Unveiling Intra-Industry Trade Dynamics in ASEAN Economies

Value Creation and the Role of Intra-industry Trade in ASEAN Santi Chaisrisawatsuk School of Economic Development National Institute of Development Administration Presentation to SEASIA 2017 Conference, 17 December 2017 Chulalongkorn University, Bangkok, Thaialnd

Trading in the Age of Globalization and Technology Dynamism The possibility of IIT (Horizontally IIT) due to monopolistic competition and increasing return to scale despite similar factor endowment (Krugman (1979, 1981), Lancaster (1980), Helpman (1981)) A growing numbers of studies focus on the determinants of IIT, i.e., trade openness and IIT (Greater degree of IIT was found in association with increasing exports but not for imports) and IIT is more likely in the industry with monopolistic competition. Rapid production technology upgrading and networking Decreasing significant of economies of scale and increasing role of economies of scope in global competition Emergence of imperfection competition in global trading especially in the industry where large multinational enterprises dominate the market Heterogeneity in preferences and consumptions. Increasing trend of Industrial fragmentation and product segmentation in recent development.

Framework of the Study - Can IIT enhances competitiveness? Any relationship? - Can IIT contribute to productivity improvement? (work in progress) - Can ASEAN through economic integration benefits from IIT as a way for value creation? - Expansion of economic integration such as AFTA, ASEAN+1 and AEC - Greater degree of economic integration (services and factors of production) Inter-industry trade (Homogenous and perfect competition) Intra-industry trade (Product differentiation and imperfect competition)

Intra-Industry Trade Increasing numbers of economic integration open up opportunities for trade, services as well as factors of production and hence, fostering value creation through efficiency gain from production networking Gains from intra-industry trade have been pointed out in two folds It is a welfare improvement as domestic consumers enjoy more varieties of product It is also claimed that value of the goods are added through product differentiation both vertically and horizontally

Intra-Industry Trade Theoretically, IIT determinants are both country-specific factors (endowment, economic size, income level, etc) and industry-specific factors (market competition, economies of scale, product differentiation, etc) Horizontal IIT (HIIT) refers to two-way trading of horizontal differentiated goods (Different by the product attributes) Vertical IIT (VIIT) refers to two-way trading of vertical differentiated goods (Different by the product quality) Empirical evidences found more support for country specific factor in IIT determinants. Grubel-Lloyd IIT index is applied in this study on SITC 2- digits trade data IIT = (1 ( | Xik Mik| / (Xik+ Mik)) * 100

Thailands IIT-G by SITC from 2007-2015 Thailand IIT-Global market in Food and Live Animal sector (SITC 000-009) 2007-2015 Thailand IIT-Global market in Beverages and tobacco sector (SITC 10-19) 2007-2015 100.00 120.00 90.00 100.00 80.00 70.00 80.00 60.00 50.00 60.00 40.00 30.00 40.00 20.00 20.00 10.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 00 SITC 01 SITC 02 SITC 03 SITC 04 SITC 11 SITC 12 SITC 05 SITC 06 SITC 07 SITC 08 SITC 09

Thailands IIT-G by SITC from 2007-2015 Thailand IIT-Global market in Crude materials, inedible, except fuels sector (SITC 21-29) 2007-2015 Thailand IIT-Global market in Mineral fuels, lubricants and related materials sector (SITC 31-39) 2007-2015 120.00 100.00 90.00 100.00 80.00 70.00 80.00 60.00 60.00 50.00 40.00 40.00 30.00 20.00 20.00 10.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 21 SITC 22 SITC 23 SITC 24 SITC 25 SITC 32 SITC 33 SITC 34 SITC 35 SITC 26 SITC 27 SITC 28 SITC 29

Thailands IIT-G by SITC from 2007-2015 Thailand IIT-Global market in Animal and vegetable oils, fats and waxes sector (SITC 41-49) 2007-2015 Thailand IIT-Global market in Chemicals and related products, n.e.s. sector (SITC 51-59) 2007-2015 120.00 120.00 100.00 100.00 80.00 80.00 60.00 60.00 40.00 40.00 20.00 20.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 41 SITC 42 SITC 43 SITC 51 SITC 52 SITC 53 SITC 54 SITC 55 SITC 56 SITC 57 SITC 58 SITC 59

Thailands IIT-G by SITC from 2007-2015 Thailand IIT-Global market in Manufactured goods classified chiefly by material sector (SITC 61-69) 2007-2015 Thailand IIT-Global market in Machinery and transport equipment sector (SITC 71-79) 2007- 2015 120.00 120.00 100.00 100.00 80.00 80.00 60.00 60.00 40.00 40.00 20.00 20.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 71 SITC 72 SITC 73 SITC 74 SITC 75 SITC 61 SITC 62 SITC 63 SITC 64 SITC 65 SITC 76 SITC 77 SITC 78 SITC 79 SITC 66 SITC 67 SITC 68 SITC 69

