6 0.45 737.19 Parts of foundry equipment 182.3 0.11 186.7 0.10 737.29 Rolling mill parts 615.7 0.37 573.5 0.32 741.49 Parts of refrigerating equipment 350.4 0.21 350.4 0.19 742.9 Parts of pumps for liquids 686.1 0.41 473.3 0.27 743.9 Parts of centrifuges and filters 1,772.0 1.07 1,260.4 0.71 744.19 Parts of fork lift trucks 111.3 0.07 59.6 D.03 744.9 Parts of lifting and loading machines 2,993.2 1.81 2.027.5 1.14 745.19 Parts of power hand tools 104.6 0.06 125.1 0.07 745.23 Parts for packing machinery 279.2 0.17 72.0 0.04 749.99 Parts of non-electric machinery, nes 715.1 0.43 738.7 0.42 759 Parts of office and adding machinery 30,726.8 18.56 47,130.9 26.10 764 Parts of telecommunications equipment 41,013.1 24.77 42,459.9 23.86 771.29 Parts of electric power machinery 2,178.9 1.32 1,673.3 0.93 772 Parts of switchgear 19,003.0 11.48 21,625.0 12.18 775.79 Parts of domestic electrical equipment 113.7 0.07 85.0 0.05 775.89 Parts of electrothermic appliances 472.7 0.29 606.3 0.35 776.89 Parts of electronic components, nes 19,849.7 11.99 7,868.6 4.46 778.19 Parts of electronic accumulators 184.7 0.11 161.8 0.09 778.29 Parts of electric lamps and bulbs 136.1 0.08 79.9 0.04 778.89 Parts of electrical machinery, nes 451.0 0.27 4,228.7 2.42 784 Parts of motor vehicles and accessories 11,983.6 7.24 21,373.6 12.03 785.39 Parts of carriages and cycles 2,419.8 1.46 4,012.3 2.26 786.89 Parts of trailers and non-motor vehicles 141.0 0.09 169.9 0.09 8 Table 1. Continued Imports Exports SITC Rev. 2 - Description* Value Share (%) Value Share (%) 791.99 Parts of railroad equipment and vehicles 391.9 0.24 126.7 0.07 792.9 Parts of aircraft and helicopters 4,514.5 2.73 2,360.9 0.98 821.19 Parts of chairs 421.6 0.25 367.9 0.20 821.99 Other furniture parts 731.6 0.44 976.5 0.53 874.29 Parts of measuring or drawing machines 719.7 0.43 307.0 0.18 881.19 Parts of still cameras, nes 1,799.6 1.09 1,144.8 0.62 881.21 Parts for cameras under 16mm 40.6 0.02 12.2 0.01 881.29 Parts of cameras under 16mm, nes 43.4 0.03 19.6 0.01 884.11 Parts of unmounted optical elements 262.5 0.16 174.2 0.09 885.29 Parts of clocks and watches 1,683.4 1.02 1,420.1 0.68 899.49 Parts of umbrellas and canes 167.4 0.10 154.2 0.09 ALL ABOVE ITEMS 165,548.5 100.0 178,546.7 100.0 MEMO ITEM: EAST ASIA TRADE All Above Parts and Components 165,548.5 18.2 178,546.7 20.6 All Manufactures Excluding Chemicals 907,522.5 100.0 944,083.5 100.0 *The trade statistics represent the combined imports and exports of the following East Asian Countries: Japan, Hong Kong, Republic of Korea, China, Singapore, Taiwan (China), Malaysia, Thailand, Indonesia, Philippines. Source: Computed from UN COMTRADE statistics. 9 With regard to the relative importance of parts and components in total East Asian trade, the table's memo item shows these goods account for approximately one-fifth of the regions total exports and imports of manufactures. There is, however, considerable variation in this share across East Asian countries. Appendix Table 2 shows that components consist of almost 30 percent of the Philippines imports of manufactures, as opposed to about 7 percent for Japan. In contrast, exports of components account for about 20 percent of Japan's exports, as opposed to under 4 percent for Indonesia (Appendix Table 4). A. On the Relative Importance of Components Trade Key Point Asian imports of components, measured as a share of all manufactures, is growing considerably faster than in OECD Europe or North America. The value of Asian global imports of components rose more than nine-fold over 1985-1996. Almrzost three-quarters of all Asian imports of telecommunications equipment consist of components for further assembly. Table 2 provides a different perspective on trade in parts by showing the value of all components imports within two-digit SITC groups, along with their share of all group imports in 1985, 1990 and 1996 (Appendix Table 4 provides similar statistics for exports). For comparison, similar statistics are shown for OECD Europe and North America (Canada, Mexico and the United States). One striking point reflected in these statistics concerns the "dynamism" in East Asian parts trade as reflected in their changing relative importance in all imports. From 1985 to 1996 the share of components in all SITC 7 and 8 product imports rose by about 10 Table 2. The Relative Importance of Parts and Components Imports in Selected Regional Groups Value of Parts and Components Share of Parts and Components Regional and Product Imports ($million) In Product Group Imports (%) Group (SITC) 1985 1990 1996 1985 1990 1996 EAST ASIA Power Generating Equipment (71) 1,478 l 4,816 8,547 35.3 39.1 35.9 Special Industry Machinery (72) 1,637 4,527 8,592 14.9 17.0 16.1 Metal Working Machinery (73) 171 656 1,948 10.3 12.0 13.9 General Industrial Machinery (74) 637 2,471 7,012 8.7 11.9 13.3 Office Machinery (75) 1,866 8,515 30,727 32.5 46.5 47.2 Telecommunications (76) 3,150 13,707 41,013 43.0 61.8 71.8 Electric Machinery (77) 5,338 13,575 42,390 33.3 27.6 25.2 Road Vehicles (78) 1,759 10,020 14,544 25.1 42.0 35.6 Other Transport Machinery (79) 854 2,271 4,906 8.4 15.8 19.3 Misc. Manufactures (8) 803 3,269 6,870 4.0 4.6 3.7 All Above Products 17,693 63,827 165,549 19.5 24.1 25.1 OECD EUROPE Power Generating Equipment (71) 5,221 14,660 19,548 37.8 43.0 40.7 Special Industry Machinery (72) 4,620 10,893 12,298 25.3 22.2 24.2 Metal Working Machinery (73) 905 2,898 2,929 20.2 19.7 22.1 General Industrial Machinery (74) 3,089 11,312 15,765 13.9 17.6 19.2 Office Machinery (75) 10,237 24,316 35,871 35.7 33.9 33.3 Telecommunications (76) 6,455 21,567 38,088 47.4 51.8 64.1 Electrical Machinery (77) 7,518 19,836 29,480 24.2 24.1 22.0 Road Vehicles (78) 14,581 37,345 61,005 29.8 25.0 28.8 Other Transport Machinery (79) 3,911 8,399 15,863 32.6 22.7 44.5 Misc. Manufactures (8) 1,590 5,284 7,937 2.1 2.4 2.9 All Above Products 58,128 156,510 238,783 21.5 20.6 23.4 NORTH AMERICA Power Generating Equipment (71) 5,092 7,739 13,655 37.7 34.4 39.5 Special Industrial Machinery (72) 3,162 4,098 5,678 24.1 21.5 21.4 Metal Working Machinery (73') 738 979 2,040 19.1 19.4 22.3 General Industrial Machinery (74) 1,581 4,313 6,628 13.7 18.5 16.6 OfficeMachinery(75) 6,549 11,004 26,655 41.9 32.6 33.7 Telecommunications (76) 9,625 14,532 23,902 43.9 53.7 54.9 Electrical Machinery (77) 5,407 10,642 19,902 23.3 23.6 18.3 Road Vehicles (78) 23,277 30,014 42,792 28.4 29.8 30.0 Other Transport Equipment (79) 2,965 4,767 5,647 45.4 45.7 43.1 Misc. Manufactures (8) 408 2,504 5,175 0.7 2.5 3.1 All Above Products 58,084 90,591 152,073 23.5 23.4 22.9 Source: Computed from UN COMTRADE statistics 11 Box I The Relative Importance of Recent and "Vintage" Production Sharing While most recent analyses of international production sharing focus on the fragmentation of manufacturing processes (see Arndt and Kierzkowski 1999 for an overview), this activity has long been a major and evolving process. One of its earlier forms involved the production of primary commodities in developing (and some developed) countries, shipment of these goods to (largely) industrial nations for flrther processing, and then the re-exportation (in part) of the processed product back to the primary commodity producer or third countries. As an example, tin ores might be mined in Thailand or Malaysia, shipped to Japan for refinement and further manufacture - some of which might be shipped back to the primary product producers. In part, these "production sharing" trade flows were based on comparative advantage (some processing activity like the fabrication of metals from ore is highly capital intensive), but factors such as "escalation of industrial countries" trade barriers contributed to this exchange pattern. A question of interest is how does the magnitude of the trade in these "traditional" production inputs (unprocessed commodities) compare with that now reflected in the international exchange of manufactured parts and components. For answers, East Asian global imports and exports of agricultural raw materials (SITC 2-22-27-28) and ores, minerals and nonferrous metals (27+28+68) were tabulated along with certain types of unprocessed foodstuffs (like cocoa and coffee beans) that have no discernable end use in their natural form. These goods, like those manufactured components listed in Table 1, are being shipped elsewhere for further processing. The statistics shown below compare the value of East Asian trade in "traditional inputs" with manufactured components for selected years over 1984-1996. The figures attest to the remarkable growth dynamism in the exchange of the latter. In 1984, Asian imports of traditional inputs were more than double those of manufactured components, but by 1996 their relative position was reversed and component imports were $67 billion higher. Over the full 1984-96 period the annual growth rate for components (20.4 percent) was about two and one half times greater than that for traditional products. Value of East Asian Trade in US$ billion Growth Rate (%o) 1 Trade Flow/Product 1984 1988 1992 1996 1984-96 1988-96 East Asian Imports Traditional Production Inputs 39.2 68.0 71.4 98.9 8.0 4. P, Manufactured Components 17.9 46.4 80.8 165.6 20.4 17.2 East Asian Exports Traditional Production Inputs 17.0 26.3 25.1 37.6 6.8 4.6 Manufactured Components 33.0 73.1 108.9 177.8 15.1 11.8 Source: Computed from UN COMTRADE data. While 1984 Asian exports of manufactured components ($33 billion) were approximately twice as large as traditional inputs, the former increased to five times larger by 1996. In short, whether measured by either exports or imports the statistics attest to the remarkable dynamism in and importance of East Asian trade in manufactured parts and components. 12 six percentage points and now accounts for 25 percent of all trade in these goods. As such, East Asian trade in parts went from levels that were relatively less to more important than in OECD Europe and North America (both had a share of about 23 percent) over this interval. The striking growth in East Asian trade in parts is most evident in the telecommunications group (SITC 76) where imports rose from $3 billion in 1985 to over $41 billion in 1996, while the value of "'parts trade" in electronic machinery experienced a slightly smaller (eight fold) increase over this same interval.6 Table 2 also shows the growth in the relative importance of East Asia's components trade, as reflected in their increased share of all imports, occurred for all but two of the SITC groups (electrical machinery and miscellaneous manufactures). B. Dynamic Aspects of Asian Components Trade Key Point East Asian global exports of components grew at an annual rate of 15 percent over 1984-1996 which was more than 4 points above the growth rate for all goods (10.6 percent). However, exports of components to other East Asian markets grew at a considerably faster than average pace (about 20.9 percent). As a result, the share of all parts and components exports destined for regional markets almost doubledfrom 25 to 46 percent. 6In contrast to imports, the relative importance of East Asia's exports of parts and components is below that of OECD Europe or North Am.erica - a fact that probably reflects Asia's comparative advantage in assembly operations (see Table 6). However, the 1985 to 1996 share of components in total SITC 7 and 8 exports was static in Europe (at 23 percent), and declined in North America (from 36 to 31 percent). Over this period East Asia's share increased by 6 points to 22 percent. 13 Table 3. East Asian Global and Regional Trade Trends for Parts and Components and Other Major Product Groups. - 1 f Of which: All Foods & Agricultural Mineral Ores & All Transport & Other Parts & Year Items Feeds Materials Fuels Metals Manufactures Chemicals Machinery Manufactures Components Value of exports to East Asia in terms of US$ million 1984 110,992 8,888 5,655 25,081 3,201 66,391 6,516 28,595 31,280 8,457 1988 197,831 15,920 9,383 17,207 6,832 146,253 14,513 64,616 67,124 23,940 1992 332,906 21,883 8,968 27,540 7,603 263,444 22,944 120,991 119,509 42,258 1996 557,338 30,899 11,889 35,521 13,174 459,287 41,057 248,477 169,753 82,487 Value of exports to the world in terms of US$ million 1984 347,247 20,916 10,442 34,480 5,485 268,948 12,853 138,958 117,138 32,983 1988 563,168 30,172 15,694 21,505 9,275 476,607 25,570 253,374 197,662 73,106 1992 792,603 39,063 14,310 34,213 10,010 684,126 39,071 372,509 272,546 108,885 1996 1,157,622 51,710 19,170 43,275 17,313 1,010,745 67,289 591,553 351,880 178,547 Annual growth rate of exports to East Asia ('/%) 1992-96 13.75 9.00 7.30 6.57 l 14.73 14.91 15.66 19.71 9.18 18.20 1988-96 13.82 8.64 3.00 9.48 ! 