Abstract
Cross-border production networks have been playing an increasingly important role in the Association of Southeast Asian Nations (ASEAN) countries’ trade in recent years, but micro-level studies of their impacts are rare. This chapter uses firm-level data from the two ASEAN countries that are most active in production networks (Thailand and Malaysia) and examines the effect of participating in production networks on profits and technological capabilities of firms. The empirical results suggest that participating in production networks raises profits. The evidence further suggests that participation in production networks is positively correlated with technological upgrading, measured by a technological capabilities index.
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Notes
- 1.
- 2.
Production fragmentation can occur within and across countries (Deardorff 2001).
- 3.
- 4.
See Feenstra (2008) for an overview of the academic debate.
- 5.
The ASEAN countries are: Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam.
- 6.
For more details, see World Bank (2008).
- 7.
The detailed statistics by country are available from the authors upon request.
- 8.
Details about the composition of the TI are included in the Appendix (Table 8.7).
- 9.
We find that the variances between the groups differ. Hence, a test is used that assumes unequal variances.
- 10.
We also estimated a constant elasticity of substitution production function. The main results did not change.
- 11.
The questionnaires in Malaysia do not ask directly for profit or value added of the enterprises. Therefore, we cannot test the robustness of our results to using reported gross profit as dependent variable.
- 12.
We also included firm size to control for the fact that it might be that only bigger firms find it profitable to invest in innovation. The coefficient was highly significant.
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Wignaraja, G., Krüger, J., Tuazon, A.M. (2016). Production Networks, Profits, and Innovative Activity: Evidence from Malaysia and Thailand. In: Wignaraja, G. (eds) Production Networks and Enterprises in East Asia. ADB Institute Series on Development Economics. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55498-1_8
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