Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Changing Industrial Linkage in the West Pacific:

An International Input-Output Analysis1
By
Yoichi Nakamura*

Abstract

This paper analyzes the industrial linkages between Japan and the rapidly growing

Asian countries in the West Pacific, employing the multiplier decomposition analysis andthe structural path analysis. The paper shows that industries in the developing countries ofthe West Pacific, as a whole, were increasingly becoming independent from their Japanesecounterparts for the supply of goods and services required in their production activities.
However, this total picture does not necessarily apply to the bilateral industrial linkages ofJapan with the other individual countries of the region. On the contrary, the changes whichwere taking place at the bilateral level are of a diverse nature; some industries switched

their relations away from Japanese industries, while some others intensified dependence onthem. These changes in the production structure in the West Pacific had been taking place
at a surprisingly rapid pace even before the G5 Plaza Agreement in 1985 which triggered
the realignment of major currencies and caused massive relocations of production bases

from Japan to the ASEAN countries and other parts of the region.

The diversity of thechanges in industrial linkages may suggest that the ongoing structural adjustment in theregion could be a long lasting process.

1.

Introduction

During the last two decades, the West Pacific region2 has emerged as one of the most importantconcentrations of economic activities with the highest growth potential in the world economy.
It is now generally recognized that the region constitutes one of the two growth poles in the

Pacific, the other being the North American Free Trade Area (NAFTA). While a wider conceptof regional integration in the form of the Asia-Pacific Economic Cooperation (APEC) is being
pursued by governments in the Asia-Pacific region, the West Pacific is likely to remain as aunique subregion distinguishing from the other parts of the APEC region.

The West Pacific is composed of economies with diverse income and technological levels. Atan early stage of structural adjustment in the region, the Asian NIEs were the major recipientsof technologies and industries relocated from Japan. Relocation destinations shifted towards theASEAN countries and then to the coastal provinces of China, as the NIEs joined Japan in therole of industrial transfer. Indochina has emerged as a new frontier of industrialization in theregion. This pattern of industrial relocations is often referred to as the "flying geese" pattern ofdevelopment (Yamazawa, et al. [1993]).
Manuscript received February 18, 1994. Revised August 16, 1994.

* Economic Planning Agency

1 Acknowledgements are due to Mr. T. Sano and Mr. C. Tamamura of the Institute of Developing Economies
for providing data, and an anonymous referee for useful comments.

2The term "West Pacific" refers to Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand
as far as quantitative analyses in this paper are concerned. It sometimes refers to a wider region including China,
Hong Kong, Taiwan and the Indochinese countries when qualitative statements are made.

2 Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Table 1: Total Backward Linkage Effects through Open Loop from the Six Countries on Japan
1985

1975

8

Food product

.0068

.0055

85-75
.0013

9

Textile

.0826

.1437

-.0611

10

Wood product

.0144

.0332

-.0188

11

Paper &; printing

.0511

.0981

-.047012

Chemical product

.1026

.1971

-.0945

13

Petroleum product

.0030

.0073

-.004314

Rubber product

.0656

.0817

-.016115

Non-metal mineral pro.

.0339

.0351

-.0012

16

Metal product

.1307

.2485

-.117817

Machinery

.2033

.1988

.0045

18

Transport equipment

.1925

.3221

-.129619

Other manufactures

.1068

.1689

-.0621

Note: See note to Table 2.

In my previous paper (Nakamura[1993]), I analyzed intertemporal changes in the industrial
linkages between Japan, the US and the Asian developing countries using the multiplier decom
position analysis within an international input-output framework. Table 1 shows the increases
in the total output of Japan induced by a unit increase in the output of the sectors as shown on

the left hand side of the table of six Asian countries ( Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand; hereafter referred to as the six-country case) through the open
loop multipliers, the concept of which will be explained later.

The differences between 1975

and 1985 indicate that the impacts of the output increases in the manufacturing sectors of the
Asian developing countries had, in relative terms, decreased by a considerable degree. In otherwords, the manufacturing sectors of the developing part of the West Pacific were becoming lessdependent on supply from Japanese industries.

However, due to the limitation of the multiplier analysis, I had to leave as a black box theexact mechanism through which the impacts were transmitted. The purposes of this paper are(i) to extract the basic features of industrial linkages between Japan and the other countries in
the West Pacific, (ii) to investigate into the changes in the industrial linkages between 1975 and1985 at the micro level, and (iii) to get an insight into the evolutions of the industrial linkagesin the region after 1985 and into the future.

