This paper documents the growing importance of intra–East Asian trade of parts and components. Our empirical analysis shows that foreign direct investment (FDI) does play an important and independent role in facilitating the trade of parts and components in East Asia. This is true for FDI from all three source countries: the United States, Japan, and South Korea. Furthermore, our empirical studies show that compared with U.S. and Korean FDI, FDI from Japan has a particularly strong influence on trade in parts and components as well as trade in capital goods. One policy implication is that economies need to improve their physical infrastructure as well as the quality of their institutions to integrate further into the East Asian production network.

This paper attempts to determine empirically whether China is taking foreign direct investment (FDI) away from other Asian economies (the “China effect”). A random-effects simultaneous equation model, controlling for the determinants of inward FDI of eight East and Southeast Asian economies over 1985–2001 and using China's inward FDI as an indicator of the China effect, indicates that China's FDI level is positively related to these economies' FDI levels and negatively related to their shares in FDI in Asia. Moreover, openness, corporate tax rates, and corruption can exert a greater influence on these countries' FDI than China's FDI.

SARS is the first deadly infectious disease of the 21st century. It started in the Chinese province of Guangdong in November 2002, and by August 2003, it had spread to 29 countries and 3 regions, with a cumulative total of 8,422 cases and 916 deaths. This paper describes the spread of the disease in Hong Kong and discusses its impact on the economy. SARS was an unexpected negative shock. The most significant negative effects were on the demand side, with local consumption and the export of services related to tourism and air travel severely affected in the short run. The economy did not experience a supply shock, as the manufacturing base in the Pearl River Delta was unaffected, and goods continued to be exported through Hong Kong normally. Initial alarmist reports and estimates about the negative economic impacts were not borne out. Fear and panic subsided quickly once the outbreak was under control, and the economy rebounded rapidly.