Research On Industrial Linkages In East Asia

1. BackgroundWith the continuous deepening of economic globalization, as well as the inspiration of the North American Free Trade Area and the EU, the practice of regional economic integration in East Asia has been tremendously accelerated. Since the 1990s, first Japan has stepped into the long-term stagnation which achieved total industrialization in the region, second the Asian NIEs continued to be mature of industrialization, and third the ASEAN and China's began to rise rapidly and made steady progress in the heavy and chemical industries. The international industrial division in East Asia has kept increasingly updating, which makes the traditional catch-up development model and the flying geese theory be powerless and limited in the analysis of industrial integration of East Asia. During the trend of rapid dynamic change of industrial linkages in East Asia associated with the manner and extent, the full-blown global financial crisis in 2008 imposed the terrible impact on the traditional mode of economic growth in East Asia. Furthermore, with the re-emergence of trade protectionism in some areas of the world and inter-district transfers of dynamic comparative advantage, the industrial structure and trade patterns within the region are faced with enormous pressure to make adjustments.Mechanism of the international industrial linkages could penetrate to a good many aspects of regional economic and trade ties and the regional industrial division nets and industrial structure changes, and it is the important prerequisites for the international industrial cooperation, monetary and financial cooperation and economic interdependence, as well as the driven power for the international industrial transfer. Unfortunately, the literature from the perspective of the international industrial linkages (non-total) at home and abroad is rarely popular, which inevitably ignored the substance of supply and demand of industrial linkages. As the most direct and most effective tool for the analysis of regional industrial division, input and output linkages, and international industrial transfers, international industrial linkage theories and models would be very helpful for deepening the aggregate analysis, revealing the internal structure of the regional economy.To analyze the characteristics and the mechanisms of industrial linkages in East Asia with Asian International Input-Output Table (AIIOT) could provide an important reference and guidance, not only for economies'industrial restructuring, conversion of the mode of growth and trade patterns, but also for the regional industrial policy co-ordination and monetary and financial cooperation, and the solid theoretical basis for the earlier realization of the East Asian regional trade and investment liberalization and facilitation.2. Theory and MethodologyAs the middle-level of economic development and operation, industrial economy could connect the micro-field of enterprise price behavior with the macro field of government revenue decision-making, and further affect the development and evolution of financial markets through multiple channels. Industrial linkages technique, also often referred to as input-output analysis, was created in the 1930s, and gained further development since 1950s, when the various spatial levels of input-output models. At present, the input-output models can also be grouped into two categories:First are the ones which reveal 10 structure at a single country or single region level, including national input-output model and regional input-output model; second are ones consisting of different countries or different regions, including the intra-national input-output model, multi-regional input-output model (MRIO model), interregional input-output model (IRIO model)and the international/inter-country input-output model. IRIO model and MRIO model are respectively the foundations of international and inter-country input-output model.In the 1960s, the Japanese Institute of Developing Economies (IDE) began to authorize and popularize Asian input-output model, and in 1983 produced the first AIIOT, "1975 Asian International Input-Output Table" (including 8 economies). Since the 1980s, IDE published AIIOT every five years, which furnish the powerful analytical tools for the research on inter-industry input-output linkages and the evolution of industry structures in Asia and Pacific region. The "2000 Asian International Input-Output Table" (AIIOT 2000) was jointly authorized and launched in March 2006 by the IDE and the Japan External Trade Organization (JETRO) based on IRIO model, including 10 economies of Indonesia, Malaysia, Philippines, Singapore, Thailand, China, Taiwan, South Korea, Japan and the United States, and set up respectively 7 sectors model and 24 sectors models, and associated with Hong Kong, the EU and the rest of the world through import and export data.3. Empirical Analysis3.1 Bilateral International ModelTaking China and Korea for example, based on systemic data from AIIOT 2000 and bilateral international models including the interactive demand pull coefficient and interactive supply push coefficient within the intermediate demand dimension, as well as the geometric method in the manufacturing sector, the paper combined with 7 departments and 24 sectors input-output data system, focusing on the analysis of spillover and feedback associated with internal trade in the region. The conclusions as follows:First, the difference of industrial development levels between China and South Korea was revealed to some extent. On the one hand, South Korea's development of the domestic industrial structure is significantly higher than China', especially maintain a greater competitive advantage in its manufacturing sectors, such as the machinery manufacturing industry, chemical industry and other heavy industries; on the other hand, China's comparative advantage could be still gained in the primary sector and secondary industries with low value-added and resource-based industries.Second, China's industrial demand capability for South Korean is much greater, with the whole effect (PDCK) 7.83 times over the reverse role of South Korea's; South Korea's supply role in promoting China's industrial development is 0.83 of PSKC, less than that of China's supply role in promoting the development of South Korea.Third, from the point of view of the intermediate demand dimension in AIIOT, China industrial structure has a greater influence on South Korea', and South Korea industrial development