59039576
Production fragmentation in trade of manufactured goods in India: Prospects and challenges
The present paper analyses the phenomenon of production fragmentation in trade of manufactured goods in India, using trade data at the Standard International Trade Classification (SITC) 5-digit product level. It estimates production fragmentation through a decomposition of intra-industry trade in parts and components into horizontal and vertical intra-industry trade over the period 1994-2012. The paper at the product level finds that aircraft parts and automobile parts and the components industry are emerging areas of production fragmentation in manufactured goods trade over this sample period. It further observes that aircraft parts (SITC 79295) is the only parts and component product to undergo product fragmentation at the higher end of the global value chain and that the auto parts and components industry is found to be experiencing this primarily at the lower end of the value chain. The findings are consistent with the existing literature supporting the view that to harness the existing potential of fragmentation that exists in these industries, Indian policymakers need to create a business environment conducive for moving up the quality ladder in the global value chain.
16897055
Vertical intra-industry trade and foreign direct investment in East Asia
As economic integration in East Asia progresses,trade patterns within the region are displaying an ever-greater complexity: Though inter-industry trade still accounts for the majority,its share in overall trade is declining. Instead,intra-industry trade (IIT),which can be further divided into horizontal IIT (HIIT) and vertical IIT (VIIT),is growing in importance. In this paper,we set out to measure and examine vertical intra-industry trade patterns in the East Asian region and compare these with the results of previous studies focusing on the EU, to which such analyses so far have been confined. Based on the supposition that VIIT is closely related to offshore production by multinational enterprises,we then develop a model to capture the main determinants of VIIT that explicitly includes the role of FDI. The model is tested empirically using data from the electrical machinery industry. The findings support our hypothesis,showing that FDI plays a significant role in the rapid increase in VIIT in East Asia seen in recent years.
67757285
Fragmentation and vertical intra-industry trade in East Asia
Abstract East Asia experienced an unprecedented change in its international trade patterns in the last 10–15 years. To investigate this development, the paper decomposes machinery trade into one-way trade, vertical intra-industry trade (vertical IIT), and horizontal intra-industry trade (horizontal IIT), using finely disaggregated international trade data. Our empirical analysis confirms that the significance of vertical IIT drastically increased, while the relative importance of one-way trade dropped. In addition, our empirical results show no evidence that most vertical IIT conforms to the vertical product differentiation model. Rather, the explosive increase in vertical IIT is largely due to the expansion of back-and-forth transactions in vertically fragmented cross-border production processes. The findings show that vertical international production sharing did become an essential part of each economy in East Asia in the 1990s, particularly with the explosive increase in vertical transactions of machinery parts and components.
168167606
Working Paper 292 The potential for involving India in regional production networks : Analyzing vertically specialized trade patterns between India and ASEAN
and Summary ........................................................................................................... ii
152730012
Production Networks and Industrial Clusters: Integrating Economies in Southeast Asia
In this book, the focus in on how developing economies in Southeast Asia ride on the wave of globalization that brings about benefits and economic growth with expanding trade and investment linkages. The central concept used in this study is production networks and industrial clusters. With examples from Indonesia and Malaysia (electronics industry), Singapore (biomedical science industry), and Thailand (automotive industry), the book explains how the production networks and industrial clusters have played crucial roles in their industrial development.
30970535
Exports, Capabilities, and Industrial Policy in India
An extensive literature argues that India’s manufacturing sector has underperformed, and that the country has failed to industrialize; in particular, it has failed to take advantage of its labor–abundant comparative advantage. India’s manufacturing sector is smaller as a share of GDP than that of East Asian countries, even after controlling for GDP per capita. Hence, its contribution to overall GDP growth is modest. Without greater participation of the secondary sector, the argument goes, the country will not be able to develop and become a modern economy. Standard arguments blame the “license-permit raj”, the small-scale industrial policy, and the labor laws. All these were part of the industrial policy regime instituted after independence. This regime favored the heavy-machinery subsector. We argue that despite its shortcomings and misallocations, the bias towards machinery, metals, chemicals, and other capital- and skilled labor-intensive products allowed Indian manufacturing to accumulate a wide range of capabilities. We show that India’s manufacturing sector is more diversified and sophisticated than one would expect given the country’s income per capita. This positions India well to continue expanding its exports of other sophisticated products. India’s failure, however, lies in not being able to diversify into labor-intensive sectors and generate the type of structural transformation seen in China.
153911245
Intra-industry trade of India: Trends and country-specific factors
Intra-industry Trade of India: Trends and Country-Specific Factors. — The analysis in this paper confirms that trade liberalization biases trade expansion towards intra-industry trade (IIT) in India. The increased level of IIT is largely exportled, that is, caused by a faster growth of exports than of imports. India’s IIT is more intense with high-income countries and is characterized by a greater extent of complementarity. Further, certain country-specific factors which are found to be crucial in the models of vertical IIT are pertinent in influencing the pattern of India’s bilateral IIT.
