Trade Structure and the Transmission of Economic Distress in the High-Income OECD Countries to Developing Asia

This paper examines the structure and direction of developing Asia’s trade over the past two decades. The impacts of economic slowdown in high-income Organisation for Economic Co-operation and Development (OECD) countries on developing Asia in 2009–2010 are then projected through a computable general equilibrium model of world trade and production. The paper shows that despite a jump in intraregional trade—which is found to reflect increasing fragmentation of production with trade in intermediate goods and assembly of final products in the People’s Republic of China—the region remains dependent on external demand from the European Union, United States, and Japan. Simulations indicate the crisis may decrease real income in the region by 6–10 percent over the next two years largely as a result of a fall in exports. Although fiscal stimulus may mitigate these losses, a resurgence of protectionism would work in the opposite direction.