Regional market integration and trade in value-added // Toshiaki Hasegawa

Toshiaki Hasegawa
Professor Emeritus of Chuo University
vinomac@tamacc.chuo-u.ac.jp



Link to the presentation file: https://ecfor.ru/publication/regional-market-integration-and-trade-in-value-added/

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This presentation happened 5 September 2019, Russia, Sochi at 27th Inforum Conference.

The conference & materials: https://ecfor.ru/27th-inforum-world-conference/

Playlist with the other videos from the conference: https://www.youtube.com/playlist?list=PLJBJFs8UgQgpmWWFzqw87jdwOBQXQmLfu
Inforum’s site: http://www.inforum.umd.edu/

Inforum, or Interindustry Forecasting at the University of Maryland, was founded nearly 50 years ago by Dr. Clopper Almon, now Professor Emeritus of the University. It is dedicated to improving business planning, government policy analysis, and the general understanding of the economic environment.

The host side was the Institute of Economic Forecasting of the Russian Academy of Sciences. IEF RAS specializes in fundamental, applied and exploratory scientific research in the field of analysis and forecasting of the socio-economic prospects of Russia and its regions, and the development of recommendations and proposals with a goal to improve the quality of economic policy in Russia. The site is https://ecfor.ru.

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Notes:

Content:
1 Change in Trade Cost and Global Production Network
2 Regional Trade Agreement and Change in Market Structure
3 Change in Value-Added Production Network across National Borders

1. Change in Trade Cost and Global Production Network

The neoclassical trade theory has explained that the flow of international trade is determined based on comparative advantage. In the case of the new trade theory which assumes that imperfect competition and economies of scale dominate, the flow of trade in the manufactured products that embody the advanced technologies, will pose a problem as to how huge initial costs can be sunk at the acceptable costs.

Until the final value of today’s manufactured products is created, there are numerous cross-border transactions in the intermediate goods such as materials, parts, and semi-finished products.

Furthermore, cross-border fragmentation (fragmentation across borders in value generating processes) has developed by determining in the optimal location of each production process. Fragmentation in global production network can produce the final value of the goods and services, and the business firms seek in which region it would be procured, where it would be processed and assembled. It is necessary to judge for such business firms in which region or economy the product values might be sold.

With the emergence of multilateral trade liberalization in the GATT-WTO framework, the rise of the EU and NAFTA has raised expectations for the regional trade agreements (RTA) in the world economy. The development of fragmentation to construct the global value chain (GVC) by multinational corporations, and to create value for goods and services across national borders has spread broadly. It is a movement to subdivide production process across borders in searching more efficient production location.

With regard to the flow of trade by industry among regions and among economies in the world, how value-added are sourced from around the world is shown with the international input-output tables developed since the mid-1990s. And, it is easy to understand to which region and which industry in the economy the value of the goods and services will be supplied. In the framework of the International Input-Output Tables, the sourcing of value-added by origin can be explained not only in Japan but also in relation to regions and industries by extracting data in the columns of the international input-output table. In addition, the sales of the value of goods and services created by industries in each country can be explained by extracting information from the row.

As trade flow data has been improved, on the other hand, tariff policy has been generally considered as a standard measures of trade policy in discussions on the trade cost. However, the degree to which tariff rates affect actual trade barriers has been relatively negligible so far, at least in today’s developed economies. Anderson-van Wincoop (2004) defined the trade cost as a broader barriers to cross-border economic transactions, and D. Novy (2013) developed the Bilateral Trade Cost Index. The database calculated in use of bilateral trade data and gross national product data, in the joint work of the World Bank and UNESCAP, such the bilateral trade cost data in the agricultural sector and the industrial sector of each country and the total trade are available.