8.55 15.47 13.88 18.34 12.29 16.72 1984-96 14.39 10.94 6.39 2.94 12.51 17.49 _ 16.58 20.43 15.14 20.90 Annual growth rate of exports to the world (%) 1992-96 9.93 7.26 7.58 6.05 14.68 10.25 14.56 12.26 6.60 13.16 1988-96 9.42 1 6.97 1 2.53 9.13 8.11 1 9.85 12.86 11.18 7.48 11.81 1984-96 10.55 7.83 5.19 1.91 l 10.05 l 11.66 14.79 J 12.83 9.60 15.11 Share of East Asian intra-trade in total exports of the group (%) 1984 32.0 42.5 54.2 72.7 58.4 24.7 50.7 19.2 26.7 25.6 1988 35.1 52.8 59.8 l 80.0 73.7 30.5 56.8 25.5 34.0 32.7 1992 42.0 56.0 62.7 80.5 76.0 38.5 58.7 32.5 43.8 38.8 1996 48.1 59.8 62.0 82.1 76,1 45.4 61.0 42.0 48.2 46.2 Source: Computed from UN COMTRADE statistics 14 Table 3 provides additional information on the extraordinary expansion of Asian trade in components. The top two rows of the table shows the value of East Asian exports of these goods, to the region and globally, for selected years over 1984-96. This is followed by statistics showing the corresponding annual growth rates of regional and global exports. Finally, the last (fifth) row of the table shows the share of global exports destined for East Asian intra-trade. To hetp assess the implications of these statistics the table provides similar information for other broad product groups like foodstuffs, agricultural raw materials, chemicals, and transport and machinery equipment. Several important points emerge from these statistics: - Asian global exports of components increased more than five-fold over 1984-96 while total exports of all goods grew by a factor of approximately three. However, the value of component exports to the region grew by a factor of about ten which was roughly double that for all regional trade. - Over 1984-96, components recorded the fastest annual growth rates for all the major product groups in both regional (20.9 percent) and global exports (15 percent). These rates were approximately 3 points per year higher than those for all manufactures and 5 to 6 points higher than for all goods. In short, trade in parts and components was dramatically increasing in relative importance. * Sizeable shifts occurred in the share of all ten product group exports going to the region over 1984-96, but this shift was greatest for transport and machinery equipment, other manufactures, and components. In 1984, 26 percent of all component exports went to other regional countries, but 12 years later this share increased to 46 percent. As further illustrated in Table 4, the dramatic expansion of East Asian trade in components was largely a intra-regional phenomenon that was unmatched in trade with any other geographic groups of countries. For example, over 1985-96 the share of East Asian imports of components from Europe held relatively stable in the 14 to 16 percent range, while North America's share of both imports and exports fell by 14 percentage 15 points. The Asian group of countries appears to be the big gainer, but the table shows that other sub-regional Asian groups (like South Asia or Oceania) did not participate in the expansion, that is, their East Asian import shares remained low and static. In Table 4. The Origins and Destinations of East Asian Countries Trade in Parts and Components Imports Exports Region 1985 1990 1996 1985 1990 1996 Value of Trade in US$ million WORLD 17,693 63,827 | 165,549 | 33,152 l 89,469 178,547 Share of Trade Destined for or Originating in WORLD 100.0 100.0 100.0 100.0 100.0 10(.0 ASIA 43.5 59.4 58.5 31.9 41.2 49.6 Of which: Japan .28.7 29.1 25.6 1.7 3.2 5.3 Other East Asia 14.2 29.3 32.0 24.2 34.9 41.3 South Asia 0.2 0.2 0.3 1.5 1.0 1.0 Oceania 0.5 0.6 0.6 3.8 1.9 1.5 Former Soviet Union 0.1 0.1 0.8 0.3 0.4 NORTH AMERICA 37.1 25.1 23.3 44.9 35.3 259.5 Of which: United States 36.2 24.3 22.3 41.8 32.4 27.2 EUROPE 16.6 15.0 17.0 14.0 19.2 16.2 Of which: European Union 15.5 13.8 16.0 13.1 18.3 15.3 Eastern & Other Europe 1.1 1.3 1.0 0.9 0.9 0.9 LATIN AMERICA 0.2 0.2 0.4 3.1 2.3 2.8 Of which: Mercosur 0.1 0.1 0.2 0.8 0.6 1.1 MIDDLE EAST 0.1 0.1 0.3 4.0 1.1 1.0 AFRICA 1.6 0.6 0.4 Of which: Sub-Saharan Africa 0.9 0.3 0.2 UNSPECIFIED COUNTRIES 2.4 0.2 0.7 0.5 0.2 0.4 Source: Computed from UN COMTRADE statistics. 16 contrast, the share of East Asian imports originating in other (non-Japanese) East Asian countries more than doubled to about 32 percent. A similar pattern is evident in the export statistics. The 1985-96 shares of East Asia's components exports going to Europe essentially remained stable, while North America's shares experienced a sizeable decline. Within the Asian regional sub-groups the relative importance of South Asia's was low and virtually unchanged, while the share of East Asian exports destined for Oceania declined by more than 2 points from its 1985 level (3.8 percent). As with imports, it was in the other (non-Japanese) East Asian countries that regional exporters registered their greatest relative trade gains. In short, as measured by either exports or imports the driving force for the expansion of production sharing in East Asia largely came from other East Asian countries. Table 5 provides additional information on the pattern of intra-trade by showing the 1996 value of component exports from each East Asian country to its specific regional destination. In addition, the middle third of the table shows bilateral regional percentage trade balances for components (that is, the value of exports less imports expressed as a percentage of total exports), while the lower third of the table shows trade intensity indices for components. These latter statistics measure the tendency for two countries to trade more, or less, heavily than expected given their global importance in trade. If the intensity index is above unity, the countries are said to have a greater than 17 Table 5. The Matrix of 1996 Intra-Trade and Trade Balances in Parts and Components Among East Asian and Other Major Countries Exporting Country Partner China l Hong Kong Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Japan Values of Exports of Components in US$ Million China -- 2,152 4 828 84 10 671 110 32 3,548 Hong Kong 2,686 -- 62 535 564 154 1,872 4,154 287 3,500 Indonesia 131 18 -- 334 124 19 -- 305 64 2,135 Korea Rep. 494 58 28 -- 151 42 465 372 79 4,445 Malaysia 205 77 128 314 -- 94 5,436 632 363 3,959 Philippines 64 68 6 250 154 -- 603 425 49 2,197 Singapore 475 331 615 524 4,201 175 -- 863 1,597 3,635 Taiwan 345 95 24 166 292 104 644 -- 156 4,514 Thailand 83 94 39 226 732 611 1,612 623 -- 4,157 Japan 2,126 158 310 1,053 1,186 686 1,230 1,740 945 -- All East Asia 6,609 3,051 1,216 4,230 7,488 1,895 12,533 9,244 3,572 32,090 World 10,706 4,227 1,767 11,917 12,504 3,570 23,558 21,521 7,071 80,939 Trade Balance in Components as a Share of Component Exports (%) China -- -222.0 -2,155.2 29.2 -213.5 -496.7 -29.3 -159.3 -760.5 25.4 Hong Kong 51.4 70.3 78.6 -11.5 -189.2 39.7 94.7 54.7 92.4 Indonesia 911.3 -117.1 -- 91.5 -88.4 12.5 -- 88.6 50.2 82.8 Korea Rep. -94.2 -1,056.7 -308.3 -- -197.1 -646.7 -0.1 46.7 -142.4 71.4 Malaysia 21.8 -570.9 66.9 63.2 -- -129.9 21.2 56.3 -138.7 74.0 Philippines 37.4 -136.8 -37.8 89.2 -20.1 -- 60.1 87.3 -607.6 56.9 Singapore -38.3 -466.6 63.8 50.4 36.4 -252.9 -- 62.5 57.2 78.1 Taiwan -310.3 -2,750.9 -543.9 -109.1 -151.9 -174.3 -82.1 -- -198.9 55.1 Thailand -135.0 -116.8 -38.5 64.1 -11.5 80.6 6.2 74.3 -- 77.3 Japan -153.0 -3,437.1 -741.4 -376.1 -313.0 -369.5 -356.6 -120.1 -552.3 -- All East Asia -53.1 -513.2 -172.5 -55.5 -45.3 -179.2 -22.0 -120.6 41.6 67.9 World -60.4 -517.7 -276.0 -16.5 -53.5 -186.7 -12.6 64.2 -101.5 70.7 Trade Intensity Index for Components China -- 17.7 0.1 2.5 0.2 0.1 1.0 0.2 0.2 1.5 Hong Kong 5.8 - 0.8 1.1 1.0 1.0 1.8 4.6 0.9 1.0 Indonesia 1.1 0.4 -- 2.6 0.9 0.5 -- 1.3 0.8 2.4 Korea Rep. 2.0 0.6 0.7 -- 0.5 0.5 0.9 0.8 0.5 2.4 Malaysia 0.6 0.6 2.3 0.8 -- 0.8 7.2 0.9 1.6 1.5 Philippines 0.4 0.9 0.2 1.2 0.7 -- 1.5 1.2 0.4 1.6 Singapore 1.0 1.8 8.1 1.0 7.7 1.1 l 09 5.2 1 1.0 Taiwan 2.5 1.8 | 1.1 1.1 1.8 2.3 2.1 - - 1.7 4.3 Thailand 0.3 0.9 1.0 0.8 2.5 7.4 2.9 1.3 -- 2.2 Japan 5.1 0.9 4.6 l _2.3 | 2.4 5.0 1.3 2.1 3.4 -- 18 expected bilateral trade based on their share in world trade. If the index is below unity the intensity of trade is lower than expected.7 Three interesting points emerge from the regional trade matrix. * Even though Table 4 shows exports from other regional countries are rapidly expanding, Japan is still the largest components exporter accounting for $32 billion, or approximately 40 percent of intra-regional trade in these goods. Japan also has a positive trade balance with every one of the East Asian countries which appear to specialize in the assembly of Japanese produced components. This pattern conforms to expectations since Japanese average annual wage costs ($40,404 as reported by the World Bank 1999) are more than 10 times higher than those in Malaysia and 16 times higher than those in the Philippines. * Again, as expected, low wage countries like Thailand, China, Malaysia and the Philippines generally have sizeable negative intra-regional trade balances, while the results are mixed for higher wage countries like Korea, Singapore and Taiwan.8 We have not been able to find a satisfactory explanation for Hong Kong's persistent large negative trade balances with every one of the other Asian countries, but (as noted) suspect there may be a problem with the proper recording of transit trade. * Japan's trade intensity indices are at, or above, unity for every one of the East Asian countries which indicates Japan's production sharing operations are quite widely dispersed in the region. Similarly, with the exception of Hong Kong, trade intensity indices for other East Asian exports to Japan are also above unity. The fact that the indices for Indonesia and the Philippines are between 4.6 and 5 suggests that some component products may be manufactured using labor intensive production processes.9 The trade intensity index (I,j) is defined for country i's exports to country j as the share of i's exports going to j (Xij/Xi,) relative to the share of j's imports in world imports (Mj,/(M,-Mj)). That is, (1) Iii (Xij/XiJ)/ (Mjw/(Mw-Mi)) 8 Table 2.6 in the World Bank's 1999 World Development Indicators reports statistics on average annual labor costs in manufacturing over 1990-94 for East Asian and other countries. Average wage costs in the Philippines are $2,459 as opposed to $15,819 in Korea and $21,534 in Singapore. Regional wage costs were highest in Japan at $21,534 and lowest ($1,008) in Indonesia. 9At first glance, the fact that low wage countries like Indonesia and the Philippines have such high trade (export) intensity indices with Japan may appear contrary to reason. These results are largely due to the fact that Japan has relatively low import shares for componentss. As such, the relatively small denominator in the formula for the trade intensity index (equation 1) can produce what appear to be relatively large index numbers. The shares of Indonesia and the Philippines exports of components to Japan are small, but they are relatively larger than Japan's world share of component imports. 