ERIA-DP-2015-51

ERIA Discussion Paper Series

The Employment Effects of GVCs on Asian

Countries and the Phenomenon of Value-

Added Erosion

Xiao JIANG* Denison University, Granville

Jose CARABALLO† University of Puerto Rico at Cayey

August 2015

Abstract: This paper first conducts a multi-regional input-output analysis to

estimate the employment outcomes of global value chain (GVC) participation in the

form of trading intermediates inputs for the six Asian economies included in the

World Input-Output Database. This paper then tries to study the phenomenon of

“value-added erosion”, characterised by the decline of the sectoral shares of

domestic value-added in a country’s exports as the country becomes more integrated

into GVCs. The variables of interest, namely, the degree of value-added erosion, the

share of domestic intermediates in exports, and the amount of foreign high-skilled

labour embodied in a country’s exports, were all estimated using the multi-regional

input-output model. Using these results as well as other control variables, we

conduct a panel data co-integration analysis to explain and assess the likelihood of

value-added erosion and its possible determinants. The injection of foreign high-

skilled labour was found to be an important factor in a country’s sectoral decline of

domestic value-added share while participating in GVCs.

Keywords: Global Value Chains, Employment, Value-added, Asia

JEL Classification: F63; F66; D57; C23

* Assistant Professor of Economics, Denison University, Granville, OH, USA.jiangx@denison.edu.

The author likes to thank the comments and suggestion from the participants at ERIA’s 1st and 2nd

Workshop of Trade in Value Added in Singapore, September 2014, and Tokyo, April 2015. Financial

supports from the ERIA is gratefully acknowledged here. †Assistant Professor of Economics, University of Puerto Rico at Cayey, PR. Josec4051@gmail.com.

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1. Introduction

Global value chains (GVCs) and international production sharing are not new

phenomena. According to Athukorala and Menon (2010), researchers have been

documenting such phenomena since the 1920s. However, what is special about GVCs

today is their rapid expansion in terms of both quantity and locations. Trade in

intermediates, as one of the key indications for the degree of GVC participation, started

to become prominent in the 1990s with China’s entry into the global production

system. The process was accelerated by the setting up of low-cost offshore facilities

by electronics companies after the burst of the dotcom bubble in the early 2000s

(Milberg and Winkler, 2013). World exports from developing countries continued to

grow throughout this period, but their composition also started to change as imports of

intermediates increased steadily in the 1990s and accelerated in the 2000s. By the end

of the 2000s, trade in intermediates accounted for about 56 percent of total world trade

in the case of goods and 73 percent in the case of services (Miroudot et al., 2009). In

terms of the total trade volume, world trade in parts and components increased from

US$502 billion in 1992-93 to US$11,762 billion by 2005-06 (Win et al., 2011).

With the prevalence of GVCs, the relationship between trade and employment

becomes more complicated. The labour content associated with a country’s foreign

trade is no longer simply of two kinds: (i) domestic labour contained in exports; and

(ii) foreign labour contained in imports. With the addition of GVC trade, there are

three more categories of employment to consider: (iii) foreign labour contained in

exports; (iv) domestic labour contained in imports; and (5) third-countries’ labour

contained in a country’s imports. The recent publication of the World Input-Output

Database (WIOD)1 allows us to calculate all five categories of employment generated

by trade over the period 1995-2011 for a panel of countries that covers 85 percent of

world GDP.

In this paper we focus on six Asian economies, namely China, Indonesia, India,

Japan, Republic of Korea (henceforth referred to as South Korea), and Chinese Taipei

in the WIOD. These economies are chosen partly because of data constraints. Several

1See Timmer (2012) for the details on the WIOD.

2

among them are facing the challenge of shifting towards production of higher value-

added good and services, bringing them into more direct competition with advanced

economies, while at the same time their competitiveness in lower value-added goods

and services is being eroded by the increasing presence of lower labour cost countries

in global markets. In addition, all of these countries, despite their development

heterogeneity, failed to increase their share of value-added in the period 1995-2009.

This paper contains five sections. Section 2 introduces the WIOD dataset, as well

as the methodology of global input-output analysis that is applied to this dataset to

estimate the employment effects of GVCs (or trade in intermediate inputs). Section 3

presents and analyses the estimated employment generated by GVCs in these Asian

economies. Section 4 uses some of the results obtained from Section 3 to address a

specific research question: what causes the phenomenon of “value-added erosion”2 for

some countries? We explore this question by conducting a panel data co-integration

econometric analysis. Section 5 discusses some policy implications of our research.

2. GVCs, Employment and Input-Output Model

Studying the employment effects of GVCs requires a clear definition of GVCs and

a method for their measurement. While this is an area subject to numerous

disagreements in the literature, in this paper we use trade flow of intermediate inputs

as the indicator for GVCs. Thus, employment (both domestic and foreign) generated

by a country’s trade in intermediates is treated as the employment generated by this

country’s participation in GVCs.

Since the empirical method for studying the effects of trade in intermediates is

grounded in the input-output framework3 and the WIOD is a database of input-output

tables, hence the method we adopt in this paper is grounded in input-output analysis

by necessity. An input-output table is a representation of national accounts showing

the flows of all economic transactions for a country and is a quantitative economic

2The reduction of value-added share in the value generated by a country’s exports due to the increase

of foreign content of exports. 3See, Hummels et al. (2001), Koopman et al. (2010), WTO (2011), Escaith et al. (2010), and Meng et

al. (2011).

3

technique that is used to analyse the impact of a change in final demand (including

exports) on the levels of production. Assuming fixed labour, capital and inter-industry

input requirements for production; this model enables us to calculate the economy-

wide labour content of a country’s export demand.

An input-output model can also be extended to take into account not only inter-

industry linkages, but also inter-regional or international linkages. This is known as

the multi-regional input-output model. With a harmonised international input-output

dataset and sufficient information on international sectoral linkages, this model can be

applied to extract all kinds of labour content embodied in each country’s foreign trade.

Below we briefly introduce the model we use in this paper to estimate the employment

effect of GVCs, but further details can be found in Miller and Blair (2009).

We assume there are three countries (1, 2, and 3) in the world, trading in both

intermediates and final outputs with each other. Let 𝐴𝑖𝑗 be the imported intermediate

coefficient matrix, intermediates are exported from country 𝑖 and used by country𝑗.

When 𝑖 = 𝑗, it becomes the domestic input-output coefficient matrix. 𝑌𝑖is country 𝑖’s

total output. Following the system of three equations the final demands of the three

countries can be expressed in the following way,

𝑌1 − 𝐴11𝑌1 − 𝐴12𝑌2 − 𝐴13𝑌3 = 𝑓1

−𝐴21𝑌1 + 𝑌2 − 𝐴22𝑌2 − 𝐴23𝑌3 = 𝑓2 (1)

−𝐴31𝑌1 − 𝐴32𝑌2 + 𝑌3 − 𝐴33𝑌3 = 𝑓3

System (1) states that, for each country, final demand is the residual of total outputs

minus domestic and exported intermediates.4 If we collect the terms and rearrange the

system into a system of partitioned matrix multiplication, we yield equation (2) below,

[𝐼 − 𝐴11 −𝐴12 −𝐴13

−𝐴21 𝐼 − 𝐴22 −𝐴23

−𝐴31 −𝐴32 𝐼 − 𝐴33

] ∙ [𝑌1

𝑌2

𝑌3

] = [

𝑓1

𝑓2

𝑓3

] (2)

At this point, one can easily see that the multi-countries input-output system is

almost identical with the single-country system except that scalars are now replaced

4 For example, 𝐴11𝑌1 is country 1’s domestic intermediates, and 𝐴12𝑌2 is the intermediate use of

country 1’s exports by country 2.

4

with matrices. If we factor out the identity matrices from the left of equation (2) and

move them to the right hand side, then we obtain a global Leontief inverse matrix:

L𝐺 = [[𝐼 0 00 𝐼 00 0 𝐼

] − [𝐴11 𝐴12 𝐴13

𝐴21 𝐴22 𝐴23

𝐴31 𝐴32 𝐴33

]]

−1

= [𝑙11 𝑙12 𝑙13

𝑙21 𝑙22 𝑙23

𝑙31 𝑙32 𝑙33

] (3)

This global Leontief inverse matrix L𝐺 is of great importance. This is a 𝑛 × 𝑛

matrix with 𝑛 = 3 × 𝑚, and 𝑚 is the number of sectors. At this stage, we partition this

matrix into a 3-by-3 partitioned matrix for future use. As a partitioned matrix, it

contains nine small matrices each of dimension 𝑚 × 𝑚 . This matrix multiplies a

partitioned vector (where the partitioning is done in the same order as the three

countries) of final demands, which will give us the total outputs for each country that

are required to produce that vector of final demands directly and indirectly.

Let 𝑇𝑖 (3 × 𝑚) be the trade vector from the perspective of country 2. At position

2, it will be the vector of country 2’s exports, and at positions 1 and 3, there will be

the vector of country 1 and 3’s exports, respectively. Multiplying the global Leontief

inverse matrix by the trade vector 𝑇𝑖 will give us 𝜁𝑖 , the total value generated by

country 2’s foreign trade globally.

