International Fragmentation Of Production Research Articles

Decomposition and Dynamics of Unit Labor Costs in a Context of International Fragmentation of Production: Evidence from the German Automotive Sector

Conventional analysis has sought to explain the determinants of price competitiveness by way of national factors, but given the current degree of international fragmentation of production, a more holistic perspective needs to be explored. This document develops a specific proposal that permits the indicator on vertically integrated unit labor costs (VIULCs) to be broken down into its fundamental components; also, the evolution of this indicator is explored for the German automotive sector, to determine which component might best elucidate the evolution of the VIULCs. The results show a decrease in VIULCs deriving from the German sector as well as from its suppliers, confirming the relevant effects of outsourcing and offshoring strategies. Moreover, wage restraint among suppliers coupled with productivity gains are found to explain the overall reduction in VIULCs. JEL classification: P16, F15, F23,

The Significance of Participation in the Global Production Network to Economic Development: An Econometric Analysis of BRICS+T Countries

With globalization, the international fragmentation of production (IFP) splits the production process of final goods and services into several stages undertaken in different countries integrated into global production networks. BRICS + T countries have rapidly participated in the (IFP) process especially after 2000s. The main purpose of this paper is to analyze the nexus between BRICS+T countries’ participation in the global production networks and their economic development. The vertical specialization rate, as an indicator of this participation, had been calculated utilizing OECD Input-Output Tables. Subsequently, the development index was calculated utilizing economic-technological and cultural-institutional indicators published by World Bank. The vertical specialization’s impact on development was estimated utilizing the CS-ARDL estimator. The results revealed that while the vertical specialization has a statistically significant positive impact on development in the short term, a positive but not statistically significant impact was recorded in the long term. Konya (2006) causality test was performed to examine the causal relationship among the selected variables. The results revealed a one-way causality running from development to vertical specialization in China and Turkey and a one-way causality running from vertical specialization to development in Brazil. No causality relationship could be detected in other countries included in the analysis.

The virtues and limits of specialization in global value chains: analysis and policy implications

A growing concern has emerged in both academic research and policy circles about the hidden risks that can arise from a narrow specialization of economies in a world characterized by the international fragmentation of production. In this work, we address the virtues and limits of specialization in light of the strong interdependencies between countries induced by the emergence and evolution of global value chains (GVCs). The need to shift the focus from the product level to the functional level is discussed from both a conceptual and empirical perspective. Moreover, several arguments are advanced in favour of functional diversification. It is argued that economies performing a relatively large range of value adding activities are in a better position to foster process and product innovation and increase the resilience of the productive structure in face of both domestic and external shocks. Accordingly, we provide a stronger conceptual basis for industrial policies aimed to address the vulnerability of GVCs in times of major disruptive events. We stress that responding to these shocks implies a careful definition of the geographical boundaries of international production networks, substantial investments in strategic activities at the national and macro-regional levels, as well as a more selective sourcing of inputs and knowledge assets on a global scale.

Size and Position in Value Chains in Latin America with a regional Perspective

In this article, I develop a framework that divides global value chains into regional and extra-regional and studies the participation of Latin American countries in international fragmentation of production along 25 years of globalization. Measures of depth, position, and length are developed for each kind of value chain. Between 1990 and 2015 the engagement in activities related to international trade increased in every country in Latin America and the prevalent way of integration is in Extra Regional Value Chains. While South America engages mostly in value chains as a source of value added transformed by others, Central America participates more as end of chains and Mexico switched its position to a net forward position in regional value chains. Finally, the article examines the relationship between participation and length of the domestic segment of chains, finding differences among the kind of participation that each country performs.

Features of the international fragmentation of production in Boeing company

The level of development of the aviation industry is an indicator of the scientific and technical potential of any state and also affects its economic level. This industry practically cannot exist without interaction with other countries, as technical achievements, scientific discoveries, know-how of some countries help other countries to develop the aircraft industry, as well as bring it to a new level. Manufacturers of civil aircraft interact with a large number of suppliers around the world in order to create a quality product. Using the example of Boeing-industry leader, while studying the role of suppliers and the company’s supply chain, the peculiarities of fragmentation of this company and its positive impact not only on the company’s position in the market inside and outside the country, but also on the development of the entire industry as a whole are shown.