19 C. The Influence of the Recent Asian Slowdown Key Point Available statistics (through 1997) indicate the recent Asian economic slowdown has not had a major detrimental impact on regional trade in parts and components. Although Japanese exports declined slightly in 1997, shipments Jrom most other East Asian countries increased by between 9 to 16 percent. Since Asian trade in components has been such a dynamic leading sector in regional imports and exports there is an obvious interest in monitoring future changes in this exchange. A question of obvious interest concerns the influence of the recent Asian economic recession on intra-regional trade in components. Here, two alternative scenarios exist. First, if assembled goods which utilize imported components are destined primarily for other Asian countries' markets, a general decline in effective demand would probably cause a marked reduction in the trade in parts. However, if the assembled goods were largely destined for non-Asian markets the reduction would likely be less severe. Indeed, the economic situation within East Asia may increase the importance of expanding these, and other types of exports, to build up foreign exchLange reserves. This could be a scenario leading to an increase in intra-trade in components. Unfortunately, at the time this report was completed (March 1999), 1996 was the last full year UN COMTRADE statistics were available for all the East Asian countries. However, 1997 export statistics were available for Japan, Thailand, Singapore, Republic of Korea, Hong Kong and China and these data should provide some information on the initial impact of the slowdown. In general, there is little evidence of an extensive adverse impact on trade in components. Regional exports of China, Indonesia, and Thailand all increased by at least 16 percent from 1996 to 1997, while those of Singapore and Malaysia rose by 9 to 10 percent. In contrast, complonent 20 exports from Japan and Hong Kong fell slightly by 2 to 3 percent from their 1996 levels.10 Given that East Asian trade in components has been such a dynamic leading sector in regional imports and exports there is an obvious interest in monitoring future changes in this exchange. IV. COMPARATIVE ADVANTAGE IN PRODUCTION SHARING Key Point Traditionally, "revealed" comparative advantage (RCA) indices have been computed using export statistics. These results show whether a country has a comparative advantage in the manufacture of a product. When RCA indices are computed using import statistics for a given component product the results should indicate whether a country has a comparative advantage, or disadvantage, in assembly operations. Economists often utilized the concept of "revealed" comparative advantage to identify countries whose factor endowments make it advantageous for them to specialize in the production of a good. The revealed comparative advantage (RCA) index for country i in the production of product j has been defined as; (2) RCAjjp = [xij/Xj]l[xwjXw] * 100 where xij and xj represent the value of j exported by country i and the world, while Xj and X, are total exports by j and the world, respectively. The index has a relatively simple interpretation. If its value exceeds unity the country is said to have a comparative advantage in the production of product j, in contrast, if the RCA index is below one the 10 The most recent UN trade statistics show 1997 exports from the Philippines falling by over 55 percent from their 1996 levels. It is difficult to assess the implications of this change since a similar marked reduction also occurred in trade reported as SITC 931 "special transactions." We have asked officials at the UN Statistical Office to verify the most recent Philippines trade statistics. 21 country is at a comparative disadvantage in the good. However, equation (2) must be used with some caution since domestic measures, that have nothing to do with comparative advantage (like local subsidies) or foreign trade barriers, can impart a bias in the index.12 This study employs a variant of equation (2) to also identify countries that appear to have a comparative advantage in further upstream operations - that is, the assembly of the next stage of the manufacturing process. Specifically, the revealed comparative advantage of country i in the assembly of product j is; (3) RCA1ja = [mjj/Mj]/[mwj/M,] * 100 where the m's represent imports, but otherwise correspond to the terms in equation (2). The reasoning behind this proposition is relatively straightforward. Parts and components typically have no general end use in themselves, but are exchanged for firther assembly into a product that does.'3 Therefore, it follows that countries with above average import shares for components have a comparative advantage in the assembly operation. I iBalassa (1965) developed and applied the concept of "revealed" comparative advantage and also made important extensions in Balassa (1977b) (1979). 12 For example, some governments have actively encouraged the importation and assembly of specific electronic components reasoning that this could be an initial first step leading to the development of a full comparative advantage in "high-tech" industries. See World Bank (1994a) for a discussion of China's policies in this respect. The use of financial and other government incentives to attract offshore assembly operations in the Caribbean is well documented by the World Bank (1994b) 13 There is one exception when an imported component is used as a replacement for a failed part in an already assembled good. However, this should have a neutral effect across countries unless failure rates for parts in assembled products differed substantially between nations, or there was wide differences in the intensity of use of a given finished product across countries. The latter might be a factor between (say) very rich and very poor countries, but should be less important in a region like East Asia. 22 Box 2 Changes in the Geographic Dispersion of Comparative Advantage in Production and Assembly The previous analyses (Table 3) demonstrated that, over the last decade, East Asian global exports of parts and components were growing at a considerably faster pace than exports of all goods and about 30 percent per year faster than the rate for all manufactures. To what extent is this recent dynamism reflected in the comparative advantage profiles of East Asian countries for assembly or production operations? Also, do these changes give any indication as to the potential magnitude and direction of future changes? The statistics reported below provide summary information on the extent to which the 10 East Asian countries had a comparative advantage in the assembly, or production, of all 60 parts and component product groups in 1985 and 1996. For example, in 1985 only two or three countries had a comparative advantage in the assembly of 30 percent of all the component groups, but by 1996 this had changed to 36.7 percent. In 1996, only two or three countries had a comparative advantage in the production of 16.7 percent of the components - this is down from an average of 20 percent in 1985. The rightmost column shows the average number of East African countries with a comparative advantage in all 60 component groups. In 1996, this average was 3.48 for assembly operations as opposed to 1.77 countries for the production of parts Percent of Industries Ranked by the Number of Ave. No. of Countries with RCAs Exceeding Unity Countries 0 or I 2 or 3 4 or5 6 or 7 8 or 9 With RCAs Operation/Year Countries Countries Countries Countries Countries Over Unity Assembly of Parts 1996 20.0 36.7 20.0 16.7 6.6 3.48 1985 16.7 30.0 35.0 8.3 10.0 3.83 Production of Parts 1996 66.7 16.7 3.3 8.3 5.0 1.77 1985 71.6 20.0 6.7 1.7 0.0 1.12 Source: Computed from the data in Tables 6 and 7 Several interesting points emerge from these statistics. First, East Asian comparative advantage is considerably broader in assembly operations than in manufacturing components. In 1996, an average of 3.5 countries had a comparative advantage in the assembly of the sixty product groups which was more than double the average (1.77 countries) for production operations. The slight 1985-96 decline in the overall assembly average is due entirely to the Philippines where the available data seemingly suggest a loss of comparative advantage in 21 assembly industries note our earlier reservations concerning this nation's data quality). Six or more countries had an assembly comparative advantage in about 23 percent of the 60 industries as opposed to about 13 percent for manufacturing. Second, an analysis of the tabulations suggests that nominal transportation costs may be a determinant of the extent to which Asian countries have developed a comparative advantage in individual industries. Between 6 to 8 Asian countries have developed an assembly comparative advantage in component groups like switchgear, electronic components, or office machinery where low bulk high value products normally should be involved. In contrast, none of the 10 countries has a comparative advantage in products like harvesting machinery, cultivating equipment, or dairy machinery. 23 A. Implications of the Profile of RCA Indices Key Point The structure of a country's overall RCA profile can sometimes provide useful information about its potential for the development of future assembly or manufacturing operations when examined in a "stages" context.. Relatively "immature" countries whose potentialfor future development may be large, typically have highly skewed RCA profiles with few indices above unity. These profiles tend to flatten out as the capacity of the country to engage in assembly or production increases. Aside from the use of import statistics for estimating RCA indices, we propose to further expand the "informational content" of this measure by analyzing the structure of index values across different component products. This extension could convey information on the "stage of development" or "maturity" of a country in the production of components, or in their upstream assembly. Several previous studies showa that countries which are just moving into the production of manufactures have different RCA profiles for these goods than nations where these operations are broadly based and expanding. 14 We propose to extend this concept to trade in components. This line of analysis argues that useful information on a country's comparative advantage may be observed in a profile of its RCA indices for each component product if they are ranked from their highest to lowest value. Several different conceptual profiles are illustrated in Figure 1. A country which is either in: (i) an early stage of development as either a manufacturer or assembly point for components, or (ii) has economically advanced (grown sufficiently high cost and wealthy) to the point it is "exiting" assembly operations, may have a pronounced comparative advantage in a 14 To the best of our knowledge this line of analysis was first developed by Watanabe and Kajiwaira (1983). Yeats (1991) undertook a similar analysis using revealed comparative advantage indices for the Peoples Republic of China. 24 limited number of component products, but practically no advantage in most others.15 Countries falling in this category would have a profile similar to (f) in Figure 1. As the capacity for production or assembly improves, the RCA indices for other component products, which previously were low, begin to rise and gradually level out. That is, the country's RCA profiles might shift from (say) e, or f towards a. This schema can convey useful information about the potential for broadening future operations. However, we recognize that adverse developments like an unanticipated wage inflation might prevent a country from achieving its potential capacity. Our intention is to empirically examine the structure of East Asian countries' RCA profiles for the production and assembly of parts and components within this "stages" approach To assist in this effort we compare the East Asian profiles with those for Mexico, Hungary and Poland, all countries with extensive assembly operations, and with the United States which is the worlds largest exporter of components. B. Asian Comparative Advantage in Assembly an Production Operations Key Point Assembly operations are tending to migrated to the relatively low wage Asian countries, while countries like Japan, Singapore, and Taiwan increased their specialization in the manufacture of components. Overall, the revealed comparative advantage profiles conform to predictions based on factor proportions theory. Low wage countries have a disproportionately high revealed comparative 15 We envisage a certain "life cycle" in these operations that pushes a country forward or backward through the stages reflected in Figure 1. For example, in the 1950s and 1960s Singapore and Japan were relatively high skill and low wage cost assembly centers which caused their RCA profiles for these operations to shift in the direction of (f) to (a). However, subsequent domestic wage increases reduced their competitiveness in assembly operations which pushed their RCA profiles in opposite directions - that is, in the direction of (f) towards (a). As such, position (f) in Figure I would be consistent with both: (i) an immature assembler with considerable potential for further development, or (ii) a country whose advanced stage of industrialization was causing it to exit assembly operations. We differentiate between the two based on factors such as relative GDP or wage costs. 