𝜁𝑖 = 𝐿𝑔 ∙ 𝑇𝑖 (4)

As mentioned in the introduction, multi-countries trade with the existence of

intermediate trades that contain five components, namely exports and imports of final

goods, import content of exports, export content of imports, and third-country

intermediate contents in a home country’s imports. Equation (4) cannot help us to

decompose the trade into these five components because matrix multiplication would

aggregate all the rows. So we construct matrix Θ, using the partitioned global Leontief

inverse matrix (3) and we obtain,

Θ2 = [

𝑙11𝑡1 𝑙12𝑡2 𝑙13𝑡3

𝑙21𝑡1 𝑙22𝑡2 𝑙23𝑡3

𝑙31𝑡1 𝑙32𝑡2 𝑙33𝑡3

] (5)

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Essentially, Θ2 is constructed by multiplying 𝑙𝑖𝑗 (𝑚 × 𝑚) by t𝑗 (𝑚 × 1) at each

position. In this way, Θ2 is of dimension 𝑚 × 3 × 3 , with each sub-matrix of

dimension 𝑚 × 1 . Matrix Θ2 is of greatimportance because it contains the five

components of country 2’s trade.

The diagonal items are total value generated by country 2’s final goods exported

(position {2, 2}), and countries 1 and 3’s final goods exported to country 2 (Positions

{1,1} and {3,3}). The vertical elements up and down from the “home position” {2, 2}

are foreign values generated from country 2’s intermediate use of countries 1 and 3’s

exports, and the horizontal elements left and right from the home position are total

value generated in the home country due to country’s 1 and 3’s exports, channeled

through foreign demand of the home country’s exports as intermediates. The rest of

the elements in the Θ2 matrix (e.g., {1, 3} and {3, 1}) are values generated in country

1 due to country 3’s production of exports for country 2, and vice versa. At this stage,

the five components of total values generated by a country’s trade are identified and

explained.

Finally, we could add the employment dimension to this model. Let 𝐸�̂� be the

diagonal matrix of labour coefficients for country 𝑖. We multiply each partitioned row

(𝑚 × 1) of the Θ2matrix by the corresponding 𝐸�̂� (𝑚 × 𝑚) matrix, the Θ2 matrix is

transformed into an employment matrix Λ2, as shown in (6) below:

Λ2 = [

𝐸1̂𝑙11𝑡1 𝐸1̂𝑙12𝑡2 𝐸1̂𝑙13𝑡3

𝐸2̂𝑙21𝑡1 𝐸2̂𝑙22𝑡2 𝐸2̂𝑙23𝑡3

𝐸3̂𝑙31𝑡1 𝐸3̂𝑙32𝑡2 𝐸3̂𝑙33𝑡3

] (6)

Λ2 is country 2’s the matrix of trade-induced employments, and the kind of

employment generated by each of the five components of trades is shown in the same

order as in (5).

3. Trade and Employment in GVCs

The World Input-Output Database has several unique features. First, it provides

input-output tables and bilateral trade data for 40 economies, which covers 85 percent

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of world GDP. Second, all the data are harmonised into 35 input-output sectors. Thus,

cross-countries comparisons are possible. Third, the bilateral trade data are split into

intermediate and final goods traded, and traded intermediates are reported as

intermediate trade basic flow matrix for each country. Therefore, the imported

intermediate coefficient matrix can be constructed for each country. Fourth, in a

separate account called the Social Economic Accounts (SEA), employment data in

terms of number of persons engaged, total hours worked, and total hours worked by

skill types for every country on sectoral level are provided. With these accounts, labour

coefficient matrices 𝐸�̂� can be constructed. Finally, most of the data from this database

are provided as a 17-year time-series (1995–2011).5

Table 1 presents the 17-year average of the total employment generated in each of

the five components of trade for the most recent year, in this case 2011, for the panel

of Asian economies, namely, China, Indonesia, India, Japan, South Korea and Chinese

Taipei. Information at the sectoral level has been aggregated to a single employment

figure for each country.

Table 1: Employment Generated by Five Components of Foreign Trade,

17-year average (in ’000s)

Exports

Imports Import

Content of

Exports

Export

Content of

Imports

Import

Content of

Imports

China 110,576 9,780 2,276 1,604 1,362

Indonesia 12,155 3143 447 24 266

India 36,957 4,369 655 65 329

Japan 4305 25,008 1,539 72 1,846

South Korea 3,675 11,442 2,445 30 787

Chinese

Taipei

2,888 4,285 1,633 18 626

We can also view the total domestic labour demand for each country as the sum

of labour demand by domestic exports and domestic content of imports. The sum of

the rest is counted as the total foreign labour demand resulting from each country’s

trade, on average over 17 years. These results are presented in Table 2 below. It comes

as no surprise to see that China, India and Indonesia’s foreign trade generated more

5With the most up-to-date version of the database, most of the data have been updated to 2011,

except for a few accounts in its Social Economic Accounts.

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domestic employment than foreign employment given their export-oriented

development strategies. The three more developed economies, namely Japan, South

Korea, and Chinese Taipei, on the other hand resulted in more foreign employment

than domestic employment via trade.

Table 2: Domestic and Foreign Employment Generated,

17-year Average (in ’000s)

Domestic Labour Foreign Labour Difference

China 112,180 13,419 98,761

Indonesia 12,179 3,876 8,303

India 37,023 5,353 31,670

Japan 4,377 28,394 -24,017

South Korea 3,705 14,674 -10,969

Chinese Taipei 2,906 6,545 -3,639

The social economic account of the WIOD contains sectoral employment

information based on three skill types: high, medium and low. Skill types are defined

based on education attainment level of the average worker of the sector, where high,

medium and low skill refers to post-secondary education attained, secondary education

attained and secondary education unattained, respectively (Timmer, 2012). Using this

information, in addition to estimating employment generated by each country’s five

components of foreign trade, we are able study the skill composition our employment

results. Table 3 below reports the skill composition of each economy’s employment

generated by each of the five components of trade, for the year of 2009.6

6The WIOD has most of its data updated to 2011, but the skill type based employment data in its

social economic account is not. The most up-to-date data are still 2009.

8

Table 3: Skill Composition of Employment Generated in 2009 (%)

Exports Imports

Import

Content

of Exports

Export

Content of

Imports

Import

Content of

Imports

China

High Skilled 5.80 17.71 19.36 7.13 19.22

Medium Skilled 34.63 44.67 45.82 39.80 48.58

Low Skilled 59.57 37.61 34.81 53.06 32.19

Indonesia

High Skilled 5.87 7.69 6.86 6.13 13.16

Medium Skilled 21.31 33.90 32.46 22.80 43.38

Low Skilled 72.83 58.41 60.67 71.07 43.45

India

High Skilled 8.83 5.77 5.56 9.55 14.20

Medium Skilled 34.10 33.39 33.38 34.84 45.57

Low Skilled 57.04 60.84 61.05 55.58 40.22

Japan

High Skilled 24.52 7.49 10.78 24.62 12.60

Medium Skilled 66.35 33.17 40.38 66.38 41.29

Low Skilled 9.13 59.34 48.83 9.00 46.10

South

Korea

High Skilled 41.06 9.25 10.15 41.51 12.71

Medium Skilled 49.14 42.14 43.03 49.18 43.50

Low Skilled 9.83 48.61 46.81 9.34 43.78

Chinese

Taipei

High Skilled 27.60 10.50 11.53 28.12 12.80

Medium Skilled 39.37 41.13 43.34 40.06 43.49

Low Skilled 33.01 48.36 45.13 31.81 43.70

Let us first look at the results for final goods exported. It is clear that the emerging

economies such as China, Indonesia, and India tend to export final goods with very

limited high-skilled labour content, all less than 10 percent, whereas more developed

economies such as Japan, South Korea, and Chinese Taipei tend to export final goods

with far more high- and medium-skilled labour content. This result seems to conform

to the Grossman and Rossi-Hansberg argument that developed countries endowed with

more high-skilled labour tend to export goods with higher high-skill labour content,

and vice versa for developing countries (Grossman and Rossi-Hansberg, 2006), an

extension from the standard Heckscher-Ohlin theory. However, the Grossman and

Rossi-Hansberg / Heckscher-Ohlin pattern is less in evidence when we look into the

skill composition of employment generated by final exports. All economies in our

panel tend to import final goods and service containing mostly medium- and low-

skilled labour content (above 80 percent). China is the economy in which final imports

contain the highest share of high-skilled labour content, at 17.7 percent. What we

observe here, among many other possible explanations, could be evidence of intra-

industry trade for these Asian economies.

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Let us now turn to the import content of export (ICE), which is an important

indicator for the degree of a country’s participation in GVCs. For all countries in our

panel, their ICE contains mostly medium- and low-skilled labour. China once again

stands out as the country with ICE containing about 20 percent of foreign high-skilled

labour. What determines the skill composition of a country’s ICE? The broader

question is: what determines the pattern of global production sharing? This is a

theoretical area of GVC analysis that urgently needs more contributions. However, it

is clear from our results that global production sharing is determined by some

mechanisms other than relative factor/skills endowments. The Grossman and Rossi-

Hansberg / Heckscher-Ohlin pattern appears again in export content of imports (ECI)

with developing economies’ ECI containing more low-skilled labour content and

developed economies’ ECI containing more high-skilled labour content. However, for

most countries, the employment effect of ECI is very small compared with other

components of trade.

