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Trade openness and international fragmentation of production in the European Union: the new divide?

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  • Paolo Guerrieri

    ()
    (Sapienza, University of Rome)

  • Filippo Vergara Caffarelli

    ()
    (Bank of Italy)

Abstract

This paper analyses the relationship between international fragmentation of production, trade openness and global export performance in the European Union from 2000 to 2009. As most trade models featuring international production sharing show, the higher the level of fragmentation and related international openness the better the export performance of a country. Our econometric analysis confirms this hypothesis. We estimate an error correction model based on panel data on the EU Member States and find that inter-European fragmentation and openness significantly improve their long-run export performance. Policy implications could be that restrictive policies preventing firms from internationalizing production would weaken a country’s position in global production networks, with long-term negative effects on domestic jobs and growth.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 855.

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Date of creation: Feb 2012
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Handle: RePEc:bdi:wptemi:td_855_12

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Keywords: international fragmentation of production; trade openness; export performance; European Union;

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  1. Hiroyuki Kasahara & Beverly Lapham, 2006. "Import Protection as Export Destruction," University of Western Ontario, Economic Policy Research Institute Working Papers 20062, University of Western Ontario, Economic Policy Research Institute.
  2. Stephan Danninger & Fred Joutz, 2007. "What Explains Germany’s Rebounding Export Market Share?," CESifo Working Paper Series 1957, CESifo Group Munich.
  3. Arndt, Sven W. & Kierzkowski, Henryk (ed.), 2001. "Fragmentation: New Production Patterns in the World Economy," OUP Catalogue, Oxford University Press, number 9780199243310, October.
  4. Bas, Maria & Strauss-Kahn, Vanessa, 2010. "Does importing more inputs raise exports? Firm level evidence from France," MPRA Paper 27315, University Library of Munich, Germany.
  5. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  6. Luca De Benedictis & Lucia Tajoli, 2008. "Similarity in trade structures, integration and catching-up," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(2), pages 165-182, 04.
  7. Emanuele Breda & Rita Cappariello & Roberta Zizza, 2008. "Vertical specialisation in Europe: Evidence from the import content of exports," Temi di discussione (Economic working papers) 682, Bank of Italy, Economic Research and International Relations Area.
  8. Kaminski, Bartlomiej & Ng, Francis, 2005. "Production disintegration and integration of Central Europe into global markets," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 377-390.
  9. Judith M. Dean & K. C. Fung & Zhi Wang, 2011. "Measuring Vertical Specialization: The Case of China," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 609-625, 09.
  10. Dieter Ernst & Paolo Guerrieri, 1997. "International Production Networks And Changing Trade Patterns In East Asia The Case Of The Electronics Industry," DRUID Working Papers 97-7, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
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Cited by:
  1. Prettner, Catherine & Prettner, Klaus, 2014. "How interdependent are Eastern European economies and the Euro area?," Center for European, Governance and Economic Development Research Discussion Papers 187, University of Goettingen, Department of Economics.
  2. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.

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