Empirical Analysis of the Trading Structure Changes in East Asia under the Modularization of Product Architecture

Author Name KUWAHARA Satoshi  (Senior Fellow)
Creation Date/NO. July 2006 06-J-050
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It has generally been believed that the pattern of intraregional trade in the East Asian region is being prompted by the expansion of direct investment and is evolving from the One Way Trade structure to the Intra-Industrial Trade Structure. However, the current expansion of direct investment is being stimulated in part by the advance of modularization of product architecture, which is increasing the scope for the geographical dispersal of production processes. Also, in some respects, the advance of modularization is possibly counterproductive to the expansion of Intra-Industrial Trade, and is shifting the trade structure from Intra-Industry Trade to the One Way Trade.

This paper takes as its starting point the perception that the advance of modularization may be having a major impact on the trading structure of the East Asian region. It attempts to demonstrate that the movement toward the fragmentation of the division-of-labor structure is not uniform, but is a complex movement that varies according to differences in the level of modularization, and it attempts to clarify this situation. To that end, it analyzes the trading structure in the East Asian region by individual product groups categorized according to their level of modularization.

The result shows that in relationships between Japan and other East Asian countries, the Intra-Industrial Trade - particularly, Vertical Intra-Industry Trade - is growing with respect to categories of the most integral structure, while with respect to categories of the highest level of modularization it is rather the case that Horizontal and Vertical Intra-Industry Trade is receding, there is increasing segregation by item, and the trend toward the One Way Trade is strengthening. What also becomes clear from the analysis is the fact that other East Asian countries have a complementary trade structure with Japan, but have mutually competitive trade structure with countries other than Japan, and that this is particularly marked in categories of the highest level of modularization.