To develop some intuitive feeling for how the relationship between GVC

participation and employment changes over time for these Asian economies,

employment generated by import content of exports for each country is plotted on a

time-scale in Figure 1.

Figure 1: Employment Generated by Import Content of Exports, 1995–2011

Source: Authors’ own calculations.

Chinese Taipei

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Import content of exports is often viewed as an important indicator for the degree

of a country’s integration to the GVCs (Hummels et al., 2001). Many have observed

and documented a pattern of steady increases of the import content of exports over

the past 20 years (Miroudot et al., 2009; Meng et al., 2011; Wim et al., 2011). Figure

1 above therefore is the employment aspect of import content of exports for the WIOD

Asian economies over time. It is evident that almost all Asian economies have been

increasing their demand for foreign labour via their import content of exports over the

period 1995–2011, as expected. Indonesia is an exception. However, it does not imply

that Indonesia’s import content of export did not increase over time. The relatively flat

number of jobs generated by its import content of export might be the result of

Indonesia importing foreign intermediates that are increasingly less labour intensive.

What is the consequence of increasing foreign labour embodied in a country’s exports

in the form of import content of exports? The answer to this question depends on the

skill type of the foreign labour embodied, and we will explore this question in the next

section.

4. High Skilled Labour in Import Content of Exports and Value-

added Erosion

In the previous sections, we introduced the methodology of calculating

employment generated by the five components of trade for each of the Asian

economies, and analysed the general results of our calculations. In this section, we will

use some of these results to explain a phenomenon—the reduction of domestic value-

added share of value generated by exports due to the increase of foreign intermediates;

we call this phenomenon “value-added erosion”.

4.1. Value-added vs. Value-added Share

Before diving into the idea of value-added erosion, which is defined by the decline

of a country’s total domestic value-added share in exports, we engage in a brief

discussion on the usefulness of the concept of value-added share. The low domestic

value-added share for countries participating in GVCs has been brought to attention

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by a series of literature in the late 2000s, the most widely cited being Xing and Detert,

(2010), Koopman et al. (2010), and Kraemer et al. (2011). These findings have also

generated a degree of anxiety among policymakers and triggered a series of policy

discussions on whether increasing domestic value-added share should be a new policy

objective. At the same time, some voices argued that increasing value-added share

might be a misguided policy measure, and that the emphasis should be on the total

volume of domestic value-added rather than the share of domestic value-added. This

is because the former is what generates absolute incomes in a country. This line of

argument is further backed up by the endogenous growth theory arguing that foreign

intermediates facilitate technological diffusion in the home country. Therefore, it

would presumably stimulate exports and output growth. In other words, they argue for

complementarity between domestic value-added and foreign intermediates, because

the later apparently fuels growth of the former. Therefore, the arguments appear to

state: as long as foreign intermediates are generating high volumes of domestic value-

added, the decline of domestic value-added share should not be a concern.

While we recognise the existence as well as the merits of this position, we make

four points below to express an alternative perspective. First, the complementarity

between domestic value-added and foreign intermediates is extremely difficult to

verify empirically because these two variables are highly endogenous. Any trade

expansion would likely lead to a simultaneous increase of both domestic value-added

and foreign intermediates in exports. Hence, empirically establishing a causal

relationship between these two variables is an extremely difficult task.

Second, regarding the endogenous growth story, while some foreign intermediates

in the form of high-tech components might stimulate domestic growth and might

increase domestic productivity via technological and information diffusion, it is

difficult to see how foreign intermediates in the form of financing, marketing, and

advertising will help to spread advanced foreign technology in a country. There is

growing evidence that foreign intermediates are increasingly taking on the latter form

(Heinz, 2006; Milberg and Winkler, 2010).

Third, if one cannot provide a solid empirical justification for the complementarity

between foreign intermediates and domestic value-added in exports, then the validity

of the argument emphasising volume over share has to rest on the assumption that

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there is always an expanding global effective demand, and growth of the total size of

the pie will dominate the decline of the share of the pie. There is no reason to believe

in an ever-expanding global effective demand in the future. In fact, the 2008 Great

Recession has shown the high vulnerability of global demand to shocks emanated from

some developed countries, particularly the US (Baldwin, 2009). Furthermore, from a

Keynesian perspective, a very uneven global distribution of income may slow down

growth of global effective demand.7 If the global effective demand slows down at

some point, capturing larger share of the gains from globalisation will be a major

concern.

Lastly, the debate over share and volume has its roots in economic ideology. This

debate is essentially a mirror image of the heated debate on wage rate versus wage

share between neoclassical and post-Keynesian economists. If one believes that the

labour market is perfect and that wage rate is determined by the marginal product of

labour, then the decline of wage share should not be a major concern. Similarly, if one

believes the market structure in GVCs is more or less perfect, then the decline of

domestic value-added share should not be a worrisome phenomenon either. However,

numerous authors point out the asymmetries of market and bargaining power in GVCs

and have raised concerns of the distributional conflicts in GVCs.8 Therefore, if we

believe the distribution of the gains from global production sharing are, to a large

extent, the result of asymmetric power relations, then the decline of domestic value-

added share should be a policy concern. We made the four points above hoping to

simply show that we might NOT want to totally disregard the concerns with the decline

of domestic value-added share.

4.2. Value-added Erosion and Its Measurement

The steady increase of imported intermediate content in exports for most of the

countries surveyed has been well documented in the literature, but its effects on

domestic value-added is not very clear. If we decompose the total value generated by

a unit of exports into three shares, namely domestic intermediate share, foreign

intermediate share, and value-added share, then we will see that an increase of foreign

7See La Marca (2013) and Von Arnim et al. (2012). 8See Nolan and Zhang (2010), Gereffi (2012), Milberg (2004), Kaplinsky (2000) and Nicita et al.

(2011).

13

intermediates share can result in three possible outcomes. First, we may observe a

reduction of domestic intermediate share compensating for the increase of foreign

intermediate share. We call this effect “domestic-foreign-substitution”. Second, the

increase of foreign intermediate share may be compensated for by a reduction of value-

added share. This case is in fact similar to Xi and Detert (2010)’s Ipod example. We

call this effect “value-added erosion”. The third outcome is, of course, a combination

of the previous two effects. From this point of view, the effect of an increase of foreign

intermediate share on domestic value-added share should vary from country to

country.

With the national input-output data we are able to compute the three components

of a country’s exports over the period of 15 years. [𝐼 − 𝐴]−1𝑋 is the vector of total

values generated by a country’s exports. This vector contains three components in a

globalised economy: Domestic Intermediate (DI), Foreign Intermediate (FI), and

Value-added Generated by Exports (VAE). These three components can be

empirically calculated by the following equations.

𝐷𝐼 = 𝐵𝐷𝑇[𝐼 − 𝐴]−1𝑋 (7)

𝐹𝐼 = 𝐵𝑀𝑇[𝐼 − 𝐴]−1𝑋 (8)

𝑉𝐴𝐸 = 𝑣�̂�[𝐼 − 𝐴]−1𝑋 (9)

In the equations above, 𝐵 is called the direct output coefficient matrix. Unlike the

input coefficient matrix 𝐴, matrix 𝐵 is acquired by dividing each row of the basic

flow matrix 𝑍, by gross outputs. The superscripts 𝐷 and 𝑀 denote domestic and

imported, respectively. 𝑣�̂� in (9) is the diagonal matrix of value-added coefficients.

The reason we use 𝐵 here in our decomposition comes from the following input-

output identity:

𝑌 = 𝐵𝑇𝑌 + 𝑉𝐴 (10)

where 𝑉𝐴 is the vector of value-added. Since we are interested in how much value

added is generated in a country's exports, then, using 𝐵 matrix instead of 𝐴 is

necessary. Behind equations (7) to (9) is an important balancing condition. The sum

of the shares has to equal to one.

14

∑ 𝐷𝐼+ ∑ 𝐹𝐼+∑ 𝑉𝐴𝐸

∑[𝐼−𝐴]−1𝑋= 1 (11)

This balance condition restates the earlier discussion, namely that an increase in 𝐹𝐼

(which should be expected from the observed pattern of GVC expansion) has to be

compensated for by a reduction of 𝐷𝐼, or 𝑉𝐴𝐸, or some combination of both. Figure 2

below takes China and India as an example to illustrate the phenomenon of value-

added erosion and domestic-foreign substitution in aggregate.

Figure 2: Composition of Value Generated by Exports, China and India,

1995–2009

Source: Authors’ own calculations.

It is clear from the upper panel that, in the case of China, the increase of foreign

intermediate share (FI) over time is compensated for by the decline of domestic value-

added share (VAE). Therefore, this is called value-added erosion. In the case of India

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Sh

are

in

Ch

ina

Year

DI

FI

VAE

0

0.1

0.2

0.3

0.4

0.5

0.6

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Sh

are

in

In

dia

Year

DI

FI

VAE

15

in the lower panel, the increase of foreign intermediates share over time has been

compensated for by the decline of domestic intermediates. Therefore, this is an

example of domestic-foreign substitution.