Thailands IIT in Global market High degree of IIT are observed in most agriculture products, chemical, and machinery and transport equipments. Different trends are observed for IIT in ASEAN market where low IIT are observe for food and live animal sector. Chemical and manufactured goods are relative low IIT in the ASEAN market compare to global market for Thailand Not clear indication of greater intra-industry trade after AFTA or AEC except for some particular sectors such as plastic in primary form (SITC 57), cork and wood (SITC 24) It appears there are more fluctuation of IIT after the completion of AFTA (2010) both in the global as well as in the ASEAN market

Thailands IIT-A by SITC from 2007-2015 Thailand IIT-ASEAN market in Food and Live Animal sector (SITC 000-009) 2007- 2015 Thailand IIT-ASEAN market in Beverages and tobacco sector (SITC 10-19) 2007-2015 120.00 90.00 80.00 100.00 70.00 80.00 60.00 50.00 60.00 40.00 30.00 40.00 20.00 20.00 10.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 00 SITC 01 SITC 02 SITC 03 SITC 04 SITC 11 SITC 12 SITC 05 SITC 06 SITC 07 SITC 08 SITC 09

Thailands IIT-A by SITC from 2007-2015 Thailand IIT-ASEAN market in Crude materials, inedible, except fuels sector (SITC 21-29) 2007-2015 Thailand IIT-ASEAN market in Mineral fuels, lubricants and related materials sector (SITC 31-39) 2007-2015 120.00 120.00 100.00 100.00 80.00 80.00 60.00 60.00 40.00 40.00 20.00 20.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 21 SITC 22 SITC 23 SITC 24 SITC 25 SITC 32 SITC 33 SITC 34 SITC 35 SITC 26 SITC 27 SITC 28 SITC 29

Thailands IIT-A by SITC from 2007-2015 Thailand IIT-ASEAN market in Chemicals and related products, n.e.s. sector (SITC 51-59) 2007-2015 Thailand IIT-ASEAN market in Animal and vegetable oils, fats and waxes sector (SITC 41-49) 2007-2015 120.00 120.00 100.00 100.00 80.00 80.00 60.00 60.00 40.00 40.00 20.00 20.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 51 SITC 52 SITC 53 SITC 54 SITC 55 SITC 41 SITC 42 SITC 43 SITC 56 SITC 57 SITC 58 SITC 59

Thailands IIT-A by SITC from 2007-2015 Thailand IIT-ASEAN market in Manufactured goods classified chiefly by material sector (SITC 61-69) 2007-2015 Thailand IIT-Global market in Machinery and transport equipment sector (SITC 71-79) 2007- 2015 120.00 100.00 90.00 100.00 80.00 70.00 80.00 60.00 60.00 50.00 40.00 40.00 30.00 20.00 20.00 10.00 0.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 SITC 61 SITC 62 SITC 63 SITC 64 SITC 65 SITC 71 SITC 72 SITC 73 SITC 74 SITC 75 SITC 66 SITC 67 SITC 68 SITC 69 SITC 76 SITC 77 SITC 78 SITC 79

Thailands IIT-G and Export Growth Relationship of Thailand's IIT-G and Export Growth 2015 120.00 100.00 80.00 Export Growth (%) 60.00 40.00 20.00 0.00 0.00 20.00 40.00 60.00 80.00 100.00 120.00 -20.00 -40.00 -60.00 IIT-G -There is no clear association of Thailand s export growth and intra-industry trade - Thailand export growth trend to rely more on cost and price competition rather than on value added created by product differentiation both horizontally and vertically

Thailands IIT and Competitiveness RCA and IIT-A Relationship 2007 RCA and IIT-G Relationship 2007 120.00 120.00 100.00 100.00 80.00 80.00 60.00 IIT-G 60.00 IIT-A 40.00 20.00 40.00 0.00 20.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 -20.00 0.00 0.00 5.00 10.00 15.00 -40.00 RCA RCA

Thailands IIT and Competitiveness RCA and IIT-A Relationship 2015 RCA and IIT-G Relationship 2015 120.00 120.00 100.00 100.00 80.00 80.00 60.00 IIT-A IIT-G 60.00 40.00 20.00 40.00 0.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 20.00 -20.00 0.00 -40.00 RCA 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 RCA

Empirical Results (1) (2) (3) (4) VARIABLES REGrcaex REGrcaex FErcaex FErcaex L.rcaex 0.978*** (0.0365) -0.000570 (0.000477) 0.980*** (0.0347) 0.349* (0.189) -0.00605*** (0.00150) 0.377* (0.192) iita iitg -0.000136 (0.000383) 0.0265 (0.0338) -0.000981 (0.00198) 0.753*** (0.278) Constant 0.0368 (0.0438) 0.892*** (0.239) Observations R-squared Number of sitc2 544 0.969 544 0.969 544 0.184 68 544 0.147 68 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Summary No clear empirical evidence suggests benefits from intra-industry trade after two major economic collaboration agreements; AFTA and AEC. Moving up value ladder through trade among ASEAN and taking advantage in developing production networking and eventually achieve narrowing economic development is still a challenging process for ASEAN Efficiency gains, competitiveness enhancement and benefits of diversification in response to greater market volatility and disruptive technology appear to be the key factors for ASEAN in further economic collaboration