Chapter 4: Characteristics and Determinants of East Asia’s Trade Patterns
Daisuke Hiratsuka INTRODUCTION1 4.1 East Asia has a growing influence on the global economy. By product, in 2005, East Asia, composed of the ten ASEAN countries plus the six countries of China, India, Japan, Republic of Korea, New Zealand and Australia, produced 24.66 million automobiles, accounting for 37.1 percent of the world total automobile production in that year.2 This figure surpassed that of the EU-25 (27.3 percent) and NAFTA (24.6 percent). East Asia is the world’s largest manufacturer of many products, with a 67.3 percent share in synthetic fiber production, 80.8 percent in cell phones, 96.8 percent in computers, 100 percent in hard-disk drives and digital cameras in 2006 (METI, 2007). East Asia has become the world’s factory for many manufactured products. In the background of East Asia’s world factory, two separate types of production operation are undertaken by multinationals in the region. One is a horizontal production operation, defined by Markusen (1984) to mean that the products and services produced in foreign countries are roughly similar to those the firm produces for its home market. The other is vertical production operation, defined by Helpman (1984) to mean that the production process is geographically fragmented by stages of production. In reality, production operation, if including services, may lie in between the two: multinationals locate their R&D, design centers, production plants and training centers in different countries depending on factor prices, skill and technology levels, market size and policies, and have production plants in multiple countries. East Asia’s factory, thus,...
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