Introduction
International trade of intermediate goods has multiplied alongside the development of the global production network and the spread of distribution among countries. The phenomenon reveals that the division of global production forms a new economic pattern and occurs almost all over the world. Meanwhile, countries in East Asia which became pioneers in the development of this economic pattern have run for three decades. Developed and developing countries jointly interconnect production and distribution facilities for shared economic benefits.
The debate is the opportunity to harvest gain from economic globalization through participation in global production networks. The level of participation has been measured by several studies with various methodologies. Recent studies have shown empirical data and evidence of linkages or participation in global production networks. An example is the Ando and Kimura (2005) research that identifies the international production/distribution network at the company level in the machinery industry (general, electrical, transport equipment, and precision machinery).
Research that specifically identifies the determinants of participation in global production networks is also evolving through various methodologies. The research of Kimura et al. (2007) and Athukorala (2011) formulates the determinant of participation in global production network using gravity method. In the meantime, Kowalski et al. (2015) measure the participation of developing countries in the global value chain (GVC) using regression based on domestic value added (DVA). Banga (2014) studies how to measure a countryâs participation in the GVC through the ratio of forward linkage to backward linkage, in which GVC is a value added term of a global production network based on a concept developed by Koopman et al. (2011). In the meantime, the determinant of global production network participation formulated by Soejachmoen (2014) specifically pertains to the automotive industry of 98 developed and developing countries based on the theory of production fragmentation initiated by Jones and Kierkowski (1990).
In its development, the global production network was also affected by the economic crisis in Asia in 1997/1998 and the economic shock of 2008/2009, which caused a contraction in both periods. The WTO report1 states that the Asian economic crisis of 1997/1998 caused world trade to weaken due to the declining demand from Asian countries in terms of petroleum, capital goods, and industrial commodities. In the 1997/1998 period, export performance from Asian countries experienced a significant decline accompanied by falling real currency values and rising unemployment.
The economic shock in 2008/2009 in various studies was also allegedly linked to the development of the global production network. Krugman (2009) states that the vertical integration of global production is the most likely cause of the great contraction of trade in the 2008/2009 crisis, compared to the Great Depression in 1928. Athukorala (2011) explains that in 2008 there was a more perceived larger t...