Now, the question becomes, when facing the steady increase of foreign

intermediate share of countries’ exports, what determines a country’s response? Or

more precisely: why would some countries experience value-added erosion as they

participate in GVCs by importing more foreign intermediates to produce their export

goods? Heinz (2006) hypothesises a dynamic process of foreign high value-adding

activities eroding the domestic value-added portion of exports. However, this

hypothesis has never been validated empirically at the macro-level (to our knowledge).

We should notice that the notion of “value-added erosion” is already apparent in his

theory. Heinz’s distinction between high value-adding and low value-adding activities

is also of great importance for us. If we follow the international trade theorists who

believe international trade is “trading tasks”,9 then we could approximate high value-

adding activities by hours worked by high-skilled workers, and low value-adding

activities by hours worked by low skilled workers. This approximation is consistent

with Heinz’s argument since the types of activities that leading firms are likely to

perform, according to Heinz, tend to require high skilled labour. If this is a good

approximation, we should be able explain domestic value-added erosion by the

injection of high-skilled foreign labour in a country’s import content of exports.

9 See Grossman and Rossi-Hansberg (2008).

16

Figure 3: Share of Foreign High-skilled Labour in Import Content of Exports,

China and India

Source: Authors’ own calculations.

Figure 3 illustrates the evolution of foreign high-skilled labour share in China and

India’s aggregate import content of exports. The aggregate results for China and India

seem to verify our hypothesis based on Heinz (2006): China is a country that

experienced value-added erosion and is also a country that experienced a surge of

foreign high-skilled labour share embodied in its import content of exports. However,

this did not occur in India, where the country experienced domestic-foreign

substitution.

While the aggregate results for China and India seem to indicate a positive

relationship between the surge of foreign high-skilled labour embodied in a country’s

import content of exports and the decline of domestic value-added share over time, we

still need to find out whether this relationship holds for all the countries in our panel

cross sectors. We also need to understand the other determinants of domestic value-

added share? We address these questions systematically using econometrics in the next

subsection.

0

0.05

0.1

0.15

0.2

0.25

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Sh

are

Year

China

India

17

4.3 The Model

To answer the question of what causes value-added erosion, we apply panel data

regressions to the two variables in question. The first is the by-sector share of foreign

high-skilled labour embodied in a country’s import content of exports (FHS), which is

estimated using (1) – (6). The second is the by-sector share of domestic value-added

generated by a country’s exports, which is estimated using (7) – (11). To avoid over-

or under-estimating the effect of FHS we added a set of control variables from the

WIOD. Using 33 out of the 35 sectors10 from the WIOD, we applied the following

panel data regressions,

𝐕 = 𝑭𝜃𝑥 + 𝐗φ𝐱 + 𝐏ρ𝐱 + 𝐊δ𝐱+𝐓𝜗𝑥 + 𝐮 (12)

where V is t x 1 vector of the domestic share of domestic value-added generated

by exports in sector i, F is a vector of FHS, X is a vector of labour productivity, P is a

vector of the price level, K is a vector of real capital stock, T is a vector of total real

output in the previous period, and u is a vector of deviations. Through the Variance

Inflation Factor, no problems of collinearity were found.

P serves as the control variable for the effect output prices (at the sector level) may

have on domestic value-added share by impacting final demand, K controls for capital-

intensive sectors (also sectors where large investment has taken place), T controls for

the output sold that may affect the current share of domestic value-added, and finally,

X indicates the role of labour productivity in stimulating or discouraging the relative

importance of certain sectors. Labour productivity is fundamental to many trade

theories, including the classical trade theory, since it determines country’s comparative

advantage and the sectors that will predominate in total exports.

The series in (12) are I (1). According to the Panel Augmented Dickey-Fuller

(ADF) test, the Panel Phillip-Perron (PP) test, the Group ADF test, and the PP test, the

series in (12) are co-integrated. To rectify this process, we applied a Dynamic OLS

(DOLS) to correct for potential endogeneity and serial correlation if there is any (Kao

et al., 1999). The augmented co-integrating equation associated with (12) is,

10In our analysis, to took out “Sale, Maintenance and Repair of Motor Vehicles and Motorcycles”,

and “private Households with Employed Persons” sectors from WIOD due to too many missing

values from these sectors.

18

𝑉𝑖𝑡 = 𝐶 + 𝜌𝑓𝐹𝑖𝑡 + 𝜌𝑥𝑋𝑖𝑡 + 𝜌𝑝𝑃𝑖𝑡 + 𝜌𝑘𝐾𝑖𝑡 + 𝜌𝑡𝑇𝑖𝑡 + 𝛾𝑓,0∆𝐹𝑖𝑡 + 𝛾𝑓,−𝑗∆𝐹𝑖,𝑡+𝑗 +

𝛾𝑓,𝑗∆𝐹𝑖,𝑡−𝑗 + 𝛾𝑥,0∆𝑋𝑖𝑡 + 𝛾𝑥,−𝑗∆𝑋𝑖,𝑡+𝑗 + 𝛾𝑋,𝑗∆𝑋𝑖,𝑡−𝑗 + 𝛾𝑝,0∆𝑃𝑖𝑡 + 𝛾𝑝,−𝑗∆𝑃𝑖,𝑡+𝑗 +

𝛾𝑝,𝑗∆𝑃𝑖,𝑡−𝑗 + 𝛾𝑘,0∆𝐾𝑖𝑡 + 𝛾𝑘,−𝑗∆𝐾𝑖,𝑡+𝑗 + 𝛾𝑡,𝑗∆𝑇𝑖,𝑡−𝑗 + 𝛾𝑡,0∆𝑇𝑖𝑡 + 𝛾𝑡,−𝑗∆𝑇𝑖,𝑡+𝑗 +

𝛾𝑡,𝑗∆𝑇𝑖,𝑡−𝑗 + 𝑣𝑖𝑡

(13)

where j are the leads and lags chosen by following different information criteria,

such as the Akaike Information Criterion (AIC), to remove long-run correlations

among the innovations. The long-run variance of the error term is estimated by,

�̂�𝑣2 =

�̂�𝑒2

(1 − �̂�1 − ⋯ − �̂�𝑞)2 , �̂�𝑒

2 =1

𝑇 − 𝑞∑ 𝑘(𝑡, 𝑏)�̂�𝑡

2

𝑇

𝑡=𝑞+1

where �̂�𝑗(𝑗 = 1, 2, … , 𝑞) are estimated from an AR(q) process fitted to 𝑣𝑖𝑡 , whose

estimated residuals are given by �̂�𝑡2. Following Andrews (1991), k(t,b) is a weight

where k is a symmetrical Bartlett kernel function and b > 0 is a Newey-West fixed

bandwidth. The q lag length was selected from AIC. Attempting to capture some

idiosyncratic elements at the industry level, we also apply the weighing method à la

Mark and Sul (1999) to allow heterogeneity in the long-run variances across industries.

4.4 The Results

Among the six economies considered here, China had the greatest losses in the

share of domestic value-added generated by exports. From 1995 to 2009, the share of

value-added in Chinese exports decreased by 11 percentage points, while it decreased

9 percentage points in South Korea, 3 in Chinese Taipei, 4 in Japan, 2.4 in Indonesia,

and 1 in India. Again, the question to be addressed is: what factors drive this erosion

in value-added share that has occurred in each of the countries we analysed?

We conducted two estimations for equation (13), one for all sectors included in

the WIOD, and the other for the 16 manufacturing sectors given their importance in

global production sharing, especially for most of the Asian economies. As suspected,

an injection of Foreign High-skilled Labor Share (FHS) had a negative consequence

in the domestic share of value added in the six Asian countries under study. After

controlling for the impacts of productivity, capital intensiveness, output dependence,

19

and inflation, we found that the lower domestic value-added share is generally

associated with higher the FHS in each industry. These results are illustrated in Table

4.

Table 4. Estimation of Equation (13), All Sectors, by Country, 1995-2009

Dependent Variable: Share of Value Added in Value Generated by Exports

Determinants: India Japan South

Korea

China Indonesia Chinese

Taipei

FHS -.21***

(.03)

-

.17***

(.04)

-

.33***

(.06)

-.11***

(.03)

-.16**

(.08)

-.25***

(0.04)

Labour

Productivity

-.0005

(.0004)

.02**

(.008)

.003*

(.002)

.006***

(.002)

-.0003

(.001)

.12

(.08)

Capital Stock -.43***

(.05)

.03***

(.01)

-.06

(.07)

-.15***

(.03)

0.02

(.05)

.21***

(.06)

Output in t-1 .18***

(.05)

-

.18***

(.07)

-

.26***

(.08)

-.09***

(.02)

-.22***

(.07)

-.51***

(.13)

Output Prices .14***

(.02)

-

.39***

(.04)

-

.51***

(.08)

.06***

(.02)

-.05***

(.02)

.39***

(.04)

N 416 429 429 416 416 416

S.E. of

Regression

0.34 0.34 0.57 0.26 0.62 0.44

Notes: S.E. indicates the standard error of the regression. All variables were standardised. Standard

errors are in parentheses. A linear term was added as deterministic variables. Standard errors are

in parentheses. The *** indicates statistical significance at 99 percent confidence interval, ** at 95

percent and * 90 percent. Sample differences only depend in the availability of data.

Source: WIOD (2014).

