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Asian Economies in Global Supply Chains

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

New Orleans Marriott
Hosted By: American Committee on Asian Economic Studies & American Economic Association
  • Chair: Calla Wiemer, American Committee on Asian Economic Studies

Post-Covid-19 Policy Shocks and Their Implications for Global and Regional Value Chains: The Case of ASEAN

Michael G. Plummer
,
Johns Hopkins University and SAIS Europe
Peter Petri
,
Brandeis University

Abstract

ASEAN economic development is predicated on an outward-oriented production strategy based on international value chains and foreign direct investment. Yet recent geopolitical tensions and the Covid-19 pandemic are leading larger countries to adopt policies that could have negative consequences for outward-oriented economies like those in the ASEAN, including increasing tariffs, export controls/taxes, and inward-looking industrial policies to transform and/or reshore international value chains. This paper gauges the economic implications of several related policy scenarios, including: (1) “Geopolitical shock” scenarios, under which there is (a) a rise in tariffs and export controls in the context of the US-China trade war and (b) sanctions against Russia for its aggression in the Ukraine; and (2) an “enhanced regional cooperation” scenario, under which the Regional Comprehensive Economic Partnership, which went into effect in January 2022, is implemented and the Comprehensive and Progressive Agreement for Transpacific Partnership adds new members (in this scenario, the United Kingdom and South Korea). It uses an advanced global Computable General Equilibrium for 2022-2040, with the Covid-19 shock included in the baseline. Preliminary estimates suggest that the geopolitical shock scenario will have minor overall effects on global income, trade and employment but will substantially affect trade and investment patterns. The enhanced regional cooperation scenario will have moderate aggregate but will also lead to a significant reconfiguration of trade and investment patterns. The model predicts that both scenarios would likely have the effect of deepening regional value chains in the Asia-Pacific region in general and with ASEAN in particular.

Regionalizing Value Chains: Trends, Opportunities, and Risks

Jules Hugot
,
Asian Development Bank
Reizle Platitas
,
Asian Development Bank

Abstract

Pre-pandemic assessments suggest that resilience in global value chains can be strengthened by reducing the number of linkages between suppliers and customers. With the goal of shortening value chains while still diversifying sources geographically, the strategy seems to involve regionalization of production. Asia’s manufacturing value chains have followed this trend with the People’s Republic of China at the center. Two disruptions to the process merit a closer look: the PRC-US trade conflict: and the COVID-19 pandemic. In particular, this paper looks at whether regionalization supported resilience in Asia in response to these shocks and how it can be leveraged to achieve a faster, more robust recovery from the pandemic. The analysis pays attention to cross-region (between Asia and Europe vs North America) and cross-sector differences. Based on the assessment, policy implications are drawn, highlighting the balancing of risks and opportunities in a more regionalized recalibration of supply chains.

Connecting Eurasian Supply Chains: The Impact Of Covid-19 and the Russia-Ukraine War on the EU-China Rail Landbridge

Richard Pomfret
,
University of Adelaide

Abstract

International supply chains are dependent on ease of crossing borders and efficient connectivity in terms of price, speed, and reliability. Communication costs explain why intensification of international supply chains during the last four decades has occurred primarily within regional value chains (RVCs), centered on East Asia, Europe, and North America. Initially responding to demand from automobile and electronics firms to connect their European and Chinese supply chains with shorter and more reliable freight services than maritime shipping, the Eurasian rail Landbridge established in the 2010s was the first major overland link between RVCs. The Eurasian Landbridge was resilient through deteriorating EU-Russia relations after 2014 and the COVID-19 epidemic in 2020-21. However, following the Russian invasion of Ukraine and inclusion of the Russian rail company in western sanctions in February/March 2022, traffic along the main Landbridge routes ceased. This paper analyzes the evolution of the Landbridge as an exercise in choice of connectivity for Eurasian supply chains, the response of supply chain managers to the closure of routes, and the role of public policy in creating reliable alternatives.

The Impact of Covid-19 on Supply Chain Credit Risk

Senay Agca
,
George Washington University
John R. Birge
,
University of Chicago
Zi'ang Wang
,
Chinese University of Hong Kong
Jing Wu
,
Chinese University of Hong Kong

Abstract

Global supply chains expose firms to multi-regional risks while also providing a buffer against local shocks. The recent COVID-19 pandemic and its differential impact on different regions in the world provide an opportunity to explore these effects.We examine multi-regional supply chain risk by focusing on credit risk as measured by CDS spreads and US-China supply chain networks. We find that local risks propagate through global supply chains to other regions. CDS spreads for firms with Chinese supply chain partners increase by 8-9 percent due to supply chain disruptions during the pandemic-related economic shutdown period in China, and the spreads decrease by 12-20 percent when the supply chain activities resume during the economic re-opening period. The household demand channel plays an important role in this risk propagation. We find that supply chain activity resumption is insufficient to decrease credit risk in sectors that cater to local households when the local economy suffers from dampened household spending due to economic shutdowns. Having a more global customer base mitigates the local household demand shock effects. Firm leverage and supply chain duration weaken supply chain resilience as reflected in credit risk during the pandemic, whereas supply chain network centrality, cash holdings, growth opportunities, and strong credit ratings increase resilience in global supply chains.

Discussant(s)
Ari Van Assche
,
HEC Montréal
Davin Chor
,
Dartmouth College
Michael Drury
,
McVean Trading and Investment
Ann E. Harrison
,
University of California-Berkeley
JEL Classifications
  • F6 - Economic Impacts of Globalization
  • O5 - Economywide Country Studies