The Role of International Outsourcing in International Trade: An Analysis of Iran-China Trade Relations

Abstract

According to economic literature, a large part of discussion is related to trade in intermediate goods and services as an indication of international outsourcing. Gamberoni et al. (2010) have stated that trade in intermediate goods create about 60 percent of world exports. These data suggest that understanding the determinants of trade in intermediate goods is crucial to comprehend the patterns of trade. The objective of this paper is to analyze the role of international outsourcing in form of trading intermediate products on bilateral trade relations between Iran and China. As an empirical work, we have studied the trade structure of intermediate and final goods traded between two countries during the period 1992-2011. Intermediate and final goods traded are classified into three groups: 1) electronic product, 2) automobiles and motorcycles, and 3) apparel and footwear. Observations on such products show that the share of Iran’s intermediate trade with China in these three industries to total trade is about 55% on average. We have concluded that trade in intermediate goods between Iran and China has been more volatile than that of final goods. These findings confirm the same story for both developed and developing countries, which found by Chen (2010), and Sturgeon and Memedovic (2010).