Since each variable was standardised, we can compare the magnitude of each

regressor. In doing so, we observed that FHS was the second factor of greatest

influence in India, South Korea, and China. In the cases of Japan, South Korea, and

Chinese Taipei, the major determinant for the movements in the share of value-added

was the changes in output prices. For Indonesia and Chinese Taipei, the main factor

was the output produced in the previous period, which had a negative impact on the

20

current share of value-added. In India, the greatest influence came from capital stock:

a sector’s lower the domestic value-added share is associated with higher capital

intensiveness of that sector. Overall, labour productivity does not appear to be a

primary determinant for the share of value-added, either for the economy as a whole,

or for the manufacturing sectors that are represented in Table 5.

Table 5: Regressions for Manufacturing Sectors Only, by Country, 1995–2009

Dependent Variable: Share of Value Added in Value Generated by Exports

Countries: India Japan South

Korea

China Indonesia Chinese

Taipei

FHS .22**

(.09)

-.23

(.15)

.07

(.13)

-.23***

(.02)

-.27***

(.09)

-.08

(0.19)

Labour

Productivity

-.07***

(.03)

.01

(.009)

.003

(.002)

-

.007***

(.002)

-.0006

(.003)

.21**

(.09)

Capital

Stock

-.02

(.11)

-.85***

(.14)

-

1.13***

(.31)

-.41***

(.03)

-.43***

(.11)

-.39

(.32)

Output in t-

1

-.12

(.12)

.29

(.19)

.41**

(.22)

.02*

(.01)

-.19***

(.08)

.23

(.37)

Output

Prices

.12***

(.03)

-.32***

(.04)

-.51***

(.08)

-.008

(.02)

-.02

(.01)

.52***

(.07)

N 169 169 169 169 169 169

S.E. of

Regression

0.35 0.31 0.44 0.13 0.30 0.36

Notes: S.E. indicates the standard error of the regression. All variables were standardised. Standard

errors are in parentheses. A linear term was added as deterministic variables. Standard errors are

in parentheses. The *** indicates statistical significance at 99 percent confidence interval, ** at 95

percent and * 90 percent.

Source: WIOD (2014).

According to Table 5, FHS appears to play a central role in India but not by

decreasing the domestic share of value-added. This result is consistent with Goldberg

et al. (2010)’s finding that trade reform has benefited Indian exporting firms in a way

that they are able to substitute domestic intermediates with foreign intermediates. In

21

other words, India’s participation in GVCs has resulted in domestic-foreign inputs

substitution rather than value-added erosion. However, in economies where

manufacturing is relatively more intense, such as Indonesia and China, FHS was once

again the second factor of greatest influence in reducing the domestic share of value-

added exports. The main driver for the decline in the domestic share of value-added

for manufacturing sectors was capital stock, especially for Japan, South Korea, China

and Indonesia, namely, capital-intensive sectors are more likely to experience the

decline of domestic share of value-added in exports. This implies that capital-intensive

manufacturing industries tend to experience more difficulties in capturing the gains

from GVCs. A high reliance on foreign intermediates rather than domestic economy

might be one of the reasons.

Total production in the previous periods does not appear to have a primary role in

the decline of domestic value-added, while output prices appear to be a relevant

determinant for Chinese Taipei, South Korea, and Japan. In Chinese Taipei output

prices had a positive correlation with the domestic share of value-added, and in South

Korea and Japan output prices had an inverse relationship.

5. Concluding Remarks and Policy Implications

In a world where GVCs (as measured by trade in intermediates) is prevalent, value

created by a country’s foreign trade contains five components—direct exports, direct

imports, import content of exports, export content of imports, and import content of

imports. Regarding employment, each of the five elements would generate its own

jobs domestically or internationally. With the availability of World Input-Output

Database (WIOD), we are able to empirically decompose each of the six large Asian

economies’ (China, Indonesia, India, Japan, South Korea and Chinese Taipei) trade

into those five components, and further compute the labour content embodied in each

of them. We find that, on average, developing economies tend to generate more

domestic than foreign employment through their foreign trade in both intermediate and

final goods. We have also decomposed labour content embodied in each of those five

components of trade by skill types. We find that, according to the most recent 2009

22

result, the skill composition of final exports tends to conform to the standard

Heckscher-Ohlin prediction with developing economies exporting more goods and

services with low-skilled labour content and developed economies exporting more

goods and services with high-skilled labour content. However, the Heckscher-Ohlin

pattern is not found in the skill composition of import content of exports. It appears

that labour embodied in import content of exports for all the economies in our panel is

mostly low- and medium-skilled labour. This is a crucial step towards a better

understanding of trade and employment in relation to GVCs.

It is evident that the relation between trade and employment is much more

complicated in a world where GVCs are prevalent. However, it is worth emphasising

that this complication also potentially provides more policy instruments in using trade

policies to influence employment outcomes. Back to the matrix Λ in (6), traditionally,

trade policies only focus on the diagonal items, namely exports and imports. But in a

world with trade in intermediate inputs, trade policies can also focus on the off-

diagonal elements. In principle, jobs can be increased by policies reducing the import

content of exports and/or expanding the export content of imports, while exports and

imports on the diagonal of Λ are unchanged, in a ceteris paribus environment.

However, policies as such these would have to focus on GVC analysis and industrial

upgrading.

This paper also takes advantage of some of the results obtained from the Λ matrix,

specifically, foreign high-skill labour embodied in a country’s import content of

exports to empirically examine the phenomenon of value-added erosion, which is

characterised by the decline of domestic value-added share as a country participates in

GVCs. The decline of domestic value-added share is sometimes viewed as a misguided

policy concern, given the complementarity between foreign intermediates and the

volume of domestic value-added. While acknowledging this position, in this paper we

presented several points to suggest that the concern of the decline of domestic value-

added share is not necessarily unjustified, especially given the asymmetric market

structure in many GVCs. Our econometric results consistently suggest that the higher

the FHS in each industry the lower domestic value-added share. This relationship holds

for each of the countries in our sample and is robust to the addition of covariates.

23

The relation between value-added erosion and the injection of high-skilled labour

share in import content of exports has several policy implications. First, from a GVC

perspective, if a policy were to be designed for a developing country to prevent itself

from value-added erosion, this policy has to encourage domestic producers to perform

more value-adding activities. In other words, it has to promote so-called Functional

Upgrading (Humphrey, 2004; Xing and Detert, 2010). Second, capital intensiveness

of manufacturing firms also affects negatively the share of domestic value-added

generated by exports. Authorities seeking to attract foreign investment should be

cautious of these types of industries, as well as of firms that operate in high

disconnection with the domestic economy. Incentives should be provided to domestic

and foreign firms with great concatenation with the domestic economy. One

mechanism that authorities could implement is to require that a certain percentage of

high-skilled intermediates need to be bought from domestic producers, which is a

regulatory tool China has been using in its Special Economic Zones since its economic

reform. This mechanism can also be agreed regionally or globally to foster global

development by distributing the gains from globalisation in a fairer fashion. Third, not

all foreign intermediates are the same and, hence, different types of foreign

intermediates should be treated differently by the local governance body. Foreign

intermediates that are injected into domestic productive structure via very asymmetric

market structures and those (for example, in the form of financing, marketing and

advertising) that do not help in the diffusion of advanced technology should be

carefully regulated, while others should be fostered and encouraged. After all, as

Rodrik puts it nicely: a complicated world requires fox-like policies (Rodrik, 2011).

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Kazunobu

HAYAKAWA,

Nuttawut

LAKSANAPANYAK

UL, Pisit PUAPAN,

Sastra SUDSAWASD

Government Strategy and Support for Regional

Trade Agreements: The Case of Thailand

May

2015

2015-36 Dionisius A.

NARJOKO

AEC Blueprint Implementation Performance and

Challenges: Non-Tariff Measures and Non-Tariff

Barriers

May

2015

2015-35

Kazunobu

HAYAKAWA,

Tadashi ITO, and

Fukunari KIMURA

Trade Creation Effects of Regional Trade

Agreements: Tariff Reduction versus Non-tariff

Barrier Removal

Apr

2015

2015-34

Kazunobu

HAYAKAWA,

Tadashi ITO

Tarrif Pass-through of the World-wide Trade:

Empirical Evidence at Tarriff-line Level

Apr

2015

2015-33

Kazubobu

HAYAKAWA,

Nuttawut

LAKSANAPNYAKU

L, and Shujiro

URATA

Firm-level Impact of Free Trade Agreements on

Import Prices

Apr

2015

2015-32 Ponciano INTAL, Jr. AEC Blueprint Implementation Performance and

Challenges: Investment Liberalization

Apr

2015

2015-31 Emily Christi A.

CABEGIN

The Challenge of China and the Role of Deepening

ASEAN Integration for the Philippine

Semiconductor Industry

Apr

2015

2015-30

Venkatachalam

ANBUMOZHI, Alex

BOWEN and

Puthusserikunnel

Devasia JOSE

Market-Based Mechanisms to Promote Renewable

Energy in Asia

Apr

2015

2015-29 Venkatachalam

ANBUMOZHI

Low Carbon Green Growth in Asia: What is the

Scope for Regional Cooperation?

Apr

2015

2015-28 Tan LI and Larry D.

