East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances

East Asia is characterized by intricate production and distribution networks. Skilled workers in Japan, Taiwan, South Korea, and other places produce sophisticated, technology-intensive parts and components, ship them to China and the Association of Southeast Asian Nations (ASEAN) for assembly by lower wage workers, and then re-export them largely outside of Asia. Exports from East Asia have been accompanied by large imbalances with the West. This project investigates how exchange rates affect trading patterns in East Asia and elsewhere, and how exports and production networks in the region are evolving. Exchange rates throughout the supply chain, in principle, should affect exports. This project thus examines how exchange rates in China, South Korea, Taiwan, Japan, and ASEAN affect East Asian exports. It also investigates how the appreciating yen between 2007 and 2012 and the weakening yen after November 2012 affected Japanese exports and imports and the profitability of Japanese firms. In addition, it culls lessons from the exchange rate policies of other countries such as Switzerland. The research further examines the product sophistication of East Asian exports. Is Japan close to the technological frontier? How far away are South Korea and Taiwan from Japan? How are ASEAN countries progressing at moving up the ladder of comparative advantage? To what extent are Asian economies comrades, and to what extent are they competitors, in their exports to the world? Finally, the project draws policy implications.

October 1, 2013 - September 30, 2015