25 Figure 1. A Stages Approach for the Analysis of Revealed Comparative Advantage Index Profiles e d Industriesa Ranke in Terms of Asending of Reveaed Comparative dvantage Indice 4' Lowest RCA Industries Highest RCA Industries * Industries Ranked in Terms of Ascending of Revealed Comparative Advantage Indices 26 advantage in assembly operations (most of which are assumed to be labor intensive in nature), while the wealthier Asian countries have high RCAs for the production of components. Table 6 shows each East Asian country's RCA indices which were calculated using their 1996 import statistics. As noted, these data should indicate whether or not the country has a comparative advantage in the assembly of each product.'6 Similarly, Table 7 shows 1996 RCA indices computed using export data which indicate whether these countries have a comparative advantage in the production of components. To help summarize the implications of this information, two additional statistics are shown (see the memo item). The first is an aggregate RCA index estimated for all component products taken as a group, while the second is a count of the number of individual components in which each country has a comparative advantage. Finally, the table also includes (as a comparator) similar data for the United States which is both the world's largest importer and exporter of parts and components (see Appendix Table 1). The pattern reflected in these statistics generally conforms to expectations based on factor proportions theory. Japan, which has the highest unit wage costs in the region, only has a comparative advantage in the assembly of 8 of the 60 component product groups which is three less than the United States. Furthermore, Japan lost a comparative advantage in assembly of 7 component groups in which its 1985 RCA indices exceeded unity (see Appendix Table 5). This contrasts markedly with the results for low wage 16 To help determine how comparative advantage profiles changed, Appendix Table 5 shows similar statistics computed from 1985 import statistics. Appendix Table 6 shows RCA indices computed using 1985 export statistics and is intended to help assess the 1996 RCA indices shown in Table 7. 27 Table 6. The Revealed Comparative Advantage of East Asian Countries in Assembly Operations as Reflected in Their 1996 Import Statistics Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Steam boilers 2.09 1.26 8.56 1.72 2.36 1.48 0.86 0.23 0.19 0.63 0.39 Aircraft engines 0.30 0.02 3.83 0.60 4.29 0.46 4.60 0.29 0.06 0.59 1.25 Outboard motors 0.16 0.73 1.30 0.57 1.56 0.26 0.39 0.24 0.35 0.15 1.30 Outboard motors, nes 1.79 0.22 0.90 1.94 1.60 0.41 1.60 0.61 0.27 0.38 0.91 Combustion engines, nes 0.77 0.58 0.91 1.19 0.30 0.39 0.64 1.63 0.59 0.37 0.98 Engines and motors, nes 0.22 0.23 1.18 0.92 0.63 0.16 0.42 0.15 0.06 1.15 1.37 Rotating electric motors 2.77 1.53 1.51 1.21 1.65 0.81 1.11 2.52 0.86 0.56 0.79 Water turbines 0.62 0.01 1.93 0.07 0.22 0.13 0.08 ,0.01 0.16 0.14 0.27 Cultivating equipment 0.05 0.01 0.11 0.56 0.13 0.27 0.27 0.16 0.07 0.22 1.05 Harvesting machinery 0.17 0.08 0.12 0.83 0.17 0.09 0.12 0.04 0.10 0. 18 0.71 Dairy machinery 0.20 0.04 0.53 0.52 0.18 0.11 0.21 0.37 0.04 0.23 0.20 Wine making machinery 7.79 0.13 0.99 0.15 0.63 0.34 0.30 1.79 0.52 0.05 0.35 Agricultural machinery, nes 0.92 0.04 1.87 1.28 0.62 1.14 0.17 0.18 0.34 0.41 0.92 Construction machinery 1.46 0.39 3.65 1.36 2.16 0.64 5.39 1.09 0.18 0.38 0.52 Spinning machinery 2.14 0.28 5.17 1.36 0.91 0.67 0.41 1.80 2.28 0.36 0.79 Looms and knitting machinery 1.40 1.12 2.18 0.96 1.22 0.45 0.30 0.66 1.85 0.77 0.82 Textile machinery, nes 1.59 0.96 2.13 0.48 1.30 1.70 0.62 0.70 0.62 0.30 0.48 Paper making machinery 0.53 0.10 12.12 0.81 0.32 0.85 0.35 2.61 0.15 0.34 0.73 Bookbinding machinery 0.04 0.21 0.30 0.25 0.07 0.08 0.32 1.42 0.08 0.61 1.15 Printing machinery 0.66 0.49 0.54 0.39 0.54 0.70 1.53 0.36 0.30 0.68 0.71 Grain milling machinery 1.06 0.10 4.30 0.48 0.44 3.32 0.45 0.31 0.11 0.19 0.42 Food processing machincry 0.00 2.05 0.00 0.00 0.00 15.61 0.00 0.00 0.00 0.00 0.00 Machine for special industries 1.32 0.48 1.67 0.83 2.36 0.57 1.24 0.63 0.66 0.43 0.80 Mineral working machinery 1.30 0.27 13.47 0.38 2.54 4.81 0.70 1.86 0.38 0.33 0.52 Special industry machines, nes 1.76 0.42 1.04 2.59 1.80 5.22 1.98 1.09 1.18 0.98 0.80 Machines for metal working 1.19 0.30 0.60 1.69 1.38 0.85 1.01 1.04 0.63 1.08 0.93 Foundry equipment 5.38 0.18 1.10 1.49 0.40 0.27 0.67 0.17 0.72 0.23 1.58 Rolling mill parts 2.18 0.03 1.94 1.79 0.63 0.80 0.08 5.56 1.38 0.51 1.32 Refrigerating equipment 0.67 0.47 3.19 0.19 0.54 0.92 1.27 0.89 0.33 0.40 0.46 Pumps for liquids 0.50 0.16 1.93 1.17 0.27 0.51 0.85 0.38 0.32 0.51 0.87 Centrifuges and filters 0.88 0.50 1.40 1.58 1.26 0.91 0.88 0.77 1.19 0.73 0.80 Fork lift trucks 0.12 0.02 0.93 15.38 0.33 0.64 3.67 1.29 0.03 0.08 0.63 Lifting and loading machines 1.14 0.45 4.41 0.88 0.70 0.92 1.83 0.74 0.34 0.47 0.87 Power hand tools 0.19 0.17 2.50 0.37 0.75 1.33 1.56. 0.18 0.25 0.36 1.07 Packing machinery 0.76 0.47 r 0.77 0.62 0.23 0.74 0.24 1.20 0.23 0.37 0.72 Non-electric machinery, nes 0.88 0.24 1.23 1.49 1.05 0.49 1.60 1.42 1.14 0.73 0.21 Office and adding machinery 0.87 1.04 0.06 0.52 1.63 2.28 2.64 1.57 0.43 1.29 1.32 Telecommunications equipment 1.63 1.79 1.94 1.02 1.41 2.21 1.47 0.99 0.55 1.18 0.84 Electric power machinery 3.21 3.80 0.52 1.75 2.94 2.40 2.09 1.82 0.49 0.56 0.48 Switchgear 1.15 0.84 0.97 1.04 2.25 1.26 1.73 1.70 1.32 0.61 0.84 Domestic electrical equipment 0.89 0.91 0.50 0.32 0.40 0.14 0.66 0.11 0.11 0.40 0.98 28 Table 6. Continued Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Electrothermic appliances 2.14 2.53 0.64 0.39 1.27 0.91 0.60 1.22 0.42 0.66 0.83 Electronic components, nes 0.72 1.16 0.14 2.00 17.38 25.27 3.44 6.40 1.97 0.14 0.32 Electronic accumulators 3.50 1.02 1.63 0.71 0.31 0.69 0.53 0.21 0.27 0.16 0.32 Electric lamps and bulbs 1.04 0.34 2.70 1.94 1.12 2.96 0.22 1.30 0.42 0.36 0.44 Electrical machinery, nes 0.93 0.01 0.23 0.31 1.08 2.17 0.33 1.23 0.55 0.42 0.19 Motor vehicles and accessories 0.33 0.14 1.51 0.41 0.18 0.34 0.25 1.69 0.51 0.27 0.99 Carriages and cycles 1.31 1.23 13.34 0.20 1.00 0.77 0.97 .2.59 2.66 0.69 0.62 Non-motor vehicles 0.11 0.04 0.56 0.15 0.72 0.16 0.54 0.61 0.16 0.20 0.36 Railroad vehicles 0.28 0.19 1.67 2.81 0.70 0.30 0.11 0.19 0.47 0.20 0.96 Aircraft 0.64 0.12 0.87 0.99 0.33 0.68 1.58 1.41 0.22 0.43 0.69 Chairs 0.05 0.04 0.06 0.16 0.36 0.12 0.09 0.08 0.39 0.76 1,76 Other furniture 0.10 0.37 0.07 0.22 0.17 0.45 0.52 0.17 0.48 1.61 1.00 Drawing machinery 0.59 0.37 0.28 2.38 2.83 0.23 1.50 0.37 0.72 2.17 0.76 Still cameras, nes 6.38 4.48 0.93 1.25 3.51 8.40 1.02 1.49 3.16 1.75 0.39 Cameras under 16mm 0.59 0.31 0.84 0.56 0.72 0.97 1.69 0.17 0.92 0.77 0,88 Cameras under 16mm, nes 0.23 0.53 0.12 0.35 1.29 14.14 1.73 0.04 0.33 0.39 0.57 Unmounted optical elements 0.30 0.53 0.39 0.57 0.36 0.06 1.19 0.19 0.39 2.46 0.56 Clocks and watches 4.28 7.75 0.06 1.52 2.19 4.62 1.69 4.23 0.43 0.62 0.12 Umbrellas and canes 8.70 5.71 0.83 0.46 0.47 1.53 0.16 2.25 0.24 0.71 0.45 MEMO ITEM RCA Index for All Components 1.00 0.86 1.44 0.89 1.73 2.27 1.40 1.54 0.67 0.76 0.93 Number of Product Groups with 26 14 30 24 27 19 25 27 9 8 11 An RCA Over Unity * See Table I for the SITC Revision 2 classification number of each component product group Source: Computed from United Nations COMTRADE Statistics 29 Table 7. The Revealed Comparative Advantage of East Asian Countries in the Production of Components as Reflected in Their 1996 Export Statistics Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore lthailand China Japan USA Steam boilers 0.34 0.02 0.03 0.43 0.11 0.46 0.15 0.00 0.15 2.07 1.78 Aircraft engines 0.01 0.00 0.00 0.04 5.06 10.43 3.35 0.01 0.02 0.06 2.83 Outboard motors 0.05 0.78 0.00 0.03 0.06 0.00 0.10 0.01 0.00 5.62 2.43 Outboard motors, nes 0.05 0.00 0.01 0.61 0.08 0.00 0.67 0.68 0.00 1.56 0.95 Combustion engines, nes 0.15 0.15 0.40 0.12 0.05 0.01 0.34 0.11 0.15 1.85 1.41 Engines and motors, nes 0.04 0.00 0.01 0.11 0.02 0.02 0.12 0.05 0.11 0.33 2.69 Rotating electric motors 0.97 0.98 0.11 0.24 0.28 0.02 1.23 0.40 0.77 1.38 1.29 Water turbines 0.07 0.00 0.00 0.03 0.06 0.00 0.04 .0.01 0.01 0.68 0.71 Cultivating equipment 0.21 0.00 0.03 0.26 0,02 0.00 0.08 0.03 0.73 0.10 1.17 Harvesting machinery 0.19 0.00 0.01 0.07 0.03 0.00 0.05 0.01 0.60 0.18 1.63 Dairy machinery 0.01 0.25 0.00 0.00 0.0] 0.00 0.17 0.00 0.04 0.02 0.88 Wine making machinery 0.18 0.00 0.01 0.00 0.97 0.00 1.75 0.03 0.87 0.02 1.35 Agricultural machinery, nes 0.09 0.01 0.00 0.04 0.12 0.00 0.04 0.14 0.73 0.01 2.72 Construction machinery 0.09 0.12 0.42 0.25 0.38 0.00 2.30 0.10 0.01 0.07 5.29 Spinning machinery 0.18 0.21 0.05 0.85 0.12 0.03 0.22 0.03 0.68 0.84 0.74 Looms and knitting machinery 0.31 0.23 0.00 0.71 0.06 0.00 0.27 0.01 0.92 0.71 0.23 Textile machinery, nes 0.41 1.02 0.02 1.52 0.29 0.51 0.38 0.03 0.55 0.37 0.77 Paper making machinery 0.03 0.03 0.20 0.16 0.04 0.07 0.17 0.07 0.44 0.29 1 .06 Bookbindingmachinery 0.01 0.17 0.02 0.04 0.02 0.00 0.12 0.00 0.27 0.17 0.48 Printing machinery 0.06 0.40 0.00 0.05 0.08 0.13 0.37 0.12 0.23 0.28 1.17 Grain milling machinery 0.47 0.47 0.33 0.06 0.68 0.02 0.41 0.09 1.37 0.15 1.15 Food processing machinery 0.00 4.71 0.00 0.00 0.00 1.02 0.00 0.00 0.00 0.00 0.00 Machine for special industries 0.10 0.25 0.00 0.37 0.22 0.00 0.50 0.04 1.86 0.49 0.94 Mineral working machinery 0.26 0.09 0.02 0.16 0.29 0.09 0.21 0.04 0.23 0.18 1.44 Special industry machines, nes 0.14 0.41 0.10 0.67 0.38 0.14 0.72 0.05 0.45 0.87 1.83 Machines for metal working 0.27 0.20 0.00 0.18 0.16 0.48 0.33 0.20 0.70 0.90 1,96 Foundry equipment 0.15 0.26 0.17 0.58 0.06 0.00 0.51 0.01 0.66 1.39 0.65 Rolling mill parts 0.37 0.00 0.02 0.21 0.06 0.01 0.03 0.07 0.29 1.76 0.47 Refrigerating equipment 0.19 0.13 1.32 0.55 0.53 0.01 0.76 0.47 0.45 0.77 1.45 Pumps for liquids 0.17 0.21 0.00 0.10 0.08 0.09 0.36 0.02 0.21 0.65 1.48 Centrifuges and filters 0.20 0.23 0.04 0.14 0.18 0.16 0.36 0.20 0.84 0.91 1 44 Fork lift trucks 0.19 0.00 0.01 0.59 0.07 0.00 4.03 0.06 3.16 0.08 2.07 Lifting and loading machines 0.24 0.07 0.24 0.48 0.14 0.07 0.93 0.17 0.15 0.73 1.78 Power hand tools 0.17 0.05 0.17 0.06 0.17 0.00 0.70 0.02 2.18 0.71 1.52 Packing machinery 0.03 0.18 0.00 0.05 0.03 0.01 0.11 0.03 0.28 0.13 0.95 Non-electric machinery, nes 0.19 0.24 0.03 0.25 0.07 0.17 0.94 0.15 1.34 0.81 0,72 Office and adding machinery 0.05 1.65 0.48 0.24 2.94 3.46 3.34 2.06 2.71 1.50 1.54 Telecommunications equipment 1.07 1.20 0.83 1.13 1.90 1.52 1.73 1.07 1.08 1.13 1.24 Electric power machinery 0.93 5.06 0.07 1.02 1.64 0.14 1.70 2.24 2.81 1.05 1.53 Switchgear 0.62 1.35 0.24 0.42 1.36 0.74 1.24 1.22 1.33 1.41 1.09 Domestic electrical equipment 0.28 2.55 0.00 0.73 0.24 0.04 0.47 0.17 0.65 0.09 2,17 30 Table 7. Continued Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Electrothermic appliances 0.70 10.04 0.01 3.12 1.03 0.00 0.64 0.66 1.64 0.45 1.10 Electronic components, nes 0.34 2.49 0.23 1.17 4.17 2.45 4.19 3.33 0.74 3.74 0.91 Electronic accumulators 0.39 7.92 0.65 0.15 0.10 0.05 0.38 0.49 1.01 0.82 1.36 Electric lamps and bulbs 0.35 0.31 0.02 0.27 0.22 0.27 0.44 0.23 1.37 0.30 1.40 Electrical machinery, nes 0.25 0.00 0.01 10.60 0.26 0.00 0.36 1.30 4.10 0.52 1.08 Motor vehicles and accessories 0.08 0.00 0.07 0.26 0.04 0.44 0.13 .0.09 0.38 1.26 1.60 Carriages and cycles 1.64 0.00 2.67 0.09 1.18 0.65 1.61 2.95 6.76 2.31 0.42 Non-motor vehicles 0.12 0.01 0.01 0.42 0.16 0.14 0.55 0.07 1.14 0.03 0.71 Railroad vehicles 0.15 0.00 0.00 0.17 0.01 0.01 0.20 0.00 0.21 0.20 1.85 Aircraft 0.07 0.00 0.14 0.12 0.38 0.67 0.43 1.54 0.00 0.25 3.21 Chairs 0.06 0.00 0.49 0.14 0.16 0.03 0.03 0.36 0.19 0.34 1.69 Other fumiture 0.99 0.09 4.59 0.14 1.14 4.26 0.12 1.28 1.38 0.02 0.54 Drawing machinery 0.15 0.10 0.01 0.21 0.25 0.01 0.75 0.06 0.27 0.95 1.47 Still