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Vertical Trade, Trade Costs and FDI

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  • Sébastien Miroudot
  • Alexandros Ragoussis

Abstract

Firms find advantages in sourcing inputs from abroad and in fragmenting their production process. On average, vertical trade represents about one third of total trade among OECD countries. This report describes and illustrates new firm strategies of vertical specialisation and explores the policy implications of new patterns of trade and FDI. It is in services industries that vertical trade has increased the most in recent years. While vertical trade seems to respond to the same determinants as the rest of exports and imports, distance-related trade costs play a more important role in explaining the volume of bilateral trade flows resulting from vertical specialisation. Distance-related costs have a lower impact on foreign direct investment and sales of foreign affiliates but there is a complementary relationship between trade and FDI. Vertical specialisation networks have created new challenges for trade policymakers. In particular, growth of bilateral exchanges between countries depends increasingly on barriers to trade and investment in the rest of the world. Moreover, the impact of a country’s own trade barriers on domestic firms is significant in the context of vertical specialisation. The analysis stresses the importance of multilateral negotiations for trade and investment liberalisation.

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File URL: http://dx.doi.org/10.1787/222111384154
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Trade Policy Papers with number 89.

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Date of creation: 28 Jul 2009
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Handle: RePEc:oec:traaab:89-en

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Keywords: trade liberalisation; distance; export platform; FDI; MNEs; firm strategy; trade costs; vertical trade; vertical specialization;

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Cited by:
  1. Xiao Jiang & William Milberg, 2012. "Vertical specialization and industrial upgrading: a preliminary note," Brooks World Poverty Institute Working Paper Series, BWPI, The University of Manchester ctg-2012-10, BWPI, The University of Manchester.
  2. Yilmaz Akyüz, 2012. "The Staggering Rise of the South?," Working Papers, Turkish Economic Association 2012/3, Turkish Economic Association.
  3. Seref Saygili & Cengiz Cihan & Cihan Yalcin & Turknur Hamsici, 2010. "Turkiye Imalat Sanayiin Ithalat Yapisi," Working Papers 1002, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, Elsevier, vol. 86(2), pages 224-236.
  5. Escaith, Hubert & Lindenberg, Nannette & Miroudot, Sébastien, 2010. "International Supply Chains and Trade Elasticity in Times of Global Crisis," MPRA Paper 20478, University Library of Munich, Germany.
  6. Saygılı, Hülya & Saygılı, Mesut, 2011. "Structural changes in exports of an emerging economy: Case of Turkey," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 22(4), pages 342-360.
  7. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession (revised)," MPRA Paper 31864, University Library of Munich, Germany, revised Jun 2011.
  8. Alyson C. Ma & Ari Van Assche, 2012. "Is East Asia’s Economic Fate Chained to the West?," CIRANO Working Papers, CIRANO 2012s-11, CIRANO.
  9. di Mauro, Filippo & Forster, Katrin & Lima, Ana, 2010. "The global downturn and its impact on euro area exports and competitiveness," Occasional Paper Series 119, European Central Bank.
  10. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession," MPRA Paper 18433, University Library of Munich, Germany.
  11. Markus Kelle, 2012. "Crossing Industry Borders: German Manufacturers as Services Exporters," wiiw Working Papers, The Vienna Institute for International Economic Studies, wiiw 92, The Vienna Institute for International Economic Studies, wiiw.
  12. Haruka Yane, 2013. "Prospects for Trade in Intermediates and Trade in Services: What Does the Gravity Model of Bilateral Trade Tell Us?," OSIPP Discussion Paper, Osaka School of International Public Policy, Osaka University 13E002, Osaka School of International Public Policy, Osaka University.
  13. Anderton, Robert & Tewolde, Tadios, 2011. "The global financial crisis: trying to understand the global trade downturn and recovery," Working Paper Series, European Central Bank 1370, European Central Bank.
  14. Giancarlo Corò & Marco Giansoldati & Mario Volpe, 2011. "Vertical Specialisation and Regional Trade Integration. A Study on Italy and Northern African Countries," Working Papers 2011_01, Department of Economics, University of Venice "Ca' Foscari".
  15. Agnès Bénassy-Quéré & Yvan Decreux & Lionel Fontagné & David Khoudour-Castéras, 2009. "Economic Crisis and Global Supply Chains," Working Papers 2009-15, CEPII research center.

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