154174397
China and India in the international fragmentation of automobile production
We explore the relative positions of China and India in the international fragmentation of automobile production by analyzing disaggregated trade flows, while distinguishing between final and intermediate goods. The size and composition of trade has significantly moved in favor of trade of components over the last decade, but major differences exist between the two countries; China is a net car importer, while India is a net car exporter. We find evidence of the increasing importance of two-way trade in vertically differentiated goods, indicating that China and India are becoming more active participants in the vertical division of labor in automotive production.
55274948
Shifting Governance Structures in Global Commodity Chains, With Special Reference to the Internet
There are three main drivers of economic globalization in the latter half of the 20th century: investment by transnational corporations, international trade, and the Internet. Whereas producer-driven and buyer-driven commodity chains characterize the phases of investment-based and trade-based globalization, respectively, the emergence of the Internet in the mid-1990s heralds a new age of digital globalization. The explosion in connectivity that is enabled by the Internet has launched an e-commerce revolution that is beginning to transform the structure of business-to-business (B2B) as well as business-to-consumer (B2C) transactions in global industries. New infomediaries that navigate access to rich information and greater reach by businesses and consumers are prominent in B2C digital networks. The Internet's most significant impact to date, however, has been in B2B markets, where e-commerce is reshaping the competitive dynamics and power alignments in traditional producer-driven and buyer-driven commodity chains such as automobiles and apparel.
153882402
Intraindustry trade in intermediate goods
Since intermediate goods play such a vital role in foreign trade, this paper develops a model that explains the benefits from intraindustry trade in differentiated intermediate goods. In comparison with a situation of autarchy, this type of trade causes an increase in the number of intermediate good varieties. In this way, the producers of final goods will benefit from intermediate good varieties, which are closer to the ideal for a specific production process. At the same time, the producers of intermediate goods will, under conditions of international division of labor, benefit from economies of scale.
158186910
The role of services in production and international trade
The following sections are included:IntroductionServices in the Process of Expansion and FragmentationInternational Markets and the Production ProcessPrice Changes and the Role of Services in TradeComparisons with Existing ModelsConcluding RemarksReferences
2562917
Can Vertical Specialization Explain the Growth of World Trade?
The striking growth in the trade share of output is one of the most important developments in the world economy since World War II. Two features of this growth present challenges to the standard trade models. First, the growth is generally thought to have been generated by falling tariff barriers worldwide. But tariff barriers have decreased by only about 11 percentage points since the early 1960s; the standard models cannot explain the growth of trade without assuming counterfactually large elasticities of substitution between goods. Second, tariff declines were much larger prior to the mid 1980s than after, and yet, trade growth was smaller in the earlier period than in the later period. The standard models have difficulty generating this nonlinear feature. This paper develops a two-country dynamic Ricardian trade model that offers a resolution of these two puzzles. The key idea embedded in this model is vertical specialization, which occurs when countries specialize only in particular stages of a good's production sequence. The model generates a nonlinear trade response to tariff reductions and can explain over 50 percent of the growth of trade. Finally, the model has important implications for the gains from trade.
153833440
Two-dimensional fragmentation in East Asia: Conceptual framework and empirics
Abstract This paper proposes the concept of two-dimensional fragmentation and empirically analyzes the international production/distribution networks in East Asia. Two dimensions of fragmentation are in terms of geographical distance and controllability of a firm for fragmented production processes. The increase in service link cost comes from physical separation of production processes and uncontrollability while the reduction of production costs comes along location advantages and the counterparts' ownership advantages. Our empirical investigation using disaggregated international trade data and micro-data of Japanese corporate firms reveals the development of production networks in East Asia with active back-and-forth transactions of parts and components. It also emphasizes their development with sophisticated combination of intra-firm and arm's length transactions along flexible de-internalization decision-making for outsourcing and with more developed industrial clusters. The paper suggests that policy environment in East Asia has an important role in reducing the service link cost due to uncontrollability as well as physical distance.
128903135
Fragmentation in East Asia: Further Evidence
This paper analyzes the spatial pattern of production/distribution networks in East Asia. Two issues are investigated. The one is how the formation of networks has changed the intra- and inter-regional trade pattern. We find that an explosive expansion of intra-regional trade in machinery parts and components, in particular among developing countries, contributes to the current dense networking. The other is how corporate firms effectively organize fragmentation in terms of geographical distance and disintegration. The micro data of Japanese firms indicate that long-distance transactions are mainly intra-firm while transactions in local markets are predominantly arm's-length (inter-firm), suggesting the formation of agglomeration.
