Relative positions of countries within the regional value chains in East Asia

The literature on global value chains often refers to the term “smiley curve” as observed in a functional graph which depicts the relationship between value-added and tasks in the production process of a particular product. Usually, both peripheral sides of the task spectrum, such as product design, R&D and marketing, receive the higher values, while the tasks in the middle range, especially the assembly stage, are characterized by the lower production technologies and lower value-added, thus forming the shape of a smile. This implies that, when tasks are carried out in different countries through international outsourcing, the relative positions of countries along the “smiley curve” determine the international distribution of value-added.

Based on such an implication from the “smiley curve”, the paper aims to call attention to the importance of relative positions of countries within regional supply chains when considering the difference in countries’ value-added generation where the international production sharing is prevalent. The study employs the input-output model of average propagation lengths (APL), which indicates the average number of production stages lining up in every branch of supply chains of a given product, and so effectively measures the level of fragmentation of production processes. The model is applied to the Asian International Input-Output Tables developed by the Institute of Developing Economies, Japan External Trade Organization (JETRO), in order to elucidate the structural change of the production system in East Asia from 1985 to 2005.

In the analysis, it is found that, from 1985 to 2005, upstream economies have been more or less clustered, while China and Thailand became downstream standalones. Bipolarization between parts suppliers and final assemblers can be observed during this period.