2010 Reports

Investment, Production and Trade Networks as Drivers of East Asian Integration

Paprzycki, Ralph; Ito, Keiko

This paper shows that foreign direct investment (FDI), production and trade networks have been a principal driver of East Asian integration. A key element in this has been the role of production sharing, in which different stages of the production process are dispersed across countries in the region. The rise of such patterns of production has been facilitated by the unilateral liberalization of trade and investment by governments in the region to attract FDI. However, liberalization and the resulting pattern of regional integration have been heavily concentrated in a select number of industries (led by electrical machinery) and are largely confined to a particular form of supply-side integration (production sharing), and the region continues to depend on external demand.