Section 2 describes the methodologies employed in this paper.

Section 3 presents some

empirical results, and section 4 provides the concluding remarks.

2.

Multiplier Decomposition and Structural Paths

Let us consider a two-country input-output system as follows.

2/1 1

V2 J

f #ii

#12 1 f 2/1

'22

J

VI -

where y is an output vector, x is a final demand vector, and B is an input coefficient matrix
as it is usually defined. Subscripts denote country 1 and 2. As it is shown in Round [1985] andelsewhere, the Leontief inverse of the above system is multiplicatively decomposed as
y = Mr3Mr2Mriar,

Changing Industrial Linkage in the West Pacific 3
where, Dij = (I — .
\-i- 522)

I

-1

D 12

, and

Mr2 =

D21

(I-D12D2i)

I
-l

\-i

0

Mr\ represents the domestic multiplier matrix, which is similar to the one in a single-country
system.

Since D{j represents the instantaneous effects on i of its supply of inputs to j after

accounting for domestic multiplier effects in i,DijDji gives the round-trip impacts on i induced

by an output increase in i itself which is due to i's demand for j's products as intermediate inputs
after the first round of repercussions. Mr% captures the multiplier effects after the repercussion
effects between i and j are exhausted. In other words, it represents the inter-country feedback
effects and is called a 'closed loop' multiplier matrix. The total 'own country' multiplier effectis obtained by multiplying the corresponding diagonal sub-matrices of Mr\ and Mr3.

Mr2

captures the impacts transmitted from one country to the other after all 'own country' effects

are accounted for by Mr\ and Mr3, and it is referred to as an inter-country 'open loop' multipliermatrix. The diagonal sub-matrices of Mr2 are identity matrices because all 'own country' effects
are accounted for by the product of Mri and Mr3.

2.1.

The Structural Path Analysis

The structural path analysis considers a set of 'poles', and 'paths' through which influences of

specific magnitude are transmitted between poles (for a standard explanation of the methodol

ogy, see Defourny and Thorbecke [1984]). The following simple example can be used to illustrate
the methodology.

The example shows that there are two paths connecting X and Y (X — S — T — Y and
X — U — Y). a./s represent the magnitude of influences carried through corresponding paths. In
an input-output setting, the magnitude of influence can simply be defined as input coefficients( letting b{j be the (i,j) element of an input coefficient matrix, atJ- = bji ).

Three types ofinfluences are distinguished: (i) direct influence, (ii) total influence, and (iii) global influence.

The direct influence of X on Y through the first path, 7^y, is the change in Y induced bya unit change in X with all other poles except those along the path remaining constant, and it
is measured by

Similarly, the direct influence through the second path isI= aXUO>UY-4Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Figure 1

However, the influence through the second path is amplified by the circuit connecting U

and V by the factor 1/(1 — auvavu)- This factor is called a multiplier and the total influence

through the second path, lTx UY)i 1S measured asI(x,u,Y) — axu^UY /(I — a>uva>vu) = axuauYmxuY,
where mxuY is the multiplier accompanying this particular path. Finally, the global influ
ence of X on Y is the sum of the total influences of all the paths connecting X and Y and, in
this case, defined as-

I(X,S}T,Y) "1(X,U}Y)(1)
Let us now consider the application of the structural path analysis in an input-output setting
by taking up a path going from activity i to j via k and /. The direct influence along the pathis bjibikbki. The corresponding total influence is obtained as the product of the direct influences
and the multiplier which amplifies the direct influence through adjacent feedback circuits. The

multiplier is equal to the ratio of two matrix determinants Dikij/D, where D is the determinant|7 — B\ , and, Dikij is the determinant |7 — B{kij\ , where Bikij is a matrix identical to B exceptthat it has unity in diagonal elements and zero in off-diagonal elements of the rows and columns
for the sectors i, fc, / and j. This relation can be generalized for paths consisting of any numberof poles (see, Appendix 1). The global influence is nothing other than the (j1 i) element of the

Leontief inverse matrix, (7 — f?)"1.
Next let us consider the relationship between the total influence and the corresponding open
loop multiplier. If the Leontief inverse is partitioned asthen the off-diagonal submatrices on the right hand side is decomposed as

Changing Industrial Linkage in the West Pacific

As it is pointed out in my previous paper and other studies, a closed loop multiplier matrix
in inter-regional setting tends to be almost identical to an identity matrix, hence,

Letting the (m,n) element of Bjj,D{j and Aij be bmnidmn and amn, respectively,

dmn = (1 — bnn)amn
kjtn

If a system does not allow 'own inputs'3, i.e. bnn = 0 (which is the case in this paper), thechanges in dmn and amn are nearly identical. Since amn represents the global influence of n on
77i and it is the sum of the total influences through all the paths connecting m and n, there is anapproximate one to one correspondence between the change in the total influence of a particularpath and that in the corresponding open loop multiplier.