53553801
Production fragmentation and trade integration: East Asia in a global context
This paper examines the implications of international production fragmentation for analysing global and regional trade patterns, with special emphasis on countries in East Asia. It is found that, while 'fragmentation trade' has generally grown faster than total world manufacturing trade, the degree of dependence of East Asia on this new form of international specialisation is proportionately larger compared to North America and Europe. International production fragmentation has certainly played a pivotal role in continuing dynamism of the East Asian economies and increasing intra-regional economic interdependence. There is, however, no evidence to suggest that this new form of international exchange has contributed to lessoning the regions dependence on the global economy. On the contrary, growth dynamism based on vertical specialisation depends inexorably on extra-regional trade in final good, and this dependence has in fact increased over the years.
154933657
Vertical and Horizontal Intra-Industry Trade : A Cross Industry Analysis for the United Kingdom
A large theoretical literature has emerged directed at explaining the presence of intra-industry trade (IIT). One of the distinctions which comes out of these models is that between horizontal IIT (where goods are differentiated by attributes) and vertical IIT (where goods are differentiated by quality). In this paper horizontal and vertical IIT in U.K. trade are disentangled using a unit value dispersion criterion and a range of industry characteristics. The paper not only points up the relative importance of vertical and horizontal IIT in the United Kingdom, it also demonstrates how a failure to separate them out can impact on the interpretation of empirical results. Copyright 1995 by Royal Economic Society.
15635187
KORZERE AUFS.ATZE (~ KOMMENTARE SHORTER PAPERS t~ COMMENTS Marginal Intra-Industry Trade: Measurement and Relevance for the Pattern of Industrial Adjustment
Remark: I am grateful to Dermot McAleese, Trinity College Dublin, for valuable comments on an earlier draft. All errors are my sole responsibility.
30960741
Liberalisation, Multinational Enterprises and Export Performance: Evidence from Indian Manufacturing
This article tests two empirical hypotheses: one, MNE affiliates perform distinctly better than their local counterparts in the export markets in a globalised economy, and two, the MNE affiliates have greater comparative advantages in high-tech than in low- and medium-tech industries. Tobit estimates of a large data set of Indian manufacturing firms for the late 1990s provide relatively weak support to the first hypothesis. A disaggregated industry-group-wise analysis indicates that MNE affiliates perform no better than their local counterparts in high-tech industries. Thus, even with a higher level of integration with the global economy in the 1990s India appears to have failed in attracting efficiency-seeking FDI on a significant scale, particularly in high-tech industries. R&D and efficiency of manpower emerge as two significant determinants of international competitiveness in technology-based sectors (high- and medium-high tech sectors). Imports of raw materials enhance the export competitiveness of firms in all industry groups. Finally, large firms are found to be more export oriented, implying the need for creating large flagship companies in the country.
155077807
Technology, firm size and export behaviour in developing countries: The case of Indian enterprises
This article analyses the interfirm variation in export behaviour of Indian enterprises in 13 manufacturing industries using Tobit models. The main contention of the analysis, which is supported by the empirical findings, is that the technology factor could be important for explaining export behaviour of developing country enterprises in medium and low technology industries. The firm size ‐ export performance relationship is found to be predominantly inverted U‐shaped. A higher level of automation is an advantage only in high technology industries. In countries with large home markets government negotiations with MNEs regarding export obligations could be an effective means of expanding manufactured exports.
166860843
Multinational Enterprises in India: Industrial Distribution, Characteristics, and Performance
1 Introduction 2. Policy of the Government of India Towards Foreign Investment 3. Place of Multinational or Foreign Enterprises in Indian Industry: Overall and Sectoral Shares 4. Determinants of Inter-Industry Distribution of Foreign Shares in Indian Manufacturing: A Test of the Internationalisation Theory 5. Foreign and Local Enterprises in Indian Manufacturing: An Analysis of Discriminating Characteristics 6. Determinants of Profitability of Foreign and Local Firms in Indian Manufacturing 7. Export Behaviour of Foreign and Local Firms in Indian Manufacturing 8. Summary and Conclusions
153791143
Differences in GDP Per Capita and the Share of Intraindustry Trade: The Role of Vertically Differentiated Trade
This paper examines the relationship between per capita GDP differences and bilateral intraindustry trade shares. The relationship is negative in OLS regressions but positive in fixed-effect regressions, and evidence is presented suggesting this is due to the presence of vertically differentiated trade. The paper begins by distinguishing between vertically and horizontally differentiated trade, and then finds a positive and significant relationship between GDP per capita differences and the trade shares only in the regressions on the vertically differentiated trade shares. It is shown also that the extent to which income distributions overlap affects only the share of vertically differentiated trade.
107793720
Asia’s international production networks: Will India be the next assembly centre?
This paper analyses the current state of participation of India in the international production networks(IPNs) of manufacturing industries in Asia, and identifies the constraints and challenges for India's deeper participation in the near future.