Functional division of labour and value capture in global value chains: a new empirical assessment based on FDI data

This work provides a new empirical assessment of global economic hierarchies and the associated unequal distribution of value between core and peripheral economies. This is accomplished by looking at the functional division of labour induced by the international fragmentation of production and the related value capture dynamics in global value chains (GVCs). To this aim, we introduce and compute an indicator of ‘functional specialization’ of economies based on their ability to attract Foreign Direct Investment, which allows us to detect the value adding activities in which more than 100 countries have specialized from 2003 to 2018. We show that the most intangible-intensive activities are concentrated in core capitalist economies, while production operations at the lower end of the value chain are mainly the prerogative of low- and middle-income countries. Although China and India have emerged as partial but significant outliers, a substantial persistence of this functional division of labour across world macro-regions is also observed over the period. Most notably, we find that a higher specialization in the most intangible-intensive functions allows countries to capture a greater amount of value from trade in GVCs, thus providing novel empirical support to the ‘Smile curve’ hypotheses and the underlying ‘intellectual monopoly’ perspective.

İmalat Sanayinde Dikey Uzmanlaşma: Orta ve Doğu Avrupa Ülkelerine Yönelik Bulgular

Since 1980 with the accelerating trends of globalization, the international fragmentation of production was one of the drastic transformations that occurred in the world economy. It is defined as the process whereby more than one country participates in previously integrated production activities (vertical specialization) involved in producing a final good. After the dissolution of the Soviet Union, the post-socialist Central and Eastern European countries (CEECs) boost their participation in global production networks. The main motivation of this paper is analyzing the extent to which the CEECs that joined the EU in 2004 (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) are involved in the global production process. Based on the World Input-Output Database (WIOD); HIY method proposed by Hummels, Ishii & Yi (2001) is applied to the national input-output tables (NIOTs) of CEECs to estimate the manufacturing industries’ vertical specialization rate during 2000-2014. The results revealed that the CEECs’ vertical specialization rate increased during 2000-2014 but decreased during the 2008-2009 global financial crisis. The highest rate was respectively accounted for Hungary, Slovakia, Estonia, Slovenia, Lithuania, Poland and Latvia. The countries with the highest manufacturing industry’s vertical specialization were Hungary, Estonia, Slovakia, Latvia, Czech Republic, Slovenia, Poland and Lithuania, respectively. The manufacturing industries’ vertical specialization rate in Estonia, Hungary, Latvia and Poland was higher than that of the entire economy. Finally, in the Czech Republic, Latvia, Lithuania and Poland; higher rates were accounted for the medium-low technology sectors, but for medium-high and high-tech sectors in Estonia, Hungary, Slovakia and Slovenia.

Patterns and drivers of embodied carbon intensity in international exports: The role of trade and environmental policies

International production fragmentation has generated and reallocated value added as well as CO2 emissions across economies. Prior studies have mainly focused on the embodied emissions or value added in trade. The evidence regarding the embodied emission intensity, and particularly the role of policies, however, remains sketchy. This paper investigates the role of trade and environmental policies in embodiment flows by combining input-output analysis and the gravity model of trade, covering 43 economies over 2000–2014. First, we derive the domestic carbon and value-added contents of bilateral exports in an input-output framework, and find a declining trend in emission intensity in exports. Second, we use the gravity model to examine the determinants of trends in both flows, and further infer the combined effects on intensity. The results show that an open trade policy can lower emission intensity in exports by facilitating the selection of products that are higher in value-added but less emission-intensive. Economies with more stringent environmental policies have a lower emission intensity in exports, but a higher emission intensity in their imports, which suggests carbon leakage. Effective global climate mitigation will require a closer look at the emission intensity in exports and collective action to address the detrimental effects of carbon leakage.