cameras, nes 1.25 10.22 0.29 0.60 2.36 3.46 1.31 2.85 3.52 3.13 0.97 Cameras under 16mm 0.08 0.00 0.06 0.01 0.52 0.29 0.86 0.00 0.02 0.12 1.62 Cameras under 16mm, nes 0.17 0.01 0.25 0.01 1.03 0.00 2.49 0.01 0.32 0.06 2.68 Unmounted optical elements 0.47 1.00 3.98 0.19 0.13 0.03 1.58 2.39 0.28 0.13 2.75 Clocks and watches 2.06 22.07 0.63 0.30 4.40 3.05 3.02 11.97 1.96 1.28 0.20 Umbrellas and canes 2.90 0.08 0.37 0.03 0.03 0.00 0.13 0.63 18.48 0.11 0.06 MEMO ITEM RCA Index forAll Components 0.47 0.90 0.39 0.59 1.15 1.12 1.27 0.95 1.11 1.17 1.54 Number of Product Groups with 5 12 4 6 12 8 15 12 19 16 40 An RCA Index Over Unite . . * See Table I for the SITC Revision 2 classification number of each component product group Source: Computed from United Nations COMTRADE Statistics 31 countries like Indonesia, Malaysia and Thailand which have a comparative advantage in the assembly of about half of the 60 product groups. With the exception of the Philippines, where the quality of the underlying data is suspect, relative wage costs appear to be an important determinant of where assembly operations have been, and will be located.17 The pattern reflected in the RCAs derived from 1996 export statistics (Table 7) also generally conforms to what is expected. Higher wage countries like Japan, Singapore, Taiwan and Hong Kong have the largest number of RCAs exceeding unity (but still less than half that for the United States) while Indonesia and China only have a comparative advantage in the production of 4 or 5 product groups. In fact, the statistics in Appendix Table 6 show all of Indonesia's 1985 RCA indices for production operations were below unity. Table 8 summarizes statistics on the 1985 and 1996 levels and changes in East Asian RCA profiles. Shown here is the percentage of all 60 component product groups in which each Asian country had a 1985 or 1996 comparative advantage in the production or assembly of components. For example, in 1996 China only had a comparative advantage in the production of 8.3 percent of the 60 component groups as opposed to 26.7 percent for assembly operations. For comparison, the table also provides similar information for the United States and Mexico (the latter engages in extensive assembly operations geared toward the US market), and for Hungary and Poland which appear to be developing as assembly centers for the European Union. 17 The pattern reflected in the statistics on assembly operations parallels that observed for trade in goods. Lary (1968), for example, employed U.S. Census Bureau statistics to estimate the labor initensity of different manufactured goods and then showed developing countries had a production advantage in the 32 Table 8. The Percentage of All Parts and Components Products in Which East Asian Countries Have a Comparative Advantage Country Exports-Production Operations Imports-Assembly Operations Country Classification* 1985 1996 1985 1996 East Asia China e 6.7 8.3 36.7 26.7 Hong Kong e 16.7 21.7 28.3 23.3 Indonesia c 0.0 6.7 63.3 50.0 Rep. of Korea d 0.0 10.0 26.7 40.0 Malaysia c 20.0 20.0 46.7 45.0 Philippines d 10.0 13.3 66.7 31.7 Singapore d - 25.0 26.7 36.7 41.7 Thailand c 10.0 20.0 36.7 45.0 Taiwan e 15.0 31.7 16.7 16.7 Japan e 21.7 26.7 25.0 13.4 Comparators Mexico b 18.3 16.7 70.0 70.0 Hungary d na 38.3 na 36.7 Poland d na 20.0 na 43.3 United States e 58.3 66.7 16.7 16.7 * The letters shown below attempt to classify the 1996 RCA component import profiles as shown in Figure 1. Countries with an "a" or "b" profile have a broad and diverse comparative advantage in the assembly and export of parts and components while those with an "e" or "f' profile have an advantage in the assembly of very few industries. See the Annex figures for graphs of each of these countries ranked RCA assembly profiles. Source: Computed from the RCA statistics in Table 6 and Table 7. Several noteworthy points are evident in these summary statistics; * These comparisons reaffirm the earlier observation that assembly operations for components tend to be established in the relatively low wage Asian countries while countries like Japan, Taiwan, and Singapore have an advantage in production. Collectively, East Asian countries are strengthening their comparative advantage in the production of components. Nine of the ten countries increased the percentage of component industries in which they have a production comparative advantage with Thailand and Taiwan's share doubling. A similar pattern is not evident in the corresponding shares for assembly operations which fell, or held constant, for 7 of the 10 countries most labor intensive items. Yeats (1989) extended Lary's analysis through the 1980s and showed developing countries greatly improved their OECD market shares for the most labor intensive products. 33 * As reflected in the RCA statistics the diversity of assembly operations in the middle and low income Asian countries have expanded to about the same (legree as in Poland and Hungary, which have a comparative advantage in about one-third of the 60 component groups. Similarly, the United States and Japan now are at a comparative disadvantage in most assembly operations, but the U.S. comparative advantage in production of components is far broader. C. On the Maturity of Asian RCA Profiles Key Point A "stages" approach analysis of Asian RCA profiles shows Indonesia, Thailand and Malaysia have the broadest and most mature assembly capacity for components. However, these Asian profiles are less developed thait Mexico's, witic/ suggests the former may still have the capacity to expand these operations. RCA profiles for Singapore, Taiwan and Japan suggest these countries are in a "4sunset" stagoe and appear ready to exit most assembly operations. We earlier suggested the "maturity" of a country's involvement in component production or assembly might be assessed by analysis of its overall RCA profile for these operations (Figure 1). For an initial test, Figure 2 plots the 1996 RCA import indices for Indonesia, Hong Kong. and Japan. In addition, Mexico's profile is included for comparison given this country's extensive involvement in assembly operations (see Table 8). Component groups with RCAs less than 0.8 were not included since these distributions "tails" seemingly have a small information content. Adoption of a 0.8 cut- off can provide some indication as to the number of assembly operations in which the country is close to achieving a comparative advantage. Similar comparisons for ol;her East Asian countries are presented in Appendix Figures 1 and 2, while Appendix Figures 3 through 5 provide RCA index distributions derived from export statistics. 34 As Figure 2 shows, the four countries' RCA profiles incorporate important differences. Japan's profile is the shortest of the four with the ranked indices falling below the 0.8 "cut-off' well in the figures rightmost portion. Hong Kong has a similar Figure 2: The Relative Maturity of Asian Countries and Mexico's 1996 Import RCA Indices 16 - 14 12 @10 -X x * 8…--- I* - ----- --,- --- ---- -- - - - - C., 6 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 <----- Lower RCA value All Parts & Component Products Higher RCA value -----> jHKG IDN + JPN -xMEX profile, but its distribution extends a bit further to the left. A subjective judgement might classify these countries profiles as corresponding to the "e" (Hong Kong) and "f' (Japan) distributions in Figure 1. Given the level of their wage costs and high level of industrialization, it might be reasonable to expect that the two countries distributions will further shift to the right (reflecting a continuation of 1985-1996 changes) as their comparative advantage in the few remaining "sunset" assembly operations further erodes. In contrast, the RCA profile of Indonesia extends further to the left and reflects a broader base of operations, but still falls well short of that for Mexico. This observation 35 has several interesting implications. First, there appear to be similarities between the "stage of development" of Indonesia's RCA profile and those for the Philippines, Malaysia and Thailand. However, all four Asian countries' profiles tuncate well to the right of Mexico's profile - which could be classified as corresponding to the "a" or "b" distributions in Figure 1. If one proposes that Mexico's profile represents an "achievable standard" it appears these four Asian countries (and China) could potentially firther broaden their domestic assembly operations.18 Similar conclusions emerge from the RCA profiles derived from export statistics (Appendix Figures 3 through 5). One difference, however, is that these indices often truncate further to the right than the indices derived from import statistics. This suggests Asian production operations for components are collectively at a less mature stage than are assembly operations and may have a greater potential for development."9 The fact that the East Asian RCA export profiles truncate far to the right of the United States distribution give some credence to this view. 18 Some geographic factors could cause important permanent differences between the profiles for Mexico and the East Asian countries. The first is proximity as Mexico borders the United States and is connected to main US centers of consumption by well maintained road, rail, and shipping links. Nominal transport costs for components and assembled goods may be significantly lower for Mexico than in East Asia which could prevent the latter from developing production sharing to the same degree as in North America. Second, aside from some Caribbean countries, transport and other required infrastructure in Latin American countries (as well as political instability) may make it unprofitable, or riskier, to establish foreign assembly operations. In short, there may be more choices on where to locate assembly operations in Asia. If so, then both transport costs and the availability of more alternative locational cites could prevent Asian countries from developing RCA profiles which are as broad as those for Mexico. 19 This point is also evident in the data reported in Table 8. On average, the 10 East Asian countries have a 1996 comparative advantage in the production of 19 percent of the component groups as opposed to an average of 33 percent for assembly operations. 36 D. How Similar Are Asian Assembly Operations ? Key Point Cross correlations between East Asian countries' RCA indices often fail to achieve statistical significance. One possible explanation is that locational, wage, and communications costs, along with the specific mix of skills and infra-structure required for assembly in specific component industries, are more binding than is often thought. Correlations between specific country's 1985 and 1996 RCA assembly profiles are often highly significant indicating these operations may not be as 'footloose" as is sometimes suggested. A question for consideration is whether the economic factors responsible for East Asian production sharing in specific manufacturing processes are limited to a few locations, or are relatively well dispersed across countries. If the former is the case, one could expect relatively few similarities between the RCA profiles of most Asian countries. That is, if the specific mix of locational (transport cost), wage rate, communications and other production requirements needed for assembly of a given component group only occur in a relatively few Asian countries, and if these requirements differ among types of components, sizeable differences in Asian countries RCA profiles could result.20 In contrast, if locational and production requirements are less binding sizeable differences in these the profiles need not occur. Table 9 tests this proposition by reporting bilateral correlation coefficients between each Asian country's 1996 RCA (assembly) indices for all 60 component product groups. The table also reports results when each country's 1996 RCA indices 20 Published studies which tested "transport cost estimation equations" show distance has a major impact on shipping costs, particularly after stowage factors and product value are accounted for (see Yeats 1981 for a survey). The sizeable distances between many Asian countries might influence where it is feasible to locate assembly operations. If Japan was the intended market for consumption of a relatively bulky final good, shipping costs might dictate that assembly operations be located in a country close to Japan. Some Asian tariffs also appear to be set at levels that would influence the location of production sharing (Appendix Table 7). 