3,

Multiplier Decomposition and Structural Path Analyses Applied to
Industrial Linkages between Japan and the Developing Countries

in the West Pacific
The pattern of changes in the industrial linkages between Japan and the six Asian developing

countries presented above could be the result of similar changes in each of the bilateral relationsor those of a more diverse nature (A detailed analysis of bilateral industrial linkages in 1975 canbe found in Furukawa [1986]). First, in order to examine this point, the open loop multipliers arecalculated for bilateral industrial relations between Japan and three Asian developing countries:

Korea, Malaysia and Thailand. Second, the major structural paths in the same bilateral relations
are identified, and changes in them between 1975 and 1985 are investigated to examine what
happened in individual production linkages.
The data source used is, as before, International Input-Output Table for ASEAN Countries

1975 (Institute of Developing Economies [1982]) and Asian International Input-Output Table

1985 (—[1992]). Computation is made on the basis of the 24-sector version of the tables.
3.1.

Open loop multipliers between Japan and Korea, Malaysia and Thailand

Table 2 to 4 show the column totals of the open loop multiplier matrices (the total backward

linkage effects through the open loop multiplier) computed for two-country systems consistingof one of the three Asian developing countries (Korea, Malaysia and Thailand) on an impactgenerating side and Japan on a receiving side.

The first row of Table 2, for instance, showsincreases in the total output of the Japanese economy induced by a unit increase in the output
of Korea's food product sector through the open loop multiplier. Though computation has been
done based on the 24-sector system, results are shown only for 12 manufacturing sectors fromwhich multiplier effects are relatively large.

The results for Korea (Table 2) show a very similar pattern to that observed for the sumof the six Asian countries. The magnitude of the open loop multiplier effects in 1975 is larger
than that in the six-country case, and it is particularly so in the cases of chemical product andmachinery sectors. The changes in the open loop multiplier effects between 1975 and 1985 arealso generally larger than that in the six-country case. Fairly larger decreases are observed forthe impacts from the chemical product, rubber product and metal product sectors. The change
3The diagonal elements-of the original input-output table are deleted in order to avoid problems peculiar to"own inputs". The differences in data collecting practices (product basis or establishment basis, etc.) and otherfactors are the potential source of biases.

6

Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Table 2: Total Backward Linkage EfFects through Open Loop from Korea on Japan

Note:

8

Food product

9

1985

1975

85-75

.0046

.0059

-.0013

Textile

.0966

.1556

-.059010

Wood product

.0246

.0334

-.0088

11

Paper &; printing

.0359

.0801

-.0442

12

Chemical product

.1175

.2649

-.1474

13

Petroleum product

.0050

.0095

-.0045

14

Rubber product

.0884

.2753

-.186915

Non-metal mineral pro.

.0259

.0221

.0038

16

Metal product

.1374

.3285

-.1911

17

Machinery

.2117

.2288

-.0171

18

Transport equipment

.1487

.2487

-.100019

Other manufactures

.1118

.1906

-.0788Figures in this table represent the column totals of the off-diagonal submatrix, D21, of theopen loop multiplier matrix.

Table 3: Total Backward Linkage Effects through Open Loop from Malaysia on Japan
1985

1975

8

Food product

.0234

.0054

.0180

9

Textile

.1061

.1703

-.0642

10

Wood product

.0125

.0155

-.0030

11

Paper &; printing

.1012

.1445

-.0433

12

Chemical product

.0717

.0973

-.0256

13

Petroleum product

.0019

.0044

-.0025

14

Rubber product

.0322

.0308

.0014

15

Non-metal mineral pro.

.0482

.0359

.0123

16

Metal product

.1918

.0605

.1313

17

Machinery

.1838

.1598

.0240

18

Transport equipment

.4815

.2332

.2483

19

Other manufactures

.1022

.1013

.0009

85-75

Note: See note to Table 2.

Table 4: Total Backward Linkage Effects through Open Loop from Thailand on Japan

Note: See note to Table 2.