Russia and the Netherlands: Trade cooperation within the global value chains framework

Russia and the Netherlands are crucial trading partners for each other and those countries have enduring trade history, during which there were both periods of “cooling” and “thawing” in trade and investment. Against the background of a global decline in trade and FDI flows, the issue of global production and global value chains (GVCs) cooperation, in particular Russian-Dutch cooperation, is becoming more relevant. Thus, this study aims to determine current trends and features of trade cooperation between Russia and the Netherlands using the decomposition of gross value added (VA) flows, since the analysis of trade in terms of GVCs allows one to more accurately determine the directions and structure of international trade. This issue becomes especially urgent in context of the international production fragmentation slowing down since GVCs, among other things, more accurately illustrate trade and production ties and the interdependence of the world’s economies. The article will consider the general characteristics of trade relations between Russia and the Netherlands in terms of gross trade indicators, determine the place of Russia and the Netherlands in the ranking of their trading partners, show the dynamics of trade and FDI, and also identify the main areas of cooperation between Russia and the Netherlands within the GVC framework with the help of sectoral analysis of VA trade. As a result of the analysis, the author comes to the conclusion that Russia and the Netherlands, firstly, are involved to varying degrees in GVCs, secondly, they participate in opposite directions within GVC flows, which is why they do not equally benefit from participation in global production, thirdly, mutual trade within the framework of the GVC is “one-sided” and unbalanced, and, fourthly, the export and industrial production of the Netherlands relies on Russian intermediate goods in a bigger extent than Russian exporting industries relies on the Dutch once.

Patterns of external insertion in global value chains: a comparative analysis between Brazil and China

ABSTRACT The international trade literature has shown the benefits of the international fragmentation of production for developing countries. However, there are considerations about the hierarchy and control in Global Value Chains (GVCs). Thus, this research aims to evaluate the Brazilian and Chinese international insertion in GVCs by proposing an index about technological sophistication in exports (qtech) by technological intensity for 2005-2015. The results pointed out that the integration in GVCs and technological sophistication have been directed towards technological clusters in which Brazil has revealed comparative advantages, while China has been moving towards technological clusters with dynamic comparative advantages.

Does International Fragmentation of Production and Global Value Chains Participation Affect the Long-run Economic Growth?

This article aims to investigate whether the international fragmentation of production and the global value chains (hereafter GVCs) participation affects the economic growth for a set of 40 advanced and emerging economies. It considers four aspects related to the type of participation and position in GVCs captured by different value-added measures: (a) vertical specialisation index; (b) GVC participation index; (c) GVC position index in low-tech sectors; and (d) GVC position index in high-tech sectors. A panel autoregressive distributed lag (PARDL) model is pioneeringly employed to capture the long-term relationship between economic growth and our four measures for annual value-added data from 1995 to 2011, provided by the World Input–Output Tables (WIOT). The main long-run results indicate that (a) higher levels of international fragmentation of production and GVCs’ participation ensure higher GDP per capita growth rates; (b) the fragmentation and GVCs’ participation are more important to GDP growth than the gross exports as a percentage of GDP; (c) GVCs’ participation index, which considers both the ‘forward’ and ‘backward’ participation, is less important than the vertical specialisation, measured by the foreign intermediate imports; and (d the countries engaged in upstream positions in low-technology GVCs were positively and significantly benefitted in terms of growth. JEL Codes: F14, F43

Openness effects on the rule of law: Size and patterns of trade

Recent literature has analyzed three main channels regarding the effect of international trade on legal institutions: overall openness to trade, a specialization on institutionally intensive exports, and a dependence on exports of natural resources. Unlike previous literature, we examine all these channels within a single regression framework. Importantly, we develop a new measure of institutional intensity of exports at the goods level based on nearly one hundred million disaggregated bilateral trade flows. Our new measure shows that goods subject to international fragmentation of production are the most institutionally intensive. Using a sample of 144 countries, our regression results show that specialization on institutionally intensive exports, especially on fragmented goods, helps countries to improve their rule of law. In addition, we find that greater openness improves the rule of law, but we fail to find any effect from natural resources exports.