QIU

Beyond Trade Creation: Free Trade Agreements

and Trade Disputes

Mar

2015

28

No. Author(s) Title Year

2015-27 Mai Anh NGO Exporting and Firm-Level Credit Constraints –

Evidence from Ghana

Mar

2015

2015-26

Sunghoon CHUNG,

Joonhyung LEE,

Thomas OSANG

Did China Tire Safeguard Save U.S. Workers? Mar

2015

2015-25

Esther Ann BØLER,

Beata JAVORCIK,

Karen Helene

ULLTVEI-MOE

Globalization: A Woman’s Best Friend? Exporters

and the Gender Wage Gap

Mar

2015

2015-24

Tristan Leo Dallo

AGUSTIN and Martin

SCHRÖDER

The Indian Automotive Industry and the ASEAN

Supply Chain Relations

Mar

2015

2015-23 Hideo KOBAYASHI

and Yingshan JIN The CLMV Automobile and Auto Parts Industry

Mar

2015

2015-22 Hideo KOBAYASHI Current State and Issues of the Automobile and Auto

Parts Industries in ASEAN

Mar

2015

2015-21 Yoshifumi

FUKUNAGA

Assessing the Progress of ASEAN MRAs on

Professional Services

Mar

2015

2015-20

Yoshifumi

FUKUNAGA and

Hikari ISHIDO

Values and Limitations of the ASEAN Agreement

on the Movement of Natural Persons

Mar

2015

2015-19 Nanda NURRIDZKI Learning from the ASEAN + 1 Model and the ACIA Mar

2015

2015-18

Patarapong

INTARAKUMNERD

and Pun-Arj

CHAIRATANA and

Preeda

CHAYANAJIT

Global Production Networks and Host-Site

Industrial Upgrading: The Case of the

Semiconductor Industry in Thailand

Feb

2015

2015-17 Rajah RASIAH and

Yap Xiao SHAN

Institutional Support, Regional Trade Linkages and

Technological Capabilities in the Semiconductor

Industry in Singapore

Feb

2015

2015-16 Rajah RASIAH and

Yap Xiao SHAN

Institutional Support, Regional Trade Linkages and

Technological Capabilities in the Semiconductor

Industry in Malaysia

Feb

2015

2015-15

Xin Xin KONG, Miao

ZHANG and Santha

Chenayah RAMU

China’s Semiconductor Industry in Global Value

Chains

Feb

2015

2015-14 Tin Htoo NAING and

Yap Su FEI

Multinationals, Technology and Regional Linkages

in Myanmar’s Clothing Industry

Feb

2015

2015-13 Vanthana NOLINTHA

and Idris JAJRI

The Garment Industry in Laos: Technological

Capabilities, Global Production Chains and

Competitiveness

Feb

2015

2015-12

Miao ZHANG, Xin

Xin KONG, Santha

Chenayah RAMU

The Transformation of the Clothing Industry in

China

Feb

2015

2015-11 NGUYEN Dinh Chuc,

NGUYEN Ngoc Anh, Host-site institutions, Regional Production Linkages and Technological Upgrading: A study of

Feb

2015

29

No. Author(s) Title Year

NGUYEN Ha Trang

and NGUYEN Ngoc

Minh

Automotive Firms in Vietnam

2015-10

Pararapong

INTERAKUMNERD

and Kriengkrai

TECHAKANONT

Intra-industry Trade, Product Fragmentation and Technological Capability Development in Thai Automotive Industry

Feb

2015

2015-09 Rene E. OFRENEO Auto and Car Parts Production: Can the Philippines Catch Up with Asia

Feb

2015

2015-08

Rajah RASIAH, Rafat

Beigpoor

SHAHRIVAR,

Abdusy Syakur AMIN

Host-site Support, Foreign Ownership, Regional Linkages and Technological Capabilites: Evidence from Automotive Firms in Indonesia

Feb

2015

2015-07

Yansheng LI, Xin Xin

KONG, and Miao

ZHANG

Industrial Upgrading in Global Production Networks: Te Case of the Chinese Automotive Industry

Feb

2015

2015-06 Mukul G. ASHER and

Fauziah ZEN Social Protection in ASEAN: Challenges and Initiatives for Post-2015 Vision

Feb

2015

2015-05

Lili Yan ING, Stephen

MAGIERA, and

Anika WIDIANA

Business Licensing: A Key to Investment Climate Reform

Feb

2015

2015-04

Gemma ESTRADA,

James ANGRESANO,

Jo Thori LIND, Niku

MÄÄTÄNEN,

William MCBRIDE,

Donghyun PARK,

Motohiro SATO, and

Karin SVANBORG-

SJÖVALL

Fiscal Policy and Equity in Advanced Economies: Lessons for Asia

Jan

2015

2015-03 Erlinda M.

MEDALLA Towards an Enabling Set of Rules of Origin for the Regional Comprehensive Economic Partnership

Jan

2015

2015-02

Archanun

KOHPAIBOON and

Juthathip

JONGWANICH

Use of FTAs from Thai Experience Jan

2015

2015-01 Misa OKABE Impact of Free Trade Agreements on Trade in East Asia

Jan

2015

2014-26 Hikari ISHIDO Coverage of Trade in Services under ASEAN+1 FTAs

Dec

2014

2014-25 Junianto James

LOSARI

Searching for an Ideal International Investment Protection Regime for ASEAN + Dialogue Partners (RCEP): Where Do We Begin?

Dec

2014

2014-24 Dayong ZHANG and

David C. Broadstock

Impact of International Oil Price Shocks on Consumption Expenditures in ASEAN and East Asia

Nov

2014

2014-23

Dandan ZHANG,

Xunpeng SHI, and Yu

SHENG

Enhanced Measurement of Energy Market Integration in East Asia: An Application of Dynamic Principal Component Analysis

Nov

2014

30

No. Author(s) Title Year

2014-22 Yanrui WU Deregulation, Competition, and Market Integration in China’s Electricity Sector

Nov

2014

2014-21 Yanfei LI and

Youngho CHANG

Infrastructure Investments for Power Trade and Transmission in ASEAN+2: Costs, Benefits, Long-Term Contracts, and Prioritised Development

Nov

2014

2014-20

Yu SHENG, Yanrui

WU, Xunpeng SHI,

Dandan ZHANG

Market Integration and Energy Trade Efficiency: An Application of Malmqviat Index to Analyse Multi-Product Trade

Nov

2014

2014-19

Andindya

BHATTACHARYA

and Tania

BHATTACHARYA

ASEAN-India Gas Cooperation: Redifining India’s “Look East” Policy with Myanmar

Nov

2014

2014-18 Olivier CADOT, Lili

Yan ING How Restrictive Are ASEAN’s RoO?

Sep

2014

2014-17 Sadayuki TAKII Import Penetration, Export Orientation, and Plant Size in Indonesian Manufacturing

July

2014

2014-16

Tomoko INUI, Keiko

ITO, and Daisuke

MIYAKAWA

Japanese Small and Medium-Sized Enterprises’ Export Decisions: The Role of Overseas Market Information

July

2014

2014-15 Han PHOUMIN and

Fukunari KIMURA

Trade-off Relationship between Energy Intensity-thus energy demand- and Income Level: Empirical Evidence and Policy Implications for ASEAN and East Asia Countries

June

2014

2014-14 Cassey LEE The Exporting and Productivity Nexus: Does Firm Size Matter?

May

2014

2014-13 Yifan ZHANG Productivity Evolution of Chinese large and Small Firms in the Era of Globalisation

May

2014

2014-12

Valéria SMEETS,

Sharon

TRAIBERMAN,

Frederic

WARZYNSKI

Offshoring and the Shortening of the Quality

Ladder:Evidence from Danish Apparel

May

2014

2014-11 Inkyo CHEONG Korea’s Policy Package for Enhancing its FTA

Utilization and Implications for Korea’s Policy

May

2014

2014-10

Sothea OUM,

Dionisius NARJOKO,

and Charles HARVIE

Constraints, Determinants of SME Innovation, and

the Role of Government Support

May

2014

2014-09

Christopher

PARSONS and Pierre-

Louis Vézina

Migrant Networks and Trade: The Vietnamese

Boat People as a Natural Experiment

May

2014

2014-08

Kazunobu

HAYAKAWA and

Toshiyuki

MATSUURA

Dynamic Tow-way Relationship between

Exporting and Importing: Evidence from Japan

May

2014

2014-07 DOAN Thi Thanh Ha

and Kozo KIYOTA

Firm-level Evidence on Productivity Differentials

and Turnover in Vietnamese Manufacturing

Apr

2014

31

No. Author(s) Title Year

2014-06 Larry QIU and

Miaojie YU

Multiproduct Firms, Export Product Scope, and

Trade Liberalization: The Role of Managerial

Efficiency

Apr

2014

2014-05 Han PHOUMIN and

Shigeru KIMURA

Analysis on Price Elasticity of Energy Demand in

East Asia: Empirical Evidence and Policy

Implications for ASEAN and East Asia

Apr

2014

2014-04 Youngho CHANG and

Yanfei LI

Non-renewable Resources in Asian Economies:

