The results suggest the following (see table 8):

- The increase in the volume of China’s exports in components is associated with a rising unit value in Southeast Asia’s exports of components ( α _2_ is positive and statistically significant).

- The emergence of finished machinery exports from China is associated with a decreasing unit value in similar product exports from Southeast Asia (the net coefficient α 2 + α 3 is negative and statistically significant). The decreasing unit value in the exports of finished machinery from Malaysia and Thailand is associated with the emergence of China’s exports of similar products.

- There is no evidence that the change in the market share of exports from Southeast Asian countries is associated with China’s expansion (the estimates of δ _2_ and δ _2 +_ δ _3_ are not statistically significant in all major categories). But the change in the market share of these countries in the global exports of machinery is associated significantly with the competitiveness of the products; lower RCA tends to be related to a lower market share. This implies that the decline in the market share of the Southeast Asian countries in exports of finished machinery is not associated with China, but rather with a reshuffling of the exports and the markets of these countries.

- There is evidence of a spillover effect exerted by the market share of China in finished products on the exports of components from Southeast Asian countries (the sign of γ _2_ is positive and statistically significant). This implies that China’s expansion in its exports of finished machinery is causing the Southeast Asian countries to increase their shipments of components to China relative to their shipments to other countries and regions.

**<u>Table 8 With What Is China Associated?: Signs of Regression Estimates</u>**

|_Variable, result, and method_|_Equati_|_on(1)_|_Equati_|_on(2)_|_Equation(3)_|
|---|---|---|---|---|---|
|Dependent variable|Log of val|ue per unit|Change in globa|l market share|Share of component exports to<br>China|
|Main explanatory variables|China’s expan<br>volu|sion in export<br>me|Change in China’<br>sha|s global market<br>re|China’s global market share in<br>finishedproduct|
||Column A|Column B|Column C|Column D|Column E|
|Results|Components|Finished|Components|Finished|Components 3|
|Overall|(+)|(−)|n.s.|n.s.|(+)|
|Bymain machinery products||||||
|Powergeneratingequipment|(−)|n.s|n.s.|n.s.|n.s.|
|Industrial machinery,equipment|(−)|(+)|n.s.|n.s.|n.s.|
|Office,data,telecommunications|(+)|n.s|n.s.|n.s.|(+)|
|Electrical,apparatus|(+)|(−)|n.s.|n.s.|(+)|
|Road vehicles|(+)<sup>a</sup>|(−)|n.s.|n.s.|n.s.|
|Other transportation|(+)|n.s|n.s.|n.s.|n.s.|
|Bycountry||||||
|Indonesia|(+)|(+)|n.s.|n.s.|(+)|
|Malaysia|n.s.|(−)|n.s.|n.s.|n.s.|
|Philippines|(+)|(+)|n.s.|n.s.|(+)|
|Thailand|(+)|(−)|n.s.|n.s.|n.s.|
|Estimation method|ordinaryle|ast squares|ordinarylea|st squares|Tobit|
|Sample classifications|6-digit Harmoni<br>Description and|zed Commodity<br>CodingSystem|4-digit|SITC|3-digit SITC|

_Source:_ Rahardja 2006 _Note:_ The numbers in Column A represent estimates of coefficient α _2_ in equation (1) of box 2 above (components), while the numbers in Column B represent estimates of α _2 +_ α _3_ , that is, the net effect of quantity on the unit value of finished products. Columns C and D present results from estimations of equation (2); and Column E presents results from estimations of equation (3). The rows represent the scope of the sample in which equations (1) through (3) are estimated.

Results that are statistically significant at least at the 5 percent level are given a plus (+) or a minus (−) sign, while “n.s.” indicates results that are not statistically different from zero. a. Significant at the 10 percent level.

# **THE WAY FORWARD**

East Asia’s phenomenal performance in trade rests on intricate production sharing networks that are being expanded and that are becoming more dense. It also rests on the unilateral openness in trade and foreign 25