On absolute and comparative advantage in international trade: A Pasinetti pure labour approach

This paper builds upon Pasinetti's pure labour model, formalizing some of the insights that he has provided into the structure of international trade. A systematic approach is followed, starting with restrictive assumptions that are relaxed in subsequent stages of analysis. The starting point is a model in which two countries, one advanced and the other underdeveloped, have equal costs of production. This implies that there are no incentives for trade. At a second stage, we introduce and formalize the conditions required for these countries to exhibit absolute cost advantages, based on wage disparities. Finally, the paper establishes the conditions required for comparative advantage, based on relative differences in technology. Building on an interpretation of Ricardo's writings on trade, it is shown that absolute advantage is critical for the two countries to realise potential cost reductions afforded by comparative advantage. This abstract insight, based on the Pasinetti pure labour system, suggests that absolute advantage has a more fundamental role in international trade than given by previous studies, which focus more on either the international mobility of money capital or the international fragmentation of production.

Kyoto Protocol and global value chains: Trade effects of an international environmental policy

Deepening globalization and international fragmentation of production (IFP) have provided an appropriate foundation for offshore production processes to exploit comparative advantage wherever possible. Unilateral environmental regulations can increase the outsourcing probability of polluting production processes in regions with looser environmental regulations and can consequently alter trade patterns by changing comparative advantage. The Kyoto Protocol (KP) is considered as one of the international but unilateral environmental regulations for coping with climate changes. This protocol was implemented to mitigate emissions in industrial economies, and its potential side effects such as production relocation have always been controversial. Therefore, this study aimed to estimate the impacts of the KP on trade patterns of the ratifying countries within the context of global value chains (GVCs). For this purpose, the difference-in-differences (DiD) regression and the generalized synthetic control method (GSCM) were used to model the panel data during 1990–2017. The estimation results indicated that the KP ratification decreased the forward participation of the committed countries, while increased their backward participation. As a result, it deepened their relative downstream positions in the GVCs. Accordingly, the KP reduced the share of intermediate goods and services exports in committed countries that ratified KP but increased the share of foreign intermediate goods and services in their exports. In addition, some environmental implications and outcomes of these results, especially for the Paris Agreement, were discussed.

Evolución de la red de comercio mundial en valor agregado

El objetivo del presente trabajo es mostrar la configuración de la red mundial de exportaciones; es decir, la importancia de los países en el conjunto de la red de comercio para la producción de exportaciones. Dicha red se ha hecho más densa en virtud de la fragmentación internacional de la producción. Esta configuración se muestra para las exportaciones totales y las manufactureras, según su nivel tecnológico y las que procesan recursos naturales. Los cambios más destacados que tuvieron lugar en la composición del núcleo de la red en el periodo de estudio son el ascenso de China a las primeras posiciones, la creciente importancia de Corea y la pérdida de importancia de Japón, Francia, Gran Bretaña e Italia.

Brasil e Estados Unidos: Uma análise do comércio internacional e bilateral no período 2005-2016

RESUMO: As relações comerciais entre o Brasil e os Estados Unidos são antigas e datam desde a independência do Brasil. Os Estados Unidos sempre foram um importante parceiro comercial do país, no entanto, seu peso na pauta de comércio brasileira tem se reduzido paralelamente à intensificação da fragmentação internacional da produção e ao crescente destaque da parceria do Brasil com a China. O objetivo do artigo é apresentar uma análise comparativa da inserção do Brasil e dos Estados Unidos no comércio internacional e da relação comercial entre eles no período recente (2005-2016). A análise estatística por meio dos dados da COMTRADE demonstrou que os principais produtos da pauta de exportações brasileira para os Estados Unidos apresentam maior grau de sofisticação tecnológica, do que a pauta para o mundo. Os resultados também apontam para uma maior concentração nas exportações do que nas importações do Brasil e uma tendência de crescimento do grau dessa concentração. O Brasil apresenta uma especialização muito maior em produtos de baixa intensidade tecnológica, porém há uma maior presença de produtos com mais intensidade tecnológica nas exportações para os Estados Unidos, demonstrando a relevância das relações com esse parceiro comercial no período recente.
 PALAVRAS-CHAVE: padrão de especialização comercial, relações bilaterais, pauta de exportação.