has depended more on China'; and a certain degree of asymmetric competition exist between the two economies.Fourth, China and South Korea' shares of the manufacturing sectors accounted for respectively the proportion of 69.67% and 95.18% of their intermediate demand, and the bilateral international industrial linkages are mainly reflected in the manufacturing sub-sectors between the two economies.Fifth, non-equilibrium characteristics has been revealed among entire manufacturing sectors between China and South Korea, the industrial linkages are closer in the machinery manufacturing, textile, leather and products industry, chemical industry, in which large-scale intra-industry trade have occurred in the past and became a main driving force associated with bilateral trade industry; while other manufacturing industries with the level lower than the average.3.2 Multilateral International ModelBased on AIIOT 2000's IRIO model, the application of the three basic multilateral international models, the industrial linkage backward effect, the output effects of final demand and value-added effect of final demand, were helpful to empirically analyze the industrial linkages and economic interdependence of industries 10 economies in East Asia (including the U.S.), and their respective market position in the middle or final product fields. The study found:First, from the point of view of the backward effects of industrial linkage in East Asia:(1) China and Singapore are on the top ranking, followed by the United States and Japan, Indonesia, Taiwan and the Philippines on the low list. China has been furnishing the most important driving force through its huge demand increments of intermediate products for regional industrial development; (2) the backward linkages in East Asian economies are mainly embodied on the manufacturing and construction industries, much larger than the average for all industries, and integration and penetration in manufacturing sectors could be pointed as the most important features of multilateral industrial linkages; (3) the backward linkage effect in manufacturing sectors in Northeast Asia is much higher than that in Southeast Asia, which is especially reflected in the high processing degree and higher value-added heavy chemical industries.Secondly, from the point of view of output effects of final demand:(1) the top five were the United States, European Union, Japan, China and South Korea, while the output effects induced by Southeast Asian countries are relatively low; (2) The final product markets are still dominated by the United States and Japan, much higher than the level of China, and the former two could also be much capable to furnish high-value-added advanced manufacturing and service industries; (3) in the manufacturing field, the United States and the Northeast Asian three economies in East Asia to increase output of the main driving force of its final demand for manufactured products to undertake the supply capacity is also outstanding. Finally, the amount of output induced by other economies is positively relevant to their self-sufficiency proportion of the total effect.Thirdly, from the point of view of the value-added effects of final demand; (1) the emergency of value-added effects in East Asia were mainly induced by the United States, Japan, the European Union and China through the provision of the final demand; (2) the economies with higher economic capacity and final demand tended to more sustain their own value-added and less depend on external final demand; (3) the proportion of self-sufficiency of Northeast Asian economies were higher than the Southeast Asian economies. 3.3 Local International ModelAt present, the current input-output models are unable to support the data for the study on the international industrial linkages between one part of one country and another whole country. There is great need to fulfill the study about external industrial linkages of one country with the research on some local areas'. The paper has taken Northeast China for example, and proposed separately two area models of international linkages, the "area VS nation" model and "area VS region" model, as well as the analytical framework, which is hopeful to not only be a useful supplement to the international industrial linkage theory, but also provide some for reference for the study on the external industrial linkage between other parts of China and East Asian economies.4. ConclusionsThe 1997 Asian financial crisis and the 2008 world financial crisis has demonstrated its the tremendous destructive powers against economic growth and industrial development in East Asia, especially because of the increasing economic and industrial connections among the regional economies. In addition, multilateral trading system mainly represented by WTO has made unusually slow progress in recent years, as well as a resurgence of trade protectionism, East Asia have been facing with the great pressures for structural adjustment and trade in transition.Relative to the regions with the more advanced economic integration, such as the North American Free Trade Area and the European Union, regional economic integration process and the international industry linkages in East Asian are still at their initial stages, and so far there are still not any regional industrial policies or official monetary and financial coordination mechanism. The overall level of regional cooperation mechanisms are mainly the "10+3" meeting and East Asia Summit, however, from the nature of regional cooperation in East Asia, the former is the main cooperation channel, and the latter is the main forum for senior level.As international input-output linkages in East Asia continued to deepen, the FTA strategies and other industrial coordination policies, and bilateral or multilateral currency swaps or other regional monetary and financial cooperation methods are also keep stepping towards a new height, and produce plenty of incentives for the evolution of regional industrial linkages.Facing increasingly complex political and economic situation at home and abroad, China has to recognize its current industry status and development trend in the Asian International Input-Output linkages system. From now on, China need to actively convert domestic economic growth mode and effectively upgrade the industrial structure, and take part into the coordination at the regional FTA and monetary and financial cooperation and take the initiative to play its due role with the East Asian regional and even world-wide Perspective.