Perspectives of Availability, Applicability,

Acceptability, and Affordability

Feb

2014

2014-03 Yasuyuki SAWADA

and Fauziah ZEN Disaster Management in ASEAN

Jan

2014

2014-02 Cassey LEE Competition Law Enforcement in Malaysia Jan

2014

2014-01 Rizal SUKMA ASEAN Beyond 2015: The Imperatives for Further

Institutional Changes

Jan

2014

2013-38

Toshihiro OKUBO,

Fukunari KIMURA,

Nozomu TESHIMA

Asian Fragmentation in the Global Financial Crisis Dec

2013

2013-37 Xunpeng SHI and

Cecilya MALIK

Assessment of ASEAN Energy Cooperation within

the ASEAN Economic Community

Dec

2013

2013-36

Tereso S. TULLAO,

Jr. And Christopher

James CABUAY

Eduction and Human Capital Development to

Strengthen R&D Capacity in the ASEAN

Dec

2013

2013-35 Paul A. RASCHKY

Estimating the Effects of West Sumatra Public

Asset Insurance Program on Short-Term Recovery

after the September 2009 Earthquake

Dec

2013

2013-34

Nipon

POAPONSAKORN

and Pitsom

MEETHOM

Impact of the 2011 Floods, and Food Management

in Thailand

Nov

2013

2013-33 Mitsuyo ANDO Development and Resructuring of Regional

Production/Distribution Networks in East Asia

Nov

2013

2013-32 Mitsuyo ANDO and

Fukunari KIMURA

Evolution of Machinery Production Networks:

Linkage of North America with East Asia?

Nov

2013

2013-31 Mitsuyo ANDO and

Fukunari KIMURA

What are the Opportunities and Challenges for

ASEAN?

Nov

2013

2013-30 Simon PEETMAN Standards Harmonisation in ASEAN: Progress,

Challenges and Moving Beyond 2015

Nov

2013

2013-29

Jonathan KOH and

Andrea Feldman

MOWERMAN

Towards a Truly Seamless Single Windows and

Trade Facilitation Regime in ASEAN Beyond 2015

Nov

2013

2013-28 Rajah RASIAH

Stimulating Innovation in ASEAN Institutional

Support, R&D Activity and Intelletual Property

Rights

Nov

2013

2013-27 Maria Monica

WIHARDJA

Financial Integration Challenges in ASEAN

beyond 2015

Nov

2013

32

No. Author(s) Title Year

2013-26 Tomohiro MACHIKIT

A and Yasushi UEKI

Who Disseminates Technology to Whom, How,

and Why: Evidence from Buyer-Seller Business

Networks

Nov

2013

2013-25 Fukunari KIMURA

Reconstructing the Concept of “Single Market a

Production Base” for ASEAN beyond 2015

Oct

2013

2013-24

Olivier CADOT

Ernawati MUNADI

Lili Yan ING

Streamlining NTMs in ASEAN:

The Way Forward

Oct

2013

2013-23

Charles HARVIE,

Dionisius NARJOKO,

Sothea OUM

Small and Medium Enterprises’ Access to Finance:

Evidence from Selected Asian Economies

Oct

2013

2013-22 Alan Khee-Jin TAN Toward a Single Aviation Market in ASEAN:

Regulatory Reform and Industry Challenges

Oct

2013

2013-21

Hisanobu SHISHIDO,

Shintaro SUGIYAMA,

Fauziah ZEN

Moving MPAC Forward: Strengthening Public-

Private Partnership, Improving Project Portfolio

and in Search of Practical Financing Schemes

Oct

2013

2013-20

Barry DESKER, Mely

CABALLERO-

ANTHONY, Paul

TENG

Thought/Issues Paper on ASEAN Food Security:

Towards a more Comprehensive Framework

Oct

2013

2013-19

Toshihiro KUDO,

Satoru KUMAGAI, So

UMEZAKI

Making Myanmar the Star Growth Performer in

ASEAN in the Next Decade: A Proposal of Five

Growth Strategies

Sep

2013

2013-18 Ruperto MAJUCA

Managing Economic Shocks and Macroeconomic

Coordination in an Integrated Region: ASEAN

Beyond 2015

Sep

2013

2013-17

Cassy LEE and

Yoshifumi

FUKUNAGA

Competition Policy Challenges of Single Market

and Production Base

Sep

2013

2013-16 Simon TAY Growing an ASEAN Voice? : A Common Platform

in Global and Regional Governance

Sep

2013

2013-15

Danilo C. ISRAEL

and Roehlano M.

BRIONES

Impacts of Natural Disasters on Agriculture, Food

Security, and Natural Resources and Environment

in the Philippines

Aug

2013

2013-14 Allen Yu-Hung LAI

and Seck L. TAN

Impact of Disasters and Disaster Risk Management

in Singapore: A Case Study of Singapore’s

Experience in Fighting the SARS Epidemic

Aug

2013

2013-13 Brent LAYTON Impact of Natural Disasters on Production

Networks and Urbanization in New Zealand

Aug

2013

2013-12 Mitsuyo ANDO

Impact of Recent Crises and Disasters on Regional

Production/Distribution Networks and Trade in

Japan

Aug

2013

2013-11 Le Dang TRUNG Economic and Welfare Impacts of Disasters in East

Asia and Policy Responses: The Case of Vietnam

Aug

2013

33

No. Author(s) Title Year

2013-10

Sann VATHANA,

Sothea OUM, Ponhrith

KAN, Colas

CHERVIER

Impact of Disasters and Role of Social Protection

in Natural Disaster Risk Management in Cambodia

Aug

2013

2013-09

Sommarat

CHANTARAT, Krirk

PANNANGPETCH,

Nattapong

PUTTANAPONG,

Preesan RAKWATIN,

and Thanasin

TANOMPONGPHAN

DH

Index-Based Risk Financing and Development of

Natural Disaster Insurance Programs in Developing

Asian Countries

Aug

2013

2013-08 Ikumo ISONO and

Satoru KUMAGAI

Long-run Economic Impacts of Thai Flooding:

Geographical Simulation Analysis

July

2013

2013-07

Yoshifumi

FUKUNAGA and

Hikaru ISHIDO

Assessing the Progress of Services Liberalization in

the ASEAN-China Free Trade Area (ACFTA)

May

2013

2013-06

Ken ITAKURA,

Yoshifumi

FUKUNAGA, and

Ikumo ISONO

A CGE Study of Economic Impact of Accession of

Hong Kong to ASEAN-China Free Trade

Agreement

May

2013

2013-05 Misa OKABE and

Shujiro URATA The Impact of AFTA on Intra-AFTA Trade

May

2013

2013-04 Kohei SHIINO How Far Will Hong Kong’s Accession to ACFTA

will Impact on Trade in Goods?

May

2013

2013-03

Cassey LEE and

Yoshifumi

FUKUNAGA

ASEAN Regional Cooperation on Competition

Policy

Apr

2013

2013-02

Yoshifumi

FUKUNAGA and

Ikumo ISONO

Taking ASEAN+1 FTAs towards the RCEP:

A Mapping Study

Jan

2013

2013-01 Ken ITAKURA

Impact of Liberalization and Improved

Connectivity and Facilitation in ASEAN for the

ASEAN Economic Community

Jan

2013

2012-17

Sun XUEGONG, Guo

LIYAN, Zeng

ZHENG

Market Entry Barriers for FDI and Private

Investors: Lessons from China’s Electricity Market

Aug

2012

2012-16 Yanrui WU Electricity Market Integration: Global Trends and

Implications for the EAS Region

Aug

2012

2012-15 Youngho CHANG,

Yanfei LI

Power Generation and Cross-border Grid Planning

for the Integrated ASEAN Electricity Market: A

Dynamic Linear Programming Model

Aug

2012

2012-14 Yanrui WU, Xunpeng

SHI

Economic Development, Energy Market

Integration and Energy Demand: Implications for

East Asia

Aug

2012

2012-13

Joshua AIZENMAN,

Minsoo LEE, and

Donghyun PARK

The Relationship between Structural Change and

Inequality: A Conceptual Overview with Special

Reference to Developing Asia

July

2012

34

No. Author(s) Title Year

2012-12

Hyun-Hoon LEE,

Minsoo LEE, and

Donghyun PARK

Growth Policy and Inequality in Developing Asia:

Lessons from Korea

July

2012

2012-11 Cassey LEE Knowledge Flows, Organization and Innovation:

Firm-Level Evidence from Malaysia

June

2012

2012-10

Jacques MAIRESSE,

Pierre MOHNEN,

Yayun ZHAO, and

Feng ZHEN

Globalization, Innovation and Productivity in

Manufacturing Firms: A Study of Four Sectors of

China

June

2012

2012-09 Ari KUNCORO

Globalization and Innovation in Indonesia:

Evidence from Micro-Data on Medium and Large

Manufacturing Establishments

June

2012

2012-08 Alfons

PALANGKARAYA

The Link between Innovation and Export: Evidence

from Australia’s Small and Medium Enterprises

June

2012

2012-07 Chin Hee HAHN and

Chang-Gyun PARK

Direction of Causality in Innovation-Exporting

Linkage: Evidence on Korean Manufacturing

June

2012

2012-06 Keiko ITO Source of Learning-by-Exporting Effects: Does

Exporting Promote Innovation?

June

2012

2012-05 Rafaelita M.