Assessing the effects of labor market dynamics on CO2 emissions in global value chains

International production fragmentation has led to substantial changes in labor market, such as job creation/job loss, changing labor market structure and labor productivity. Such changes are perceived to affect CO2 emissions of those economies that participate in different parts of global value chains. This paper develops an accounting framework relating CO2 emissions to labor market shaped by global value chains. It analyses the influential factors driving CO2 emissions, and documents several pervasive empirical patterns. This is based on the recent environmental accounts developed by the European Commission and the World Input-Output Database over 2000–2014. The results show that the growth of CO2 emissions is primarily reduced by intensity effect, followed by labor market structural change due to participation in value chains, while it is driven by labor productivity effect and job creation. In particular, the foreign job creation effect is mostly emission-increasing, even in those economies with shrinking domestic employment. These results highlight the role of labor market and global value chains in climate policymaking.

International location selection for production fragmentation

Today, many companies do not restrict their manufacturing activities to their home countries and are increasingly seeking new locations from which to operate cross-border production sharing. The location decisions involved in production fragmentation represent a strategic issue that has a significant impact on a company’s income and success. The location selection process considers many criteria, especially when the process involves international locations. Most criteria are difficult to assess precisely and quantitatively, and a rating scale may need to be employed. However, such scales, which are often based on linguistic variables, are not typically standardized across various decision-makers, making them dependent upon subjective judgments. To tackle such complications, fuzzy logic is adopted to reduce the uncertainties in group decision-making in such an environment. The purpose of this paper is to applya fuzzy technique for order preference by similarity to ideal solution (fuzzy TOPSIS) regarding the locations to be used in the international production fragmentation of an electronics company located in Thailand. This paper first examines the important criteria influencing location decisions for international production fragmentation. Fuzzy set theory is then applied to manipulate linguistic vagueness, ambiguities, and imprecise information and knowledge in such a manner as to determine weights for multiple criteria. The significant criteria for international production fragmentation are then identified and ranked through expert judgments. The results reveal that skill and competency level of labor force, adequacy of energy and electricity, and taxation and tax incentives are the most important criteria. The potential locations are finally ranked based on their overall performances. The paper also provides implications for management practices in international operations in terms of critical location criteria, decision-making methods, and uncertain situations.

Transportation Mode Choice and International Fragmentation of Production: Evidence from a Developing Country

ABSTRACT The objective of this study is to analyze the effects of fragmentation of production measured by the parts and components trade on the choice of transportation mode including air, sea and road. The paper attempts to account for the advantages and disadvantages of alternative transportation modes in short-, medium- and long-distance trade. Using a detailed data set (Harmonized System12-digit product level statistics for the period 2006–2014 and 143 countries) of Turkey’s machinery exports, we show that fragmentation of production plays a significant role in the selection of the transportation mode. In particular, road transportation with good infrastructure is a significant trade facilitating mode of transportation for nearby trade partners when trade involves P&C and bulky products.

The dilemma over Washington consensus guidelines or industrial policy

During the 1990s Croatia went through the process of transition to market economy mostly following the Washington Consensus policy guidelines. Since the period before the last global financial crisis, Croatia has shown almost no convergence to developed European Union member states and has been among the least developed ones. This paper examines the causes of Croatian development lag, while providing an overview of contemporary development policies and international production fragmentation trends that affected them. The paper points out to several important factors that shaped the Croatian development path. Expectations from foreign capital were overrated, as the foreign direct investment consisted mainly of brownfield investment in large monopolistic companies and was rarely directed to export-oriented sectors. Accession to the World Trade Organisation was followed by stronger growth of imports than exports and joining the European Union did not bring economic growth as fast as expected. Lack of industrial policy implementation has led Croatia to deindustrialisation and increasing importance of the tourism sector as a form of the Dutch disease.