1985

1975

8

Food product

.0062

.0042

.0020

9

Textile

.0524

.1064

-.054085-75

10Wood product

.0088

.0126

-.0038

11

Paper & printing

.0625

.0833

-.020812

Chemical product

.1092

.1479

-.0387

13

Petroleum product

.0013

.0044

-.0031-.0095

14

Rubber product

.0519

.0614

15

Non-metal mineral pro.

.0184

.0192

-.0008

16

Metal product

.1561

.2105

-.054417

Machinery

.1572

.2223

-.0651

18

Transport equipment

.2127

.3052

-.0925

19

Other manufactures

.0515

.1121

-.0606

Changing Industrial Linkage in the West Pacific7in the multiplier effect from the transport equipment sector is slightly less than the six-country

average. However, in this sector, the magnitude of the open loop effect itself is smaller than thesix-country average. Thus, the changes in the pattern of industrial linkages between Japan and
Korea are representative of the trends in the West Pacific.

A drastically contrasting picture can be found in changes in the industrial linkages between
Japan and Malaysia (Table 3).

The latter's metal product and transport equipment sectors

substantially increased their influences on the Japanese economy during the period in which thesame industries of the developing countries of the West Pacific as a whole moved into opposite

direction. The magnitude of the open loop multipliers from these two sectors is smaller than

the six-country averages in 1975, but they grew much larger than the averages by 1985. The
multiplier from the other manufacture sector remained unchanged, and that from the chemical

product sector shows a small decline, as compared with much larger negative changes which
took place in the six-country case.

The results for the open loop multiplier effects from Thailand on Japan represent an intermediate case. The directions of the changes are the same as those observed in the six-country
case, but the magnitude of the changes is, in general, relatively modest. An exception is theeffect from the country's machinery sector, which shows a substantial decline against a small
positive change in the six-country case.

Thus, the weakening open loop multiplier effect from the developing part of the West Pacificon Japan, or former's increasing independence on inputs from Japan, is not uniformly observedin every bilateral relation. Rather, it is the outcome of very diverse changes in the industrial

linkages in the region. It is not necessarily easy, however, to get a clear image of the changes
in individual inter-industry linkages through which multiplier impacts are transmitted, fromonly the information obtained by the multiplier analysis above. The next part of this section
investigates into what were taking place in the linkages between individual sectors by applying

the structural path analysis.

3.2.

Structural Path Analysis of Industrial Linkages in the West Pacific

The structural path analysis is applied to the international input-output table in the following
manner. First, for every pair of sectors belonging to different countries, ten sectors which havethe largest input coefficients in the input structure of the influencing sector of the pair are

selected. Then a set of another ten sectors for each of the ten sectors chosen in the previous
stage is selected in the same way. The direct influences through these paths are computed as the
products of the corresponding input coefficients. In continuing this process, the direct influences
decline rapidly as the number of multiplications increases. The selection process is terminatedwhen the influence receiving sector of the initial pair is reached within three multiplications andwith the direct influence of not less than 0.001. Finally, for each path connecting the pair, themultiplier and the total influence are calculated.
Table 5 shows, as an example, the results of the analysis of the influences from the machinery
sector of the same six developing countries of the West Pacific on the Japanese industries. Threechemical and heavy industrial sectors (chemical product, metal product and machinery), and twoservice sectors (commerce/transport and services) of Japan are on the influence-receiving side.
This relation represents a typical pattern of industrial interdependence between the developing

part of the West Pacific and Japan, in which manufacturing sectors of developing countries of

the region influence the key manufacturing sectors of Japan, and the latter then gives impacts
on the service sectors of the country.

A comparison between the results for 1975 and 1985 in Table 5 reveals that (i) the magnitudeof influences generally declined during the decade (except the intra-industry influence between
the machinery sectors of the two sides, which, unlike many other cases, offsets the decrease ininfluences through other paths), (ii) some of the paths influencing the services sector of Japan

8

Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Table 5: Influences of the Six Countries1 Machinery Sector on Japan(1975)
Six Countries
Ma

Me(1985)

Japan

Ch

Me

Ma

Co

Se

Total Influenceand Multipliers

Six Countries
Ma

Me

Japan

Ch

Me

Ma

Co

Se

O-

.0067

.0135 / .0095
.0237

O

O-

.0128

O-

.0517 / .0380

.0029

O-

O-

O — O ■

.0016

.0099 / .0070

O- O

.0055
.0356 / .0284

.0688

.0878
.0900 / .0864.0711 / .0695

.0103

OO-

.0011

.0273 / .0237

-O-O

.0018

o

.0014

Total Influenceand Multipliers

O-

-O

O-

O

O-

.0013
.0267 / .0238

-O-O

.0020

.0029

.0016

.0101
.0279 / .0237

Total global influ. / Open loop multiplierNote:.2350 / .1988.0128.0274 / .0244

Total global influ. / Open loop multiplier.2296 / .2033

Flows of influences go from left to right in this table. The thickness of lines corresponds tothe magnitude of the total influences shown on the right-hand side.

