Date of Submission

Spring 2013

Academic Program

Economics

Project Advisor 1

Sanjaya DeSilva

Abstract/Artist's Statement

Using the case of five Southeast Asian countries - Indonesia, Malaysia, Thailand, Singapore, and the Philippines - this paper examines the relationship between participation in international production networks and the volatility of export values in small, open developing economies. The region’s growth has been driven by the electronics and automotive industries over the past two decades, industries that rely on a system of intra-regional intermediate goods trade. While these countries diversified out of the agricultural industries in part to reduce volatility, there is evidence that they face new volatility risks in the new industries, as a result of dependence on the performance of other links in the supply chain.

The study provides an investigation of the question: How has dependence on the electronics and automotive industries impacted the stability of the Southeast Asian economies? My hypothesis holds that the new industries are inherently less volatile than the old industries. However, because the countries inserted themselves into these industries through the supply chain system, they became subject to new sources of volatility.

The first part of the study provides a comprehensive overview of the region’s structural shift over time, with regard to both supply chain participation and volatility patterns. In the second part of the study, I create an econometric model using data from the United Nations Commodity Trade database. Concentration in the new industries is represented by machinery and transport exports, which I expect to have a negative correlation with volatility. Supply chain participation is measured by the share of parts and components exports in the new industries, which I expect to show a positive correlation with volatility. I run time series regressions for each of the individual countries, and then pool the countries together for a panel data regression. My results indicate that within each country, volatility is not associated with concentration in new industries or participation in production networks. When all countries are pooled together, supply chain participation is significantly negatively correlated with volatility. My conclusions contradict my hypothesis. For individual countries, supply chains have not been de-stabilizing, while region-wide supply chains have helped to stabilize the region.

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