37 were correlated with its earlier (1995) profile. The objective here was to assess the stability of comparative advantage over time. This issue is important since it some contend that assembly operations are often "footloose" with the result that offering substantial financial incentives to attract this activity, or making sizeable investments in any required infrastructure, may not be advisable.21 For the most part, the results reported in Table 9 reflect important dissimilarities in the RCA (assembly) profiles of most East Asian countries. For example, all the cross- country correlations involving Indonesia and Japan fail to achieve statistical significance, while China's profile only is significantly correlated with Hong Kong, and the Republic of Korea is only correlated with Singapore. Cross-country correlations involving Malaysia and the Philippines are statistically significant in four instances, but this runs counter to the normal pattern which suggests important differences exist in the assembly 22 capacity of Asian countries. Somewhat different conclusions result from the 1985 and 1996 RCA profiles of each Asian country. In 7 of the 10 cases strong positive significant correlations occurred with only Indonesia, Republic of Korea and Thailand failing to achieve significance. 21 In the late 1960s, when international development agencies like UNCTAD became increasingly aware of the potential economic importance of foreign assembly operations, concerns were expressed about the construction of "factory ships" which were floating plants that (theoretically) had the capacity to move easily and quickly from country-to-country to take advantage of the most depressed wages, or most attractive financial incentives offered by governments. It was generally assumed that, if they were viable, factory ships would greatly limit any wage or other economic benefits for developing countries. 22 Gereffi (1996) suggests that intra-Asian cultural and ethnic factors have played an important role in the spread of production sharing in the region and are at least partially responsible for the differences that exist in the assembly capacity of different countries. 38 Altogether, the results suggest the comparative advantage profiles of the 10 countries were generally relatively stable over this 11 year period, a point that suggests assembly operations are not as footloose as is sometimes thought. Table 9. Correlation Coefficients for the 1996 RCA Profiles of East Asian Countries for All Parts and Component Products 1996 RCA Profile 1996 RCA Profile for All Parts and Components Imports and Country China Hong Kong Indonesia Korea Malaysia Philippines Singapore Thailand Taiwan Japan China 1.000 Hong Kong 0.674* 1.000 Indonesia -0.028 -0.103 1.000 Rep. of Korea -0.056 -0.037 -0.074 1.000 Malaysia 0.040 0.170 -0.019 0.054 1.000 Philippines 0.079 0.244 -0.048 0.030 0.825* 1.000 Singapore -0.087 0.055 -0.025 0.364* 0.463* 0.304* 1.000 Thailand 0.284 0.375* 0.142 0.101 0.559* 0.502* 0.161 1.000 Taiwan 0.289 0.215 0.155 -0.021 0.372* 0.350* 0.012 0.431* 1.000 Japan 0.047 0.201 -0.151 -0.085 -0.002 -0.044 0.082 -0.104 0.251 1.000 1996 RCA Profile 0.518* 0.844* 0.131 0.105 0.838* 0.385* 0.604* 0.288 0.864* 0.578* versus 1985 Profile** " * Statistically significant at the 99 percent confidence level. ** China did not report SITC Revision 2 trade data to UN COMTRADE until 1987. Therefore, the correlation for this country compare 1987 and 1996 RCA profiles. Source: Computed from the RCA statistics shown in Table 6. 40 V. CONCLUSIONS Key Point Two of this study's key findings are that production sharing in East Asia is considerably greater tai is generally recognized, and these countries' comparative in pr oduction or assembly operations Conforms to factor initensity theory. Even more irnportan; howee'r, is tiat the study demonstrates data sources are now available (including the newer harmnonized system statistics) for empirical research and analyses offactors leading to the remarkable growth in, and location of, production sharing. This analysis newer statistics on production sharing in East Asia shows this activity is of major importance to regional countries and that trade in components was growing at a f:ar abo-, ae- cracge pace. These findings are consistent w-ath an earlier study that detected well above global growth rates for components and estimated that trade in these goods may now accouint for as much as 30 percent of world trade in manufactures (Yeats 1997). The cuTrent study, however, extended the earlier investigation that factor intensities appear to be an important driving force behind the spread of this activity. Countries with relatively low wages generally have a higher and more extensive revealed comparative advantage in assembly operations (which are generally labor intensive in nature) while high wage countries like Japan generally have a stronger comparative advantage in the production of components. A point which has, as yet, not been discussed concerns the implications of the existence of these data sources on production sharing (that is, the Revision 2 of the SITC and newer more detailed harmonized system (HS) statistics). Since the Rev. 2 data are now available for more than 100 countries, and often extend back as far as the mid- 1 970s. a rich source of empirical information exists for the empirical testing of 41 hypotheses relating to the causes, extent, and location of production sharing. Concerning this latter point, special mention should be made on the research potential of the United States trade statistics. The United States is one of a relatively few countries that tabulates and publishes statistics on freight costs for all imports, by product and by cointry of origin, so it should be possible to shipping costs influence the location of production sharing and the types of goods for which this activity is feasible (see Yeats 1981 for a further discussion of this data source and examples of studies that have employed it in analyses of international shipping costs). 42 REFERENCES Arndt, Sven and Kenryk Kierzkowski (1999). Fragmentation and International Trade, (Oxford: Oxford University Press, in press) Balassa, Bela (1965a). "Tariff Protection in Industrial Countries: An Evaluation," Journal of Political Economy, (December). Balassa, Bela (1965b). Tariff Liberalization and "Revealed" Comparative Advantage," The Manchester School of Economic and Social Studies, (May). Balassa, Bela (1977). "A Stages Approach to Comparative Advantage," in Irma Adelman (ed.) Economic Growth and Resources, Proceedings of the Fifth World Congress of the International Economic Association held in Tokyo, (London: Macmillan Press). Balassa, Bela (1979). "The Changinig Pattern of Comparative Advantage in Manufactured Goods," The Review of Economics and Statistics, (May). Finger J. M. (1975). "Tariff Provisions for Offshore Assembly and the Exports of Developing Countries," Economic Journal, (June). Finger J. M. (1976). "Trade and Domestic Effects of the Offshore Assembly Provisions in the U.S. Tariff," American Economic Review, (September). Gereffi, Gary (1996). "Commodity Chains and Regional Divisions of Labor in East Asia," Journal of Asian Business, Volume 12, no. 1. Lary, Hal (1968). Imports of Manufactures from Less Developed Countries, (New York: National Bureau of Economic Research). USITC Publication 2365 (1991). Production Sharing: U.S. Imports Under Harmonized Tariff Schedule Subheadings 9802.00.60 and 9802.00.80, 1986-1989, (Washington: US International Trade Commission, March). USITC Publication 2966 (1996), Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1991-1994, (Washington: US International Trade Commission, May). Wall Street Journal and Heritage Foundation (1997).1997 Index of Economic Freedom, (Washington: Wall Street Journal and Heritage Foundation). Watanabe, Toshio and Hirokazu Kajiwara (1983). Industrialization in Asian Developing Countries and Emerging Horizontal Economic Integration, mimeo, paper presented at a conference on Trade and Industrial Cooperation in East and South-East Asia, 8-9 March, (Tokyo: Institute of Developing Economies). World Bank (1984a). China: Foreign Trade Reform, (Washington: The World Bank). 43 World Bank (1984b). Coping with Changes in the External Environment, (Washington: World Bank Caribbean Division, May). World Bank (1999). World Development Indicators 1999, (Washington: World. Bank, in press). Yeats, Alexander (1981). Shipping and Development Policy: An Integrated Assessment, (New York: Praeger Scientific Publishers) Yeats, Alexander (1989). "Shifting Patterns of Comparative Advantage: Manufactured Exports of Developing Countries," The Developing Economies, Summer. Yeats (1991). China's Foreign Trade and Comparative Advantage: Prospects, Problems and Policy Implications, (Washington: World Bank Discussion Paper Series). Yeats, Alexander (1997). Just How Big is Global Production Sharing?, (Washington: World Bank Policy Research Paper No. 1871). 44 APPENDIX TABLES AND FIGURES Appendix Table 1. Major Exporters and Importers of Parts and Components in 1996. Trade in Parts and Components Imports Exports Value Share of All Value Share of All Country ($million) Manufactures* ($million) Manufactures* United States 102,141 17.4 114,672 29.6 Germany 52,109 18.1 74,161 19.3 United Kingdom 43,886 22.1 39,739 22.2 Canada 33,156 26.4 23,006 20.1 France 30,847 17.6 36,402 19.7 Singapore 26,524 26.3 23,558 24.2 Hong Kong 26,108 16.2 4,227 17.2 Japan 23,724 14.2 80,939 22.4 Malaysia 19,196 32.3 12,504 22.0 China 17,176 18.7 10,706 9.0 Mexico 16,776 25.2 12,878 18.2 Italy 16,663 14.9 27,835 13.5 Netherlands 16,451 17.0 14,258 16.9 Spain 16,089 21.5 9,839 13.9 Belgium 14,620 15.7 10,601 10.3 Thailand 14,252 28.8 7,838 20.7 Korea 13,888 16.6 11,917 11.3 Sweden 10,314 23.3 17,957 29.3 Philippines 10,235 42.6 3,570 21.4 Australia 7,831 17.3. 2,585 22.0 Austria 7,738 16.0 6,915 15.0 Taiwan (China) 7,710 12.6 21,521 21.3 Brazil 7,315 23.7 3,351 15.1 Switzerland 7,225 12.9 8,768 16.2 Indonesia 6,644 27.0 1,767 7.4 Ireland 5,566 24.0 6,865 26.2 Saudi Arabia 4,673 26.4 14 1.0 Denmark 4,393 16.7 4,443 18.2 Norway 4,074 17.0 2,091 21.2 Portugal 4,050 18.6 1,193 6.4 Finland 3,721 19.6 6,012 19.2 Poland 3,653 15.9 1,347 8.3 *Excludes chemicals. Manufactures are defined here as SITC 6 through 8 less 68. Source: Computed from UN COMTRADE statistics Appendix Table 2. East Asian Countries 1996 Imports of their Ten Largest Parts and Component Products (US$ million) SITC Rev. 2 - Description Hong Rep. of Taiwan, (components of) China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan Asia (10) 764 Telecommunications 5,416 10,420 1,724 3,070 3,024 1,917 5,333 1,759 1,217 7,098 40,978 759 Office Machines 2,375 4,990 1,301 2,883 1,637 7,955 2,315 785 6,439 30,680 776.89 Electronic Components 460 1,291 1,161 7,133 4,200 2,398 2,190 833 19,666 772 Switchgear 2,093 2,694 477 1,725 2,653 601 3,465 1,667 1,606 2,013 18,994 784 Motor Vehicles 1,103 843 1,359 1,245 381 300 917 3,063 1,136 1,633 11,981 792.9 Aircraft 498 180 698 138 1,343 586 609 4,052 728.49 Special Industry Machines 542 730 360 422 670 243 548 3,514 713.9 Piston Engines 427 565 135 597 386 484 216 368 3,177 744.9 Lifting Machines 420 436 167 89 740 l 317 2,169 785.39 Carriages and Cycles 386 638 249 315 1,589 714.9 Engines and Motors 153 404 196 1,006 1,759 771.29 Electrical Machinery 771 220 991 881.19 Still Cameras 420 519 145 138 1,222 743.9 Centrifuges and Filters 315 177 172 664 716.9 Rotating Electric Motors 193 193 885.29 Clocks and Watches 835 74 909 723.9 Construction Machinery 557 557 821.99 Other Furniture Parts 420 420 725.9 Paper Making Machinery 314 314 728.39 Mineral Working Machines 208 208 All Above Items 13,754 23,314 5,624 11,246 17,194 9,523 23,764 12,506 6,661 20,451 144,037 ALL COMPONENT IMPORTS 17,176 26,018 6,644 13,888 19,195 10,235 26,524 14,252 7,710 23,723 165,455 All Component Imports as a 12.4 13.0 15.5 9.2 24.6 29.5 20.2 19.7 7.5 6.8 12.7 Percentage of All Imports