The Ties that Bind Asia, Europe, and United States

Date: February 2010
Type: Papers and Briefs
Subject:
Series: Economics Working Papers
ISSN: 1655-5252 (print)
Author: Kim, Soyoung; Lee, Jong-Wha; Park, Cyn-Young

Description

This paper investigates changes in Asia's regional and global trade linkages and their influence on macroeconomic relationships among Asia, Europe, and United States (US). It first document changes in trade patterns of East Asia, Europe, and US and discuss stylized facts about East Asia's trade structure. The People's Republic of China (PRC) plays a critical role as an assembly and production center in rapidly expanding intra-Asian trade. However, the PRC's trade share in parts and components with Europe and the US is rising, suggesting that the region's production chains are increasingly integrated into the global business network. Empirical results from a panel vector auto-regression model generally confirm the positive effect of growing intra-Asian trade on both regional and global output comovements, reflecting the nature of intra-Asian trade that is heavily driven by external demand. However, macroeconomic interdependence among East Asia, Europe, and US is becoming more bidirectional, as shown by the positive effect of the East Asian aggregate output shock on both European and US outputs. The findings suggest a future role for Asia as an increasingly important trade partner and balancing power in the world economy.

Contents

  • Abstract
  • Introduction
  • East Asia’s Trade Patterns and Global Linkages
  • The PRC’s Role in Future Regional and Global Trade Patterns
  • The Effect of Trade Linkages on Output Co-Movements
  • Concluding Remarks
  • References