Dynamics of Trade in Value-Added in "Factory Asia"

Trade patterns in East Asia are termed the "Factory Asia" model, whereby Asia functions as a "global factory" that imports intermediate goods from its regional networks and then assembles and exports them as finished goods to higher-income developed countries. In 2001, China's accession into the World Trade Organisation consolidated this pattern by becoming the core economy in this model. However, is this pattern still valid after more than a decade of rapid development in East Asian countries? The main objective of this article is to examine the evolution of this pattern of trade in East Asian countries. Although the key findings of this study show that the Factory Asia model continues, it is changing as different East Asian countries capture more value in global value chains. The gaps in the rate of upgrading are identified and mainly attributed to differences in government policies and competition. However, the dependence on foreign inputs still remains an important part of high-technology production in East Asian countries. Hence, the idea that East Asia is evolving from a "factory" into a "Research & Development hub" remains far-fetched.