Source: United Nations COMTRADE statistics 46 Appendix Table 3. East Asian Countries 1996 Exports of their Ten Largest Parts and Component Products (US$ million) SITC Rev. 2 - Description Hong Rep. of Taiwan, (components of) China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan Asia (10) 759 Office Machines 1,909 1,321 339 733 4,874 1,677 9,457 2,344 7,971 15,773 46,398 764 Telecommunications 4,688 1,081 724 4,404 3,968 931 6,159 1,530 4,005 14,941 42,431 772 Switchgear 1,500 675 117 909 1,583 253 2,471 971 2,755 10,423 21,657 784 Motor Vehicles 383 62 1,037 282 488 139 1,474 17,446 21,311 776.89 Electronic Components 127 196 396 761 131 1,307 418 241 4,333 7,910 713.9 Piston Engines 4,491 4,491 778.89 Electrical Machines, nes 2,605 118 962 3,685 785.39 Carriages and Cycles 368 120 127 20 295 217 1,288 1,574 4,009 792.9 Aircraft 30 198 384 557 848 2,018 728.49 Special Industry Machines 262 80 259 1,169 1,770 744.9 Lifting Machines 25 218 388 1,141 1,771 771.29 Electrical Machinery 135 151 132 114 107 346 984 885.29 Clocks and Watches 136 301 139 28 260 866 716.9 Rotating Electric Motors 177 37 214 743.9 Centrifuges and Filters 209 209 881.19 Still Cameras 117 27 144 821.99 Other Fumiture Parts 196 184 108 119 235 842 723.9 Construction Machinery 22 487 508 775.89 Electrothermic Appliances 132 177 309 884.11 Unmounted Optics 32 32 All Above Items 9,619 4,011 1,655 10,875 11,952 3,468 21,695 6,661 19,486 72,139 161,559 ALL COMPONENT IMPORTS 10,706 4,227 1,767 11,917 12,504 3,570 23,558 7,071 21,521 80,939 177,780 All Component Imports as a 7.1 15.4 3.5 9.2 16.0 17.4 18.8 12.6 18.6 19.7 15.3 Percentage of All Imports Source: United Nations COMTRADE statistics 47 Appendix Table 4. The Relative Importance of Parts and Components Exports in Selected Regional Groups Value of Parts and Components Share of Parts and Comrponents Regional and Product Exports ($million) In Product Group Exports (%) Group (SITC) 1985 1990 1996 1985 1990 1996 EAST ASIA Power Generating Equipment (71) 2,604 4,499 8,994 44.2 35.9 37.9 Special Industry Machinery (72) 1,021 2,914 4,312 11.4 14.9 12.8 Metal Working Machinery (73) 464 641 1,569 13.6 9.7 12.1 General Industrial Machinery (74) 710 2,426 5,102 7.5 10.9 11.5 Office Machinery (75) 3,678 16,905 46,416 25.0 35.1 38.8 Telecommunications (76) 9,998 26,368 42,433 34.6 47.2 54.4 Electric Machinery (77) 5,840 13,206 36,476 22.6 21.0 19.9 Road Vehicles (78) 6,909 18,275 25,584 15.3 23.8 26.6 Other Transport Machinery (79) 394 1,080 2,357 3.1 9.5 10.1 Misc. Manufactures (8) 1,535 3,156 4,569 2.9 2.8 2.6 All Above Products 33,152 89,469 177,811 15.9 20.8 22.4 OECD EUROPE Power Generating Equipment (71) 6,696 16,749 24,023 38.2 40.3 40.9 Special Industry Machinery (72) 7,711 15,721 19,541 23.8 21.2 21.5 Metal Working Machinery (73) 1,509 3,826 4,622 20.1 19.8 22.0 General Industrial Machinery (74) 4,671 14,885 20,777 13.8 18.0 17.3 Office Machinery (75) 8,976 18,573 25,485 41.8 38.3 31.6 Telecommunications (76) 8,687 19,470 47,032 69.5 63.4 76.1 Electrical Machinery (77) 9,532 22,270 36,275 28.7 27.5 25.4 Road Vehicles (78) 18,342 45,468 64,142 27.6 27.4 27.0 Other Transport Machinery (79) 4,316 6,991 15,988 26.0 17.3 32.1 Misc. Manufactures (8) 1,936 5,424 8,068 2.2 2.7 2.9 All Above Products 72,376 169,377 265,952 22.0 21.4 23.2 NORTH AMERICA Power Generating Equipment (71) 7,412 10,382 14,179 57.4 50.1 44.6 Special Industrial Machinery (72) 4,657 6,039 10,478 40.2 36.1 36.7 Metal Working Machinery (73) 403 929 1,738 27.0 3.1.3 30.2 General Industrial Machinery (74) 1,360 4,671 7,608 15.3 24.2 21.3 Office Machinery (75) 7,555 11,921 21,877 45.6 42.6 44.6 Telecommunications (76) 5,628 9,426 25,085 83.9 87.2 77.8 Electrical Machinery (77) 3,666 9,596 16,424 24.5 29.4 21.3 Road Vehicles (78) 17,963 21,645 35,190 41.3 36.4 32.3 Other Transport Equipment (79) 5,806 11,273 13,540 34.8 31.8 35.0 Misc. Manufactures (8) 266 1,715 4,438 1.4 4.0 5.2 All Above Products 54,714 87,596 150,556 36.0 32.6 30.5 Source: Computed from UN COMTRADE statistics. 48 Appendix Table 5. The Revealed Comparative Advantage of East Asian Countries in Assembly Operations as Reflected in Their 1985 Import Statistics Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Steam boilers 2.62 2.70 2.17 1.08 0.26 4.27 1.64 2.48 0.22 0.01 0.35 Aircraft engines 90.02 1.19 3.24 0.09 6.41 0.69 4.15 0.29 0.00 0.10 0.11 Outboard motors 0.13 1.06 1.35 0.12 2.42 0.18 0.55 0.00 0.00 0.16 0.82 Outboard motors, nes 0.38 0.72 1.15 13.25 1.28 0.27 2.06 0.00 0.00 0.59 1.08 Combustion engines, nes 0.22 0.23 1.39 0.93 0.94 1.37 1.29 2.45 0.00 0.30 0.79 Engines and motors, nes 0.13 0.05 1.13 1.29 0.07 0.25 0.32 0.30 0.00 3.26 1.45 Rotating electric motors 2.00 0.99 3.06 1.27 1.21 1.58 1.06 0.00 0.00 1.12 0.93 Water turbines 0.39 0.00 22.58 0.29 0.53 1.35 0.12 0.05 0.00 0.32 0.89 Cultivating equipment 0.04 0.06 0.27 0.18 0.22 0.54 0.10 2.42 0.00 0.34 1.25 Harvesting machinery 0.46 0.00 0.12 0.56 0.30 0.16 0.05 , 0.03 0.00 0.21 1.34 Dairy machinery 0.05 0.12 3.34 0.24 0.16 1.36 0.08 0.02 0.00 0.27 1.74 Wine making machinery 12.57 0.00 10.92 0.19 2.81 6.96 0.26 0.58 0.00 0.26 1.47 Agricultural machinery, nes 0.50 0.13 0.62 0.05 0.39 0.58 0.11 0.07 0.00 0.10 0.91 Construction machinery 0.79 0.61 13.19 0.36 3.80 1.42 3.48 2.94 0.00 0.24 0.62 Spinning machinery 3.70 0.64 4.03 1.97 0.34 1.90 0.30 0.01 5.34 0.84 0.92 Looms and knitting machinery 1.48 1.23 1.77 0.63 0.61 3.36 0.21 3.68 0.97 1.61 1.01 Textile machinery, nes 1.70 1.13 0.84 0.35 0.86 1.04 0,15 0.80 0.00 0.19 1.50 Paper making machinery 1.18 0.08 1.21 0.48 15.02 1.34 0.06 2.59 0.00 0.66 1.14 Bookbinding machinery 0.09 0.17 0.24 0.06 0.79 0.42 0.20 0.04 0.00 0.69 1.27 Printing machinery 0.37 0.30 0.56 0.24 0.43 0.32 0.36 0.10 0.00 0.62 1.35 Grain milling machinery 0.30 0.09 12.06 0.25 0.96 10.67 0.31 0.25 0.00 0.08 0.98 Food processing machinery 0.87 0.30 2.99 0.23 0.45 4.42 0.29 2.96 0.00 0.42 1.34 Machine for special industries 0.43 0.37 3.51 0.42 1.00 3.35 0.65 0.00 0.00 0.61 1.14 Mineral working machinery 0.45 0.35 2.56 0.25 1.74 2.82 0.74 0.00 0.00 0.15 0.92 Special industry machines, nes 1.88 0.52 6.15 0.91 2.74 16.22 0.61 2.63 0.00 0.97 1.19 Machines for metal working 0.67 0.20 1.28 0.68 0.63 1.06 1.07 0.66 0.75 0.79 1.02 Foundry equipment 6.97 0.19 3.03 0.56 1.02 4.06 0.62 2.73 0.00 0.64 0.94 Rolling mill parts 4.44 0.08 2.63 1.64 0.84 37.98 0.14 0.80 0.00 0.36 1.39 Refrigerating equipment 6.78 0.89 1.83 0.13 1.49 1.03 1.49 0.99 0.00 0.57 1.50 Pumps for liquids 0.57 0.22 5.06 0.82 0.71 2.50 1.34 1.16 0.00 0.86 1.04 Centrifuges and filters 0.52 0.33 1.07 0.72 0.89 2.52 1.31 2.08 0.00 2.21 1.54 Fork lift trucks 0.25 0.15 0.28 0.69 0.41 2.33 0.28 0.12 0.56 0.08 1.11 Lifting and loading machines 1.01 1.34 1.73 0.80 1.11 1.80 0.91 0.00 0.00 0.72 1.17 Power hand tools 0.11 0.10 7.88 0.25 1.75 1.08 0.72 0.22 0.00 0.50 1.07 Packing machinery 0.58 0.34 0.66 0.52 0.66 3.29 0,32 0.58 0.00 0.52 1.58 Non-electric machinery, nes 0.33 0.23 1.10 0.98 1.39 2.75 0.82 0.57 1.03 0.93 0.61 Office and adding machinery 0.34 1.03 0.19 0.44 0.32 0.26 1.68 1.14 1.01 1.04 1.41 Telecommunications equipment 1.64 1.33 1.13 1.51 1.77 1.23 1.43 1.94 1.50 0.77 0.70 Electric power machinery 1.17 2.32 1.24 3.44 3.28 3.27 1.24 0.00 2.29 0.23 0.70 Switchgear 0.43 0.87 1.30 1.45 1.88 1.47 2.18 3.75 2.49 1.16 1.09 Domestic electrical equipment 1.04 2.90 0.85 0.08 0.52 0.84 0.30 1.34 0.00 0.45 1.04 49 Appendix Table 5. Continued Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Electrothermic appliances 0.23 1.95 0.22 0.00 1.07 0.33 2.73 0.67 0.00 0.08 1.62 Electronic components, nes 0.37 1.32 0.80 10.46 27.88 23.62 8.77 0.02 0.00 0.26 0.98 Electronic accumulators 0.06 0.74 3.72 0.26 2.28 2.37 0.46 0.37 0.07 0.20 0.00 Electric lamps and bulbs 0.11 0.47 2.62 1.95 0.50 4.24 0.80 1.62 0.41 0.24 0.00 Electrical machinery, nes 1.80 1.73 4.12 2.72 0.25 21.19 0.01 2.79 3.20 1.18 0.00 Motor vehicles and accessories 1.37 0.14 0.40 0.26 0.20 0.41 0.25 1.23 0.45 0.18 1.02 Carriages and cycles 1.05 0.42 3.56 0.50 1.04 1.05 0.63 4.99 5.26 0.38 1.04 Non-motor vehicles 0.07 0.04 0.14 0.11 0.94 0.10 0.34 0.41 0.67 0.07 0.00 Railroad vehicles 1.58 0.47 0.88 0.64 0.25 1.26 0.06 1.00 0.43 0.35 0.93 Aircraft 0.83 0.35 1.55 1.22 0.61 1.48 1.49 0.22 0.09 1.47 0.92 Chairs 0.01 0.07 0.37 0.34 0.46 0.11 0.57 0.32 0.00 1.41 0.00 Other furniture 0.20 0.90 0.30 0.64 0.52 0.05 1.06 0.00 0.20 1.54 0.00 Drawing machinery 0.61 0.07 6.95 0.78 1.69 0.47 0.44 1.03 0.00 1.25 0.00 Still cameras, nes 1.71 4.77 0.34 3.11 4.72 3.26 0.57 0.58 7.93 1.40 0.59 Cameras under 16mm 0.33 0.02 1.48 0.06 1.16 0.09 4.90 0.00 0.00 0.00 0.98 Cameras under 16mm, nes 0.41 0.93 0.95 0.36 0.79 0.39 0.85 0.13 0.00 1.26 0.53 Unmounted optical elements 0.12 1.50 0.09 0.76 0.53 0.14 1.20 0.51 0.90 2.66 0.98 Clocks and watches 19.54 19.87 0.13 6.98 1.79 3.92 1.98 6.14 2.27 0.61 0.20 Umbrellas and canes 2.26 5.22 1.91 2.26 2.67 6.71 2.94 8.00 0.04 3.76 0.37 MEMO ITEM RCA Index for All Components 1.07 0.75 1.38 1.15 1.81 1.99 1.33 1.55 0.87 0.74 0.95 Number of Product Groups with 23 17 39 16 26 40 22. 23 10 15 29 An RCA Index Over Unity * See Table I for the SITC Revision 2 classification number of each component product group Source: Computed from United Nations COMTRADE Statistics 50 Appendix Table 6. The Revealed Comparative Advantage of East Asian Countries in the Production of Components as Reflected in Their 1985 Export Statistics\ Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Steam boilers 0.03 0.00 0.00 0.42 0.19 0.03 0.09 0.01 0.02 2.97 1.66 Aircraft engines 0.03 0.00 0.00 0.05 7.35 0.00 3.21 0.19 0.00 0.03 7.00 Outboard motors 0.05 1.32 0.00 0.00 0.03 0.06 0.68 0.00 0.00 5.40 0.00 Outboard motors, nes 0.19 0.00 0.00 0.01 0.11 0.00 1.76 0.00 0.00 2.00 0.00 Combustion engines, nes 0.08 0.13 0.00 0.06 0.04 0.03 0.71 0.10 0.00 0.96 1.97 Engines and motors, nes 0.01 0.00 0.00 0.33 0.13 0.00 0.09 0.00 0.00 (.09 3.36 Rotating electric motors 0.14 0.31 0.03 0.16 0.12 0.00 2.57 0.00 0.00 0.99 1.85 Water turbines 0.63 0.00 0.00 0.00 0.12 0.00 0.17 0.10 0.00 0.74 1.14 Cultivating equipment 0.40 0.01 0.00 0.17 0.06 0.00 0.03 0.02 0.00 0.08 2.26 Harvesting machinery 0.14 0.00 0.00 0.00 0.02 0.02 0.07 0.01 0.00 0.13 2.45 Dairy machinery 0.00 0.00 0.00 0.00 0.02 0.45 0.03 0.00 0.00 0.30 0.93 Wine making machinery 0,68 0.00 0.00 0.00 1.18 0.0( 0.03 0.00 0.00 0.52 0.00 Agricultural machinery, nes 0.17 0.00 0.00 0.00 0.03 1.06 0.17 0.66 0.00 0.01 1.01 Construction machinery 0.03 0.00 0.04 0.03 0.99 0.01 3.42 1.57 0.00 0.22 4.78 Spinning machinery 0.52 0.02 0.00 0.03 0.02 0.00 0.88 0.00 0.03 0.68 1.20 Looms and knitting machinery 0.56 0.t6 0.00 0.20 0.01 0.00 (0.11 0.17 0.34 0.62 0.51 Textile machinery, nes 0.14 0.24 0.00 ().04 0.05 0.03 0.08 0.00 0.00 0.25 0.98 Paper making machinery 0.00 0.00 0.00 0.05 0.08 0.00 0.04 0.00 0.00 0.36 1.31 Bookbinding machinery 0.01 0.00 0.00 0.06 0.01 0.00 0.59 0.00 0.00 0.06 1.65 Printing machinery 0.01 0.05 0.00 0.01 0.09 0.00 0.22 0.04 0.00 0.17 2.25 Grain milling machinery 0.44 0.00 0.00 0.01 0.18 0.00 0.86 0.20 0.00 0.25 0.00 Food processing machinery 0.15 0.00 0.00 0.01 0.14 0.00 0.04 0.07 0.00 0.11 0.00 Machine for special industries 0.01 0.00 0.00 0.13 0.07 0.01 0.21 0.00 0.00 0.16 3.32 Mineral working machinery 0.19 0.00 0.00 0.06 0.43 3.05 0.24 0.00 0.00 0.30 1.28 Special industry machines, nes 0.37 0.11 0.00 0.03 1.05 0.04 0.98 0.22 0.00 0.48 0.57 Machines for metal working 0.15 0.02 0.00 0.04 0.08 0.01 0.65 0.08 0.49 0.39 1.66 Foundry equipment 0.11 0.00 0.00 0.00 0.74 0.00 0.01 0.31 0.00 2.87 0.00 Rolling mill parts 0.07 0.01 0.00 0.02 0.11 0.00 0.62 0.00 0.00 2.03 0.26 Refrigerating equipment 0.07 0.04 0.00 0.13 0.12 0.06 0.37 0.03 0.00 0.86 0.00 Pumps for liquids 0.04 0.01 0.00 0.06 0.28 0.03 0.66 0.03 0.00 0.40 2.48 Centrifuges and filters 0.03 0.05 0.00 0.02 0.13 0.00 1.10 1.14 0.00 0.62 0.44 Forklifttrucks 0.02 0.02 0.00 0.81 0.09 0.00 0.18 0.01 0.01 0.57 2.54 Lifting and loading machines 0.11 0.02 0.00 0.10 0.35 0.09 0.42 0.00 0.00 0.48 1.16 Power hand tools 0.03 0.00 0.00 0.00 0.14 0.00 0.66 0.00 0.00 0.46 2.81 Packingmachinery 0.00 0.01 0.00 0.0] 0.04 0.02 0.05 0.01 0.00 0.12 1.53 Non-electric machinery, nes 0.10 0.06 0.02 0.05 0.22 0.00 1.61 0.00 0.88 0.82 0.97 Office and adding machinery 0.05 2.10 0.00 0.28 0.24 0.01 1.98 0.93 0.37 0.62 2.87 Telecommunications