The global influences

and the open loop multipliers between the pairs of sectors (separated by "/" in this order)
are shown at the right-hand bottom of the table. For the abbreviations of sector names, see
Appendix B.

selected in 1975 are not important any more in 1985, and (iii) the metal product sector of thedeveloping part of the West Pacific emerges on the influence-receiving side in 1985. These threeobservations are more or less valid for many other paths of influence between the developing
countries of the region and Japan.

They may imply that the manufacturers of the region

including Japan were increasingly becoming independent from services provided by Japanesetrading houses and its banking sector, as they replaced these services by their own activities

and by switching to local services including those from Japanese subsidiaries which started
operations during the decade of the analysis.

Influences in the opposite direction, i.e., thosefrom Japan on the developing part of the West Pacific, are not detected in this analysis except

for a few paths, but the number of such paths increased between 1975 and 1985. Thus, althougha one-way nature of industrial linkages in the West Pacific did not change, the findings above
may suggest that the production linkages in the region became more proliferated and shifted

towards a more evenly distributed pattern.
Our next interest is, as in the multiplier decomposition analysis, whether the pattern ofchanges observed above is also found in bilateral relations between Japan and individual developing countries in the West Pacific.

The same analysis is applied to two-country systems

Changing Industrial Linkage in the West Pacific 9

Table 6: Influences of Korea's Chemical Product Sector on Japan(1975)

Ch(1985)

Japan

Korea
Pp

Ch

Pe

Ma

Otn

Pu

Co

Se

Total Influenceand Multipliers

Korea
Ch

Japan
Pp

Ch

Pe

Ma

Cm

Pu

Co

Se

.0046

.0020

.0086 / .0078

o-.0033 / .0029.1341.1361 / .1336

O-

.0593
.0611 / .0589

.0017

O-

O-

Total Influenceand Multipliers

.0011

o-O-O

-o-o
.0010

O ■

.0214 / .0182.0094 / .0083.0022.0062 / .0040.0028.0045 / .0041.0011.0026 / .0018.0070.0094 / .089

.0043
.0057 / .0052

.0133

.0022

O-

.0334 / .0303

■O-O

.0023

O-

-o-o

.0282
.0410 / .0385

O-O

Total global influ. / Open loop multiplier.2866 / .2649.0144 / .0130

Total global influ. / Open loop multiplier.0097.0166 /' .0151.1298 / .1175

Note: See note to Table 5.

consisting of Japan and one of the same three Asian countries as before: Korea, Malaysia andThailand. Due to the limitation of space, only the results for sectors whose open loop multipliereffects underwent significant changes are shown.
Table 6 presents the major paths through which the influences from Korea's chemical productsector are transmitted to Japan for the years 1975 and 1985. The total open loop multipliereffect, received by all the Japanese industries, declined from 0.2649 in 1975 to 0.1175 in 1985 as
indicated in the bottom row of the table. More than half of the decline is due to shrinking intraindustry input between the chemical product sectors of the two countries. Many paths selected
in 1975 are not picked up in 1985 and the total influences through surviving paths decreased inmagnitude. Table 7 shows that a greater change took place in the open loop multiplier effectfrom Korea's metal product sector (0.3285 —> 0.1374). Similar to the case of the country's
chemical product sector, almost all the total influences declined significantly and the influencestransmitted onto Japan's commerce/trade and services sectors almost disappeared.
Table 8 shows the influences from Thailand's transport equipment sector. The pattern ofchanges is, although to a lesser extent, very similar to those observed in the case of Korea's
two industries. The intra-industry influence was reduced by more than a half between 1975 and1985, and a few paths are not selected in 1985. However, both the global influences and the open
loop multiplier effect from the sector on Japan's chemical and metal product sectors increasedslightly. This means that a part of the intra-industry influence was replaced by those through10 Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Table 7: Influences of Korea's Metal Product Sector on Japan(1975)
Korea(1985)

Japan

Me

Ch

pi

-o

Pe

Nm

p.

