ASEAN’s Factory Economy in the Fourth Industrial Revolution Era

Abstract

East Asia is the most dynamic region showing high economic growth in the last decades. This is attributed to the “Factory Asia”, which refers to regional fragmentation of production. In this case, technologically advanced countries, also called headquarter economies, hollow out the most labour-intensive production stage to the ASEAN countries and make it a “factory economy” producing parts and components. Technological developments in the fourth industrial revolution era have introduced labour-saving technologies in the manufacturing sector. As a result, low wages have become a less important determinant of competitiveness, which is predicted to end “factory Asia.” This study examines whether the adoption of Industry 4.0 in manufacturing is detrimental to the factory economy. It investigates intra-ASEAN regional relations and their relationship with headquarter economies, including the USA, Japan, China, and Korea (ASEAN + 1). Utilising the Regional Trade Introversion Index (RTII) analysis tool, the study examines the interdependency between the ASEAN countries and the headquarter economies. The vertical intra-industry trade approach was used to assess the quality of ASEAN’s exports to the headquarter economies. The results showed that ASEAN’s factory economy was not disrupted by the adoption of Industry 4.0 in the manufacturing sector. With a high intra-industry trade index and the positive intra-ASEAN RTII, the ASEAN trade block strengthens. Exports of higher quality products from ASEAN countries to the headquarter economies, especially China and Korea, have consistently increased. Furthermore, geography is important in network production fragmentation and there is a differentiation among the headquarters and the factory economy.