The Effect of the Network Structure and Nature of International Production Chains (IPCs) on East Asia's Trade in Automobile Industry

Abstract

This study sought to examine the effect of network structure and nature of IPCs on bilateral trade, with a specific focus on the automobile industry using the panel data methodology. Using the data, a deeper understanding of the determinants behind the development of East Asia’s IPCs in several ways. Firstly, apart from the economic size of the exporting and importing nations, distance, per capita income, FTA, government policies, language, and FDI, it was found that the network structure and the network nature also played a significant role in determining the level of East Asia’s trade in the automobile industry. Specifically, a nation with a high degree of trade integration with its trading partners in IPCs appeared to be poised to increase its exports and imports of automobile products, and the same can be said of a nation with a high dominating power in IPCs. Secondly, it was also found that network structure had an impact on determining the level of automobile trade when we considered in our analysis a nation’s position in the IPCs. In particular, even though both “middle” and “bottom” nations may become the main importer of automobile parts and components (APC), the amount of APC imported from their partner(s) may be different. This could be the result of “middle” nations importing APC for export and domestic use, while “bottom” nations imported these products for local demands only. To improve on the added value from the IPCs as well as to stimulate trade in this region, some suggestions were provided regarding policies for the nations under study.