Me

Ma

Pu

Co

Se

p.

O

Total Influenceand Multipliers

Korea
Me

Ch

Pe

Nm

Me

Ma

Pu

Co

Se

Total Influenceand Multipliers

.0033

O-

.0020
.0108 / .0071

O-

.0011
.0070 / .0042.0192.0356 / .0323

O-

.0043
.0088 / .0077

.0040

O-

.0073

P)

■■

.0012

.0014

O

pi

O1 ■

O

o —

O

Q

o
pi

.0024

pi

o-

P)

p)

.0041 / .0037.1738.1770 / .1744.0720 / .0705

.0054

.0056

.0022
.0119 / .0090

P)P).0076 / .0069

p)

-O-O

.0015
.0102 / .0077.0094.1216 / .0116

O

.0124

.0042

.0017

P)

o-

—O
p.

pi

p\

.0146
.0376 / .0343
p.

.0022

O-O

.0025

O

-O

O

O-O

.0214
.0378 / .0350

Total global influ. / Open loop multiplier.3513 / 3285

.0075
.0164 / .0148.0163 / .0146

Total global influ. / Open loop multiplier.1517 / .1374

Note: See note to Table 5.

more roundabout routes involving more local fabrication in Thailand.
Tables 9 and 10 present the results for the influences of Malaysia's metal product and transport equipment sectors, which again show contrasting patterns to those examined so far. The
total open loop multiplier effect from the metal product sector on the Japanese industries inten
sified more than threefold, and that from the transport equipment sector increased dramaticallyduring the decade of the analysis. Unlike the findings in the previous cases, the intra-industry
influences in these two cases intensified significantly, and, in the case of the metal product sector,
many new paths (in particular, those involving Japan's commerce/transport and services sec

tors) have emerged by 1985. It may be interesting to note that significant open loop multipliereffects from Malaysia's transport equipment sector on Japan's metal product and machinery

sectors remained in spite of sharp decreases in the total influences transmitted through the selected paths. This is because influences through more roundabout routes connecting these pairsof sectors have intensified. The dramatic increase in the intra-industry influence in transportChanging Industrial Linkage in the West Pacific

11

Table 8: Influences of Thailand's Transport Equipment Sector on Japan(1975)

Tr(1985)

Japan

Thailand

Ch

Pe

Me

Ma

Tr

Pu

Co

Se

Total Influenceand Multipliers

Japan

Thailand

Ch

Tr

Pe

Me

Ma

Tr

Pu

Co

Se

Total Influenceand Multipliers.0020.0123 / .0075.0061.0139 / .0104.0030.0126 / .0106

O -

.0027
.0075 / .0064

O-

o-

o-

.0447

.0065
.0604 / .0518

O-

.0031
.0613 / .0539

.0348

.0231

.0519 / .04798.0318 / .0287

o-

.0939
.0954 / .0947.0429.0439 / .0433

o-

.0015
.0070 / .0060

o-

.0085

O -

<

.0075

O ■

o-

- o

.0023
.0331 / .0297

O ■

o -

-o-o

.0015

HD-O

.0013

o-

o-

-O

.0070

- O

O

.0038

O

.0048
.0251 / .0224

-O-O

.0034

.0051
.0372 / .0327

Total global influ. / Open loop multiplier.3388 / .3052

■ O

-0034
.0259 / .0230

Total global influ. /Open loop multiplierNote: See note to Table 5.

equipment between the two countries is presumably due to the inception of Malaysia's national
car project; a joint venture in which a Japanese car maker is heavily involved.

Why do changes in industrial linkages in different bilateral relations reveal such diversity?

Several factors may be responsible for it. First, the market size of countries should be pointed
out. Unless the size of domestic demand is large enough, the usual process of import substitution

and export expansion may not take place in several sectors simultaneously in a continuous
manner. The size factor also has to do with the scope of industrial sectors of a country. Whether
a smooth endogenous process of import substitution of a certain sector takes place or not would

depend on the existence of domestic supporting industries.
due to a policy stance toward foreign investment.

Second, the diversity may also

Korea and Taiwan have basically reliedon their indigenous enterprises, while the ASEAN countries have been making utmost efforts

to introduce foreign capital for industrial development.

With advanced foreign technologies

and export markets which already existed, foreign subsidiaries in these countries could directly
go into an export expansion process without undergoing import substitution.

