The Evolution of Industrial Networks in East Asia: Stylized Facts and Role of Trade Facilitation Policies

Abstract

Deepening industrial interdependency in East Asia was not just a spontaneous phenomenon, but it has been carefully aided and facilitated by the series of policies implemented by national governments. The objective of the chapter is to provide a nontechnical introduction to the use of input-output analysis and graph theory for understanding trade in the global value chain perspective. Applying these topological properties to the East Asian and Pacific context, we show that the inter-industry network moved from a simple hub-and-spokes cluster to a much more complex structure with the emergence of the People's Republic of China and the specialization of several countries as secondary pivots. The densification of productive networks resulted from the coincidence of business strategies with the promotion of export-led growth policies from developing East Asian countries. These countries applied a series of trade facilitation measures that lowered tariff duties and reduced other transaction costs. Tariff escalation was greatly reduced, lessening the anti-export bias attached to high effective protection rates and improving the competitiveness of second-tier national suppliers. The other axis of trade facilitation focused on improving logistics services and cross-border procedures. While East Asia is well ahead of the rest of developing Asia in this respect, there is still a wide margin of progress in order to close the gap with best international practices.