International Fragmentation, Specialization and Comparative Advantage: An Asian-Pacific Input-Output Approach

In this paper the relationship between three types of trade specialization is analyzed for the period 1990 to 2000. For nine East-Asian countries and the United States the developments in international fragmentation, export specialization and intra-industry specialization are investigated. Asian countries, and specifically China, now play a larger role in international trade. The formation of production networks and international fragmentation of production processes in this region has not gone unnoticed. This paper tries to establish a link between the extent of international fragmentation, comparative advantage, and intra-industry specialization using the Asian-Pacific input-output tables of 1990, 1995, and 2000. The results show an increase in the extent of international fragmentation in all countries, concentrated in the 1995 to 2000 period. Relative international fragmentation shares are compared to relative export specialization shares to test whether international fragmentation can be explained using (neo-)classical trade theory. Evidence is presented of a positive relationship between these two variables. A comparison of international fragmentation with the results of the intra-industry specialization measure does not indicate a relationship, leaving less room for new trade theory explanations of international fragmentation. These results suggest that international fragmentation follows comparative advantages and takes place when factor cost differentials can be exploited.