However, thesubsidiaries more often than not require supplies from their parent firms in their build-up periods.
It is not surprising that there is a clear contrast between the patterns of industrial development between Korea and Malaysia, which have adopted distinct policies toward foreign

investment and are very much different in population size (43 and 18 million for Korea andMalaysia, respectively).

Thus, the structural adjustment in the West Pacific has not been aprocess in which technologies, capital and other production factors shifted smoothly from one

12 Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Table 9: Influences of Malaysia's Metal Product Sector on Japan(1975)

Me(1985)Japan

Malaysia

Ch

Pe

Me

Ma

Tr

Om

Co

Se

Total Influenceand Multipliers

Malaysia
Me

Japan
Ch

r\

Pe

Me

Ma

Tr

Om

Co

Se

r\

.0015

/-\

.0038
.0053 / .0048

o-.0052 / .0040

p.

.0057

o-

.0088 / .0081

.0341

.0932

f\

.0536 / .0344

o

.0013

/->

.0029 / .0011

(-\

O

.0021
.0983 / .0955

-O

.0158

-o

.0021

.0224 / .0187

p.

.0015
.0053 / .0024
d.0014.0035 / .0030
_

r\

(~\

,

,

s-\

.0100
.0225 / .0204
d

.0042

d

.0676 / .0605

d

.0012

.0020

.0074 / .0065
Total global influ. /Open loop multiplier

.0057

.0029
.00504/ .00448

Odd

Total Influenceand Multipliers

Total global influ. / Open loop multiplier.0023.0227 / .0207.2101 / .1918

Note: See note to Table 5.

country to another of the region based on changing comparative advantages. Rather, it has been
more ad hoc and dynamic in nature.

4.

Concluding Remarks

This paper has analyzed the changing pattern of industrial linkages in the West Pacific using themultiplier decomposition and structural path analyses. The major findings of the paper are, (i)the manufacturing sectors of developing countries of the West Pacific, on average, became more
independent of Japanese industries between 1975 and 1985, (ii) the number of important paths
carrying influences from the developing part of the region on Japan decreased, in particular
those influencing Japan's service sectors, and (iii) findings (i) and (ii) do not necessarily pertain
to bilateral industrial linkages between Japan and individual developing countries of the West
Pacific.

With respect to the third point, Korea seems to have led the changes described in (i) and (ii),while Malaysia moved into the opposite direction. Thailand can be placed in the middle. This
diverse nature of the changes may seem to fit into the so-called flying-geese-type development
hypothesis, which claims that industries of different strata of income and technological levels
shift from one economy of the region to another. However, taking into consideration the higher
per capita income of Malaysia than those of Korea and Thailand in the middle of the decade of
the analysis, one would find that industries do not necessarily "fly" from low income countries

Changing Industrial Linkage in the West Pacific 13

Table 10: Influences of Malaysia's Transport Equipment Sector on Japan(1975)(1985)Japan

Malaysia

Tr

Ch

o

o

Pe

Me

Ma

Tr

Pu

Co

Se

■

Japan

Malaysia
Tr

Ch

Pe

Me

Ma

Tr

Pu

Co

Se

Total Influenceand Multipliers.0022.0093 / .0061.0075 ,
.0132 / .0126

oO

Total Influenceand Multipliers

0

.0680
.0833 / .0795.0039.0394 / .0378.0069.0167 / .0154.0022.0275 / .0266

.0539

.2399
.2408 / .2404.0554 / .0545.0037.0068 / .0063
.0197

(~\

/~\

OH

on

.0043

.0212

.0057
.0186 / .0173.0543 / .0536

.0084

)-O

.0262 / .0242

Total global influ. / Open loop multiplier.2495 / .2332>-oTotal global influ. / Open loop multiplier.0043.0491 / .0485.4873 / .4815

Note: See note to Table 5.

to higher ones. More complex processes seem to have been at work behind the changes observedin this paper.