equipment 0.33 1.47 0.16 0.77 1.40 0.25 1.72 0.05 1.34 1.75 1.16 Electric power machinery 0.13 10.98 0.01 0.47 1.95 0.00 1.30 0.00 2.59 0.96 0.56 Switchgear 0.14 0.56 0.00 0.18 1.17 0.63 4.41 8.21 0.82 0.92 1.16 Domesticelectrical equipment 0.62 1.86 0.00 0.12 0.16 1.45 0.51 0.06 0.00 0.43 2.13 51 Appendix Table 6. Continued Hong Rep. of Taiwan, Component Product Group* China Kong Indonesia Korea Malaysia Philippines Singapore Thailand China Japan USA Electrothermic appliances 0.16 4.45 0.00 0.00 0.32 0.03 1.05 0.02 0.00 1.79 1.59 Electronic components, nes 0.07 0.88 0.13 0.78 18.40 3.71 9.67 0.00 0.00 1.77 2.27 Electronic accumulators 0.09 0.03 0.17 0.18 0.11 0.19 0.40 1.89 0.67 0.13 1.65 Electric lamps and bulbs 0.15 0.16 0.01 0.10 0.02 0.34 0.04 0.14 1.43 0.31 1.18 Electrical machinery, nes 0.12 1.09 0.00 0.07 0.25 0.00 0.14 0.98 10.55 0.29 0.00 Motor vehicles and accessories 1.59 0.00 0.00 0.08 0.02 0.45 0.17 0.10 0.30 0.76 2.00 Carriages and cycles 1.27 0.00 0.14 0.25 0.05 0.00 0.60 0.36 4.45 2.86 0.10 Non-motor vehicles 0.02 0.00 0.00 0.68 0.14 0.00 0.13 0.00 0.43 0.05 0.62 Railroad vehicles 0.24 0.00 0.00 0.19 0.02 0.00 0.01 0.09 0.01 0.57 2.03 Aircraft 0.10 0.00 0.04 0.11 1.72 0.01 0.97 0.05 0.01 0.06 4.50 Chairs 0.22 0.01 0.11 0.07 0.27 0.31 0.22 0.28 0.00 0.09 0.00 Other fumiture 0.72 0.60 0.98 0.20 0.51 43.80 0.32 0.00 12.92 0.04 0.00 Drawing machinery 0.04 0.08 0.00 0.12 0.13 0.00 0.28 0.01 0.00 1.06 0.00 Still cameras, nes 0.05 1.75 0.02 0.45 1.36 0.00 0.46 0.05 1.52 3.53 0.84 Cameras under 16mm 0.20 0.00 0.00 0.11 14.51 0.00 8.08 0.00 0.00 2.84 0.24 Cameras under 16mm, nes 0.11 0.01 0.00 0,09 6.17 0.00 0.30 0.63 0.00 0.16 2.61 Unmounted optical elements 0.11 0.28 0.00 0.23 0.54 3.41 2.39 4.91 0.50 0.73 1.84 Clocks and watches 27.41 11.52 0.00 0.36 3.40 0.20 1.10 4.91 1.45 1.62 0.24 Umbrellas and canes 1.76 1.80 0.00 0.13 0.21 0.57 0.52 0.22 20.67 0.13 0.05 MEMO ITEM RCA Index for All Components 0.65 0.69 0.04 0.25 0.84 0.66 1.42 1.01 0.64 0.87 2.05 Number of Product Groups with 4 10 0 0 12 6 15 6 9 13 35 An RCA Index Over Unity * See Table I for the SITC Revision 2 classification number of each component product group Source: Computed from United Nations COMTRADE Statistics 52 Appendix Table 7: Average Tariff Rates of Parts and Components in East Asia and Other Major Countries (Unweighted in %) Commodity SITC Rev. 2 CHN HKG IDN KOR MYS PHL SGP THA TWN JPN USA (95) (95) (94) (96) (96) (96) (95) (95) (95) (95) (96) 7119 PTS NES OF APP OF 711 N.A. 0.0 21.7 8.0 3.3 3.0 0.0 10.0 N.A. 0.0 6.2 71319 PTS NES OF ENGN OF 71311 N.A. 0.0 0.0 5.0 0.0 3.0 0.0 22.5 N.A. 0.0 0.0 71331 PTS OF OUTBOARD N.A. 0.0 2.5 8.0 0.0 3.0 0.0 20.0 N.A. 0.0 0.0 71332 PTS OF OTH THAN OUTBOARD N.A. 0.0 11.7 8.0 0.0 3.0 0.0 20.0 N.A. 0.0 0.0 7139 PISTON ENGINE PARTS NES N.A. 0.0 5.0 7.7 15.0 10.0 0.0 16.7 N.A. 0.0 2.2 7149 ENGINE & MOTOR PARTS NES N.A. 0.0 2.0 6.5 0.0 3.0 0.0 5.0 N.A. 0.0 1.4 7169 PTS NES OF ROT ELEC PLNT N.A. 0.0 5.0 8.0 6.3 3.0 0.0 10.7 N.A. 0.0 3.8 71889 PARTS NES OF 71881,71882 N.A. 0.0 2.8 4.5 0.0 3.0 0.0 20.0 N.A. 0.0 1.7 72119 PTS NES OF MACHY OF 7211 N.A. 0.0 5.0 8.0 0.0 20.0 0.0 12.5 N.A. 0.0 0.0 72129 PTS NES OF MACHY OF 7212 N.A. 0.0 5.0 8.0 0.0 6.5 0.0 5.0 N.A. 0.0 1.2 72139 PTS NES OF MACHY OF 7213 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 0.0 72198 PTS NES OF MCHY OF 72191 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 2.5 72199 PTS NES OF MCHY OF 72197 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 0.0 7239 CONSTR ETC MACHY PTS NES N.A. 0.0 4.4 8.0 1.1 6.4 0.0 5.0 N.A. 0.0 1.8 72449 PTS NES OF MACHS OF 7244 N.A. 0.0 5.0 6.9 0.0 3.0 0.0 5.0 N.A. 0.0 3.7 72469 LOOM,KNT MCH ETC PTS NES N.A. 0.0 5.0 8.0 0.0 5.3 0.0 10.0 N.A. 0.0 3.8 72479 TEXTILE MACHINRY PTS NES N.A. 0.0 10.0 8.0 13.8 3.0 0.0 25.0 N.A. 0.0 1.3 7259 PTS NES OF MACHS OF 725 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 1.3 72689 PTS NES OF BOOKBIND MCHS N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 2.2 7269 PTS NES OF MCH OF 726317 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 2.0 72719 PTS NES OF MCHY OF 72711 N.A. 0.0 20.0 8.0 0.0 6.5 0.0 5.0 N.A. 0.0 2.1 72729 PTS NES OF MCHY OF 72722 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 1.6 72819 PTS NES OF TOOLS OF 7281 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 1.9 72839 PTS NES OF MACHY OF 7283 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 1.7 72849 PTS OF MACHS OF 7284 ETC N.A. 0.0 8.8 8.0 0.8 3.0 0.0 5.0 N.A. 0.0 2.5 7369 PTS NES OF TOOLS OF 736 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 3.0 73719 PTS NES OF MCHY OF 73711 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 0.0 73729 ROLL-MILL PTS NES, ROLLS N.A. 0.0 2.5 8.0 5.0 3.0 0.0 5.0 N.A. 0.0 2.9 74149 PTS NES OF REFRIG EQUIPT N.A. 0.0 15.0 8.0 5.0 11.5 0.0 15.0 N.A. 0.0 2.3 7429 PTS NES OF PUMPS OF 742 N.A. 0.0 5.0 8.0 5.0 5.3 0.0 5.0 N.A. 0.0 1.5 7439 PTS NES OF APP OF 7435/6 N.A. 0.0 10.0 8.0 5.0 3.0 0.0 11.7 N.A. 0.0 1.5 74419 PTS NES OF VEHC OF 74411 N.A. 0.0 5.0 8.0 5.0 3.0 0.0 25.0 N.A. 0.0 0.0 7449 PTS NES OF MACHY OF 7442 N.A. 0.0 9.3 8.0 0.0 3.0 0.0 8.8 N.A. 0.0 0.9 74519 PTS NES OFTOOL OF 74511 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 13.3 N.A. 0.0 1.5 74523 PACKING ETC MCHY PTS NES N.A. 0.0 5.0 8.0 12.5 16.5 0.0 5.0 N.A. 0.0 2.3 74999 MACH PARTS NONELEC NES N.A. 0.0 7.5 8.0 1.7 11.5 0.0 12.5 N.A. 0.0 5.0 759 OFFICE,ADP MCH PTS,ACCES N.A. 0.0 15.0 7.6 1.4 3.0 0.0 17.5 N.A. 0.0 1.3 764 TELECOM EQPT,PTS,ACC NES N.A. 0.0 14.5 8.0 12.2 10.8 0.0 16.3 N.A. 0.0 4.7 77129 PTS NES OF MACHY OF 771 N.A. 0.0 4.2 8.0 0.0 3.0 0.0 16.0 N.A. 0.0 1.5 772 SWITCHGEAR ETC,PARTS NES N.A. 0.0 12.7 8.0 14.7 11.2 0.0 9.1 N.A. 0.0 4.6 77579 PTS NES OF EQUIP OF 7757 N.A. 0.0 20.0 8.0 25.0 30.0 0.0 30.0 N.A. 0.0 3.5 77589 ELECTRTHRMC APPL PTS NES N.A. 0.0 10.0 8.0 10.0 11.5 0.0 20.0 N.A. 0.0 1.6 77689 ELECTRNIC COMPON PTS NES N.A. 0.0 0.0 8.0 0.0 3.0 0.0 0.2 N.A. 0.0 0.0 77819 ELEC ACCUMULATOR PTS NES N.A. 0.0 17.5 8.0 23.3 30.0 0.0 20.0 N.A. 0.0 4.5 77829 PTS NES OF LAMPS OF 7782 N.A. 0.0 7.1 8.0 0.0 11.5 0.0 20.0 N.A. 0.0 3.4 77889 ELEC PARTS OF MACHY NES N.A. 0.0 20.0 8.0 0.0 20.0 0.0 20.0 N.A. 0.0 2.3 784 MOTOR VEH PRTS,ACCES NES N.A. 0.0 66.3 8.0 17.9 14.5 0.0 43.5 N.A. 0.0 1.7 78539 PARTS,ACCES NES OF 785 N.A. 0.0 26.4 8.0 14.3 20.0 0.0 25.0 N.A. 0.0 4.7 78689 PTS NES OF TRAILERS ETC N.A. 0.0 30.0 8.0 23.9 20.0 0.0 40.0 N.A. 0.0 2.9 79199 PARTS NES OF 7911/7915 N.A. 0.0 0.0 5.0 0.0 3.0 0.0 5.0 N.A. 0.0 3.0 7929 AIRCRAFT PARTS NES N.A. 0.0 0.0 0.0 0.0 3.0 0.0 5.0 N.A. 0.0 0.0 82119 PTS NES OF CHAIRS ETC N.A. 0.0 40.0 8.0 30.0 30.0 0.0 40.0 N.A. 1.3 2.2 82199 OTHR FURN,FURN PARTS NES N.A. 0.0 23.3 8.0 17.5 20.0 0.0 40.0 N.A. 0.0 2.4 87429 PTS NES OF INST OF 87421 N.A. 0.0 5.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 5.9 88119 PTS NESOFAPPAROF8811 N.A. 0.0 5.0 8.0 0.0 10.0 0.0 20.0 N.A. 0.0 5.8 88121 - FOR FILM UNDER 16MM N.A. 0.0 30.0 8.0 0.0 3.0 0.0 5.0 N.A. 0.0 4.0 88129 PTS NES OF APPAR OF 8812 N.A. 0.0 30.0 8.0 0.0 3.0 0.0 20.0 N.A. 0.0 5.6 88411 OPTICAL ELMNTS UNMOUNTED N.A. 0.0 6.0 8.0 5.0 3.0 0.0 8.3 N.A. 0.0 5.7 88529 CLOCK,WATCH PARTS NES N.A. 0.0 10.0 8.0 0.0 20.0 0.0 12.0 N.A. 0.0 6.6 89949 PARTS NES OF 89941/89942 N.A. 0.0 34.0 8.0 17.0 10.0 0.0 25.0 N.A. 6.4 4.2 All Above Parts & Components Average N.A. 0.0 11.0 7.7 4.9 7.9 0.0 13.6 N.A. 0.1 2.5 All Machinery & Transport Equipment Average (SITC 7) N.A. 0.0 18.7 7.6 12.9 9.5 0.0 14.6 10.4 0.1 3.1 Source: WTO, IDB CD-ROM statistics. 53 Appendix Figure 1: The Relative Maturity of Korea, Philippines, Thailand and Taiwan's 1996 Import RCA Indices 30.00 i -- 25.00 20.00 -- xV 15.00 10.00 . 5.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 c _ Lower RCA value All Parts & Components Products Higher RCA value -> s KR PL THA W 54 Appendix Figure 2: The Relative Maturity of China, Malaysia and Singapore's 1996 Import RCA Indices 20.00 T- 18.00 16.00 ' - 14.00 - _ . 12.00 - - | x n 10. _00_ ____ __ ___ __ o 8.00- - 6.00 1 ~~ -z 4.00 2.00_*=~- 0.00 1_-i ,, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 <-- L ower RCA value All Parts & Components Products Higher RCA value ----> L+ CHN ~MYS -SGPi 55 Appendix Figure 3: The Relative Maturity of Hong Kong, Indonesia, Malaysia and Japan's 1996 Export RCA Indices 25---- 20< s 15 : l_ - x a 10 5 - - _ -- _ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20l 21 22 23 <----- Lower RCA value All Parts & Components Products Higher RCA value ----> E-HKG a.IDN & MYS X JPN 56 Appendix Figure 4: The Relative Maturity of Korea, Philippines, Thailand and Mexico's 1996 Export RCA Indices 14 12 4 - __ _ 2 10 i 2 3 4 5 6 7 8 9 10 11 12 13 14 <---Iower RCA value All Parts & Components Higher RCA value --- > 6-KOR --PHL MEX THA 57 Appendix Figure 5: The Relative Maturity of China, Singapore and Taiwan's 1996 Export RCA Indices 20 18 14 - x C)8- 6- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 <----- Lower RCA value All Parts & Components Higher RCA value --> -CHN -.SGP - TWN Policy Research Working Paper Series Contact Title Author Date for paper WPS2174 Prospective Deficits and the Asian Craig Burnside September 1999 E. Khine Currency Crisis Martin Eichenbaum 37471 Sergio Rebelo WPS2175 Sector Growth and the Dual Economy Niels-Hugh Blunch September 1999 H. Vargas Model: Evidence from C6te d'lvoire, Dorte Verner 37871 Ghana, and Zimbabwe WPS2176 Fiscal Risks and the Quality of Hana Polackova Brixi September 1999 A. Panton Fiscal Adjustment in Hungary Anita Papp 8'5433 Allen Schick WPS2177 Fiscal Adjustment and Contingent Hana Polackova Brixi September 1999 A. Panton Government Liabilities: Case Studies Hafez Ghanem 85433 Of the Czech Republic and Macedonia Roumeen Islam WPS2178 Nonfarm Income, Inequality, and Land Richard H. Adams Jr. September 1999 M. Coleridge-Taylor In Rural Egypt 3'3704 WPS2179 How Child Labor and Child Schooling Ranjan Ray September 1999 K/l. Mason Interact with Adult Labor 30809 WPS2180 Regulating Privatized Infrastructures Ofelia Betancor September 1999 Gi. Chenet-Smith and Airport Services Robert Rendeiro 36370 WPS2181 Privatization and Regulation of the Lourdes Trujillo September 1999 G. Chenet-Smith Seaport Industry Gustavo Nombela 36370 WPS2182 The Integration of Transition Constantine Michalopoulos September 1999 L. Tabada Economies into the World Trading 36896 System WPS2183 Market Discipline and Financial Asli Demirgu,g-Kunt September 1999 K. Labrie Safety Net Design Harry Huizinga 31001 WPS2184 Financial Services and the World Aaditya Mattoo September 1999 L. Tabada Trade Organization: Liberalization 36896 Commitments of the Developing and Transition Economies WPS2185 Financial Sector InefFiciencies and Pierre-Richard Agenor September 1999 T. Shiel Coordination Failures: Implications Joshua Aizenman '36317 for Crisis Management WPS2186 Contagion, Bank Lending Spreads, Pierre-Richard Ag6nor September 1999 T. Shiel and Output Fluctuations Joshua Aizenman 36317 Alexander Hoffmaister Policy Research Working Paper Series Contact Title Author Date for paper WPS2187 Who Determines Miexican Trade Jean-Marie Grether September 1999 L. Tabada Policy? Jaime de Melo 36896 WPS2188 Financiai Liberalization and the Pedro Alba September 1999 R. Vo Capital Account: Thailand, 1988-97 Leonardo Hernandez 33722 Daniela Klingebie! WPS2189 Alternative F:amewcrks for Stijn Claessens September lS99 R. Vo Providino Financiai Services Daniela Klingebiel 33722 WPS21i 90 The Credit Chaninel at Work: Lessons Giovanni Ferri September 1999 K. Labrie from the Republic oi Korea's Financial Tae Soo Kang 31001 Crisis WPS2191 Can No Antitrust Policy Be E3etter Aaditya Mattoo September 1999 L. Tabada Than Some Antitrust Policy? 36896 WPS2192 Districts, Spillovers, and Government Reza Baqir September 1999 S. Devadas Overspending 87891 WPS2193 Children's Growth and Poverty in Michele Gragnolati September 1999 M. Gragnolati Rural Guatemaia 85287 WPS2194 Does Democracy Facilitate the Jean-Jacques Dethier October 1999 H. Ghanem Economic Transition? An Empirical Hafez Ghanem 85557 Study of Central and Eastern Europe Edda Zoli And the Former Soviet Union WPS2195 Aggregating Governance Indicators Daniel Kaufmann October 1999 D. Bouvet Aart Kraay 35818 Pablo Zoido-Lobat6n WPS2196 Governance M,Iatters Daniel Kaufmann October 1999 D. Bouvet Aart Kraay 35818 Pablo Zoido-Lobat6n h'6D !j