Conclusion

“Computers and office equipment” has been the leading export category from East Asia to the rest of the world for the last 15 years. Firms in the region have produced these goods within regional production and distribution networks. They have broken up long production processes and allocated production blocks across developing, emerging, and developed economies in the region based on differences in factor endowments.

This study examined the factors affecting the exports of computers produced within East Asian production networks. The results indicate that exchange rate appreciations in countries supplying parts and components would reduce computer exports from East Asian processor economies. In addition, the findings indicate that a decrease in income in importing countries would cause a large drop in computer exports. On the other hand, there is no robust evidence that exchange rate changes in assembly countries would affect exports.

This evidence has several implications for researchers and policymakers. One follows from the work of Cline and Williamson (2009). They argue that US current account deficits and Asian current account surpluses will expand in the future, and conclude that this combination poses a systemic threat to the global economy. To resolve these imbalances, they argue that real exchange rates in the PRC and Malaysia need to appreciate by 20% in effective terms and by 40% against the US dollar. They also conclude that real exchange rates in Japan and Korea need to depreciate. However, the results in this paper call into question whether appreciations in the PRC and Malaysia combined with depreciations in Japan and Korea would reduce East Asia's surpluses. Fifty percent of the PRC's and Malaysia's exports are processed exports produced using parts and components coming from East Asia. Appreciations in the PRC combined with depreciations in developed Asia are unlikely to significantly reduce processed exports. Appreciations throughout the region would be needed to rebalance trade between Asia and the US.

A second implication for researchers concerns how to model the effects of the global crisis on Asia. Kawai and Zhai (2009) used a multi-country dynamic general equilibrium model to analyze how the global financial crisis is affecting East Asia. They find that a slowdown in the US or a depreciation of the US dollar would reduce exports and GDP more in emerging East Asia than in developed East Asia. However, the authors did not incorporate the flow of parts and components from developed East Asia to emerging East Asia in their model. Because much of the value-added of emerging East Asia's exports comes from developed East Asia, the estimated effects of a US slowdown on output in emerging East Asia would be smaller and the estimated effect on output in developed East Asia larger when these linkages are taken into account.

A third implication concerns how the 2008–2009 economic crisis is affecting computer exports. Because the majority of computer exports before the crisis went to developed economies and because the income elasticity of demand is high, recessions in the US, Europe, and Japan are causing large decreases in the demand for computers produced in the region. If the developed world recovers from the current crisis quickly, then demand for computers should pick up as well. If not, demand will remain constrained. Demand will fall even more if the dollar depreciates against Asian currencies in the medium-run, as Bénassy- Quéré, Béreau, and Mignon (2009) and others predict. Computer exports may thus not play the same role as an engine of growth that they played before the crisis. East Asian policymakers should therefore strengthen social safety nets, improve infrastructure, reduce intra-regional impediments to trade, and undertake other initiatives to promote the demand for final goods within the region.

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