Input Trade and Production Networks in East Asia
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Input Trade and Production Networks in East Asia

Edited by Daisuke Hiratsuka and Yoko Uchida

Intermediate input trade is regarded as an important contributory factor in explaining the increase in world trade in recent years. This timely book presents, for the first time, meticulous empirical analyses of the growth of input trade, and includes detailed studies that capture the main features and characteristics of production networks in East Asia.
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Chapter 9: International Fragmentation in Laos: Patterns, Progress and Prospects

Keola Souknilanh


9. International fragmentation in Laos:1 patterns, progress and prospects Keola Souknilanh INTRODUCTION 9.1 The largest and fastest-growing component of world trade since World War II has been the exchange of manufactures between the industrialized economies (Ethier, 1982). It is a well-known fact that increasing interconnectedness of production processes in vertical trading chains that stretch across many countries, with each country specializing in particular stages of an item’s production sequences, is one of the most important changes in the nature of international trade in the last few decades (Hummels et al., 2001). Cross-border production sharing, horizontal/vertical specialization and international fragmentation are among the many terms that have been used to refer to different aspects of this phenomenon (Deardorff, 1998; Hummels et al., 2001; Hanson et al., 2003). This chapter has adopted ‘international fragmentation’ as a term to refer to all variations of the above phenomenon led by location strategies of regional and global multinational enterprises (MNEs). Since the 1960s, Asian newly industrializing economies (NIEs), namely, Hong Kong, Singapore, South Korea, the Taiwan region (henceforth ‘Taiwan’), and founding members of the Association of Southeast Asian Nations (ASEAN) such as Malaysia, together with Thailand, also began participating in global production networks by becoming local production bases for Japanese, American and European MNEs. Realizing how effective FDI (foreign direct investment), in manufacturing industries in particular, could be for industrialization and economic development, Cambodia, Laos, Myanmar and Vietnam (henceforth CLMV), also chose to reproduce these Asian NIEs and founding ASEAN members success’ stories. However,...

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