Foreign direct investments of Japanese firms in the ASEAN countries and other parts of theWest Pacific have undoubtedly been the driving forces of structural changes in the industrial
linkages in the region. The diverse nature of the changes in industrial production network
is perhaps attributable to the strategies of multinational corporations of relatively advanced

countries of the region, which take into account not only wage costs of different countries but
economic fundamentals such as basic infrastructures and the availability of space and so forth.
Government policies may have also had certain effects on their decisions.
It has generally been recognized, however, that the relocation of production bases fromJapan to the developing part of the West Pacific started on a massive scale only after the rapid
appreciation of the yen after late 1985. In fact, Japanese foreign direct investment increased
tremendously in the later half of the 1980's with the total amount of investment of 227 billion US

dollars (at current prices) in the five-year period from 1986 being 4.8 times the corresponding
figure for the preceding 5 years. It is not difficult to imagine that the structural changes in theindustrial network in the West Pacific after 1985 would have been much more intensive thanthose observed in this paper. If one is to get any insight from the present analysis, the changes
after 1985 would have most probably continued to be of a dynamic nature, which do not fallin a uniform pattern. This may also suggest that the structural adjustment in the West Pacificcould be a long-lasting process which will continue well into the next century.

14

Journal of Applied Input-Output Analysis, Vol.2, No.l, 1994

Appendix A
Multiplier in the Structural Path AnalysisLet

I-B = A,and the (i,j) element of A"1 be [^~1]tj, then,[A-1]ij=Aji/\A\,
where Aji is the (j, i) co-factor of A. By expanding Aji with respect to row z, one gets,where (Aji)ij is the (i,j) co-factor of (j4j»), which is identical to A except that its (j, i)element is unity and all the other elements in rows and columns i and j are zero, and it will be

written as Aj{.ij afterwards. By exchanging rows i and j as follows, one obtains,
J

I

=

J

I

v-bn

.

o

••

0

••

i

0

..

o

..

1

••

j

0

..

1

..

0

ftnl

.

o

..

0

-bin ~

"l-6n

•

0

••

0

••

-bin

0

0

..

1

..

o

..

0

••

0

0

..

o

..

1

..

0

•

1 — bnn

•

0

••

0

•

l-bnn

_~bnl

-A ii.jj

Likewise, Aji.ik = -I Ui.jk, a^d hence,A

it-

By further expanding Aa.jk with respect to row k, and continuing the same manipulation,
one arrives at,

Aj{/\A\=

bijAiw

ii.kk.ll.jm/ \A\kjtj

The left-hand side represents the global influence, while the first three terms on the right-

hand side are the products of the direct influences and the ratios of two matrix determinants.
The last term on the right-hand side can be further decomposed, and therefore the multipliers
accompanying paths consisting of any number of poles can be defined as the ratio of the two
matrix determinants.

Changing Industrial Linkage in the West Pacific 15

Appendix B
Sector Classification used in this Analysis(abbreviation)
1

Paddy

2

Other agricultural products

3

Livestock

4

Forestry

5

Fishery

6

Crude petroleum and natural gas

7

Other mining

8

Food, beverage and tobacco

9

Textile and leather

10

Timber and wooden products

11

Pulp, paper and printing

12

Chemical products

13

Petroleum and products

(Pe)

14

Rubber products

(Ru)

15

Non-metallic mineral products

(Nm)

16

Metal products

(Me)

17

Machinery

(Ma)

18

Transport equipment

(Tr)

19

Other manufactures

(Om)

20

Public utilities

(Pu)

21

Construction

(Pp)

(Ch)

22

Commerce and transport

(Co)

23

Services(Se)

24

Public administration

References[1] Defourny, J. and E. Thorbecke (1984), "Structural Path Analysis and Multiplier Decomposition
within a Social Accounting Matrix Framework," Economic Journal, Vol.94, pp. 111-136.
[2] Furukawa,S.

(1986),

International

Input-Output

Analysis,

Tokyo,

Instituteof Developing

Economies.

[3] Institute of Developing Economies (1982), International Input-Output Table for ASEAN Countries

1975, IDE Statistical Data Series No.39, Tokyo (1992), Asian International Input-Output Table
1985, IDE Statistical Data Series No.65, Tokyo.
[4] Nakamura, Y. (1993), "A Multiplier Analysis of Industrial Linkages between Japan, the UnitedStates and Developing Asia," in Sano, T. and C. Tamamura, eds., International Industrial Linkages

and Economic Interdependency in Asia-Pacific Region, Tokyo, Institute of Developing Economies.
[5] Round, J. I. (1985), "Decomposing Multipliers for Economic Systems Involving Regional and World
Trade," Economic Journal, Vol.95, pp.383-399.

[6] Yamazawa, I. et al. (1993), Dynamic Interdependence among the Asia-Pacific Economies, Keizai

Bunseki (The Economic Analysis), Tokyo, Economic Planning Agency.