New Assessment of Economic Integration in East Asia: Application of Industry-Specific G-PPP Model

         
Author Name KAWASAKI Kentaro (Toyo University) / SATO Kiyotaka (Yokohama National University)
Creation Date/NO. December 2020 20-E-091
Research Project Exchange Rates and International Currency
Download / Links

Abstract

It is well known that intra-industry trade and cross-border production network have promoted economic growth and regional integration in East Asia. However, regional supply and production chains may have been differently formed across industries, reflecting different degree and scope of regional economic linkages at an industry level. The contribution of this paper is three-fold. First, to assess industry-level differences, this study adopts the Generalized Purchasing Power Parity (G-PPP) model using industry-specific producer prices. Second, the momentum threshold autoregressive (M-TAR) model is employed to allow for possible nonlinearity arising from dynamic nature of regional economic growth and development. Third, Granger causality test is also conducted to assess whether regional economies have autonomously integrated. The empirical results reveal that economic integration has progressed more autonomously in the electrical industry as well as transport equipment industry, as China and ASEAN countries have grown as the final destination market for finished products in these two industries.