ALDABA

Trade Reforms, Competition, and Innovation in the

Philippines

June

2012

2012-04

Toshiyuki

MATSUURA and

Kazunobu

HAYAKAWA

The Role of Trade Costs in FDI Strategy of

Heterogeneous Firms: Evidence from Japanese

Firm-level Data

June

2012

2012-03

Kazunobu

HAYAKAWA,

Fukunari KIMURA,

and Hyun-Hoon LEE

How Does Country Risk Matter for Foreign Direct

Investment?

Feb

2012

2012-02

Ikumo ISONO, Satoru

KUMAGAI, Fukunari

KIMURA

Agglomeration and Dispersion in China and

ASEAN:

A Geographical Simulation Analysis

Jan

2012

2012-01 Mitsuyo ANDO and

Fukunari KIMURA

How Did the Japanese Exports Respond to Two

Crises in the International Production Network?:

The Global Financial Crisis and the East Japan

Earthquake

Jan

2012

2011-10

Tomohiro

MACHIKITA and

Yasushi UEKI

Interactive Learning-driven Innovation in

Upstream-Downstream Relations: Evidence from

Mutual Exchanges of Engineers in Developing

Economies

Dec

2011

2011-09

Joseph D. ALBA,

Wai-Mun CHIA, and

Donghyun PARK

Foreign Output Shocks and Monetary Policy

Regimes in Small Open Economies: A DSGE

Evaluation of East Asia

Dec

2011

2011-08

Tomohiro

MACHIKITA and

Yasushi UEKI

Impacts of Incoming Knowledge on Product

Innovation: Econometric Case Studies of

Technology Transfer of Auto-related Industries in

Developing Economies

Nov

2011

35

No. Author(s) Title Year

2011-07 Yanrui WU Gas Market Integration: Global Trends and

Implications for the EAS Region

Nov

2011

2011-06 Philip Andrews-

SPEED

Energy Market Integration in East Asia: A

Regional Public Goods Approach

Nov

2011

2011-05 Yu SHENG,

Xunpeng SHI

Energy Market Integration and Economic

Convergence: Implications for East Asia

Oct

2011

2011-04

Sang-Hyop LEE,

Andrew MASON, and

Donghyun PARK

Why Does Population Aging Matter So Much for

Asia? Population Aging, Economic Security and

Economic Growth in Asia

Aug

2011

2011-03 Xunpeng SHI,

Shinichi GOTO

Harmonizing Biodiesel Fuel Standards in East Asia:

Current Status, Challenges and the Way Forward

May

2011

2011-02 Hikari ISHIDO

Liberalization of Trade in Services under

ASEAN+n :

A Mapping Exercise

May

2011

2011-01

Kuo-I CHANG,

Kazunobu

HAYAKAWA

Toshiyuki

MATSUURA

Location Choice of Multinational Enterprises in

China: Comparison between Japan and Taiwan

Mar

2011

2010-11

Charles HARVIE,

Dionisius NARJOKO,

Sothea OUM

Firm Characteristic Determinants of SME

Participation in Production Networks

Oct

2010

2010-10 Mitsuyo ANDO Machinery Trade in East Asia, and the Global

Financial Crisis

Oct

2010

2010-09 Fukunari KIMURA

Ayako OBASHI

International Production Networks in Machinery

Industries: Structure and Its Evolution

Sep

2010

2010-08

Tomohiro

MACHIKITA, Shoichi

MIYAHARA,

Masatsugu TSUJI, and

Yasushi UEKI

Detecting Effective Knowledge Sources in Product

Innovation: Evidence from Local Firms and

MNCs/JVs in Southeast Asia

Aug

2010

2010-07

Tomohiro

MACHIKITA,

Masatsugu TSUJI, and

Yasushi UEKI

How ICTs Raise Manufacturing Performance:

Firm-level Evidence in Southeast Asia

Aug

2010

2010-06 Xunpeng SHI

Carbon Footprint Labeling Activities in the East

Asia Summit Region: Spillover Effects to Less

Developed Countries

July

2010

2010-05

Kazunobu

HAYAKAWA,

Fukunari KIMURA,

and

Tomohiro

MACHIKITA

Firm-level Analysis of Globalization: A Survey of

the Eight Literatures

Mar

2010

2010-04 Tomohiro

MACHIKITA

The Impacts of Face-to-face and Frequent

Interactions on Innovation:

Feb

2010

36

No. Author(s) Title Year

and Yasushi UEKI Upstream-Downstream Relations

2010-03

Tomohiro

MACHIKITA

and Yasushi UEKI

Innovation in Linked and Non-linked Firms:

Effects of Variety of Linkages in East Asia

Feb

2010

2010-02

Tomohiro

MACHIKITA

and Yasushi UEKI

Search-theoretic Approach to Securing New

Suppliers: Impacts of Geographic Proximity for

Importer and Non-importer

Feb

2010

2010-01

Tomohiro

MACHIKITA

and Yasushi UEKI

Spatial Architecture of the Production Networks in

Southeast Asia:

Empirical Evidence from Firm-level Data

Feb

2010

2009-23 Dionisius NARJOKO

Foreign Presence Spillovers and Firms’ Export

Response:

Evidence from the Indonesian Manufacturing

Nov

2009

2009-22

Kazunobu

HAYAKAWA,

Daisuke

HIRATSUKA, Kohei

SHIINO, and Seiya

SUKEGAWA

Who Uses Free Trade Agreements? Nov

2009

2009-21 Ayako OBASHI Resiliency of Production Networks in Asia:

Evidence from the Asian Crisis

Oct

2009

2009-20 Mitsuyo ANDO and

Fukunari KIMURA Fragmentation in East Asia: Further Evidence

Oct

2009

2009-19 Xunpeng SHI The Prospects for Coal: Global Experience and

Implications for Energy Policy

Sept

2009

2009-18 Sothea OUM Income Distribution and Poverty in a CGE

Framework: A Proposed Methodology

Jun

2009

2009-17

Erlinda M.

MEDALLA and Jenny

BALBOA

ASEAN Rules of Origin: Lessons and

Recommendations for the Best Practice

Jun

2009

2009-16 Masami ISHIDA Special Economic Zones and Economic Corridors Jun

2009

2009-15 Toshihiro KUDO Border Area Development in the GMS: Turning the

Periphery into the Center of Growth

May

2009

2009-14

Claire HOLLWEG

and Marn-Heong

WONG

Measuring Regulatory Restrictions in Logistics

Services

Apr

2009

2009-13 Loreli C. De DIOS Business View on Trade Facilitation Apr

2009

2009-12

Patricia SOURDIN

and Richard

POMFRET

Monitoring Trade Costs in Southeast Asia Apr

2009

2009-11 Philippa DEE and

Huong DINH

Barriers to Trade in Health and Financial Services

in ASEAN

Apr

2009

37

No. Author(s) Title Year

2009-10 Sayuri SHIRAI

The Impact of the US Subprime Mortgage Crisis on

the World and East Asia: Through Analyses of

Cross-border Capital Movements

Apr

2009

2009-09 Mitsuyo ANDO and

Akie IRIYAMA

International Production Networks and

Export/Import Responsiveness to Exchange Rates:

The Case of Japanese Manufacturing Firms

Mar

2009

2009-08 Archanun

KOHPAIBOON

Vertical and Horizontal FDI Technology

Spillovers:Evidence from Thai Manufacturing

Mar

2009

2009-07

Kazunobu

HAYAKAWA,

Fukunari KIMURA,

and Toshiyuki

MATSUURA

Gains from Fragmentation at the Firm Level:

Evidence from Japanese Multinationals in East

Asia

Mar

2009

2009-06 Dionisius A.

NARJOKO

Plant Entry in a More

LiberalisedIndustrialisationProcess: An Experience

of Indonesian Manufacturing during the 1990s

Mar

2009

2009-05

Kazunobu

HAYAKAWA,

Fukunari KIMURA,

and Tomohiro

MACHIKITA

Firm-level Analysis of Globalization: A Survey Mar

2009

2009-04 Chin Hee HAHN and

Chang-Gyun PARK

Learning-by-exporting in Korean Manufacturing:

A Plant-level Analysis

Mar

2009

2009-03 Ayako OBASHI Stability of Production Networks in East Asia:

Duration and Survival of Trade

Mar

2009

2009-02 Fukunari KIMURA

The Spatial Structure of Production/Distribution

Networks and Its Implication for Technology

Transfers and Spillovers

Mar

2009

2009-01 Fukunari KIMURA

and Ayako OBASHI

International Production Networks: Comparison

between China and ASEAN

Jan

2009

2008-03

Kazunobu

HAYAKAWA and

Fukunari KIMURA

The Effect of Exchange Rate Volatility on

International Trade in East Asia

Dec

2008

2008-02

Satoru KUMAGAI,

Toshitaka GOKAN,

Ikumo ISONO, and

Souknilanh KEOLA

Predicting Long-Term Effects of Infrastructure

Development Projects in Continental South East

Asia: IDE Geographical Simulation Model

Dec

2008

2008-01

Kazunobu

HAYAKAWA,

Fukunari KIMURA,

and Tomohiro

MACHIKITA

Firm-level Analysis of Globalization: A Survey Dec

2008