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Trade in Parts and Components across Europe

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  • Richard Frensch

    (University of Regensburg, Regensburg
    Institute for East and Southeast European Studies (IOS), Regensburg)

  • Jan Hanousek

    (CERGE-EI, Charles University, Prague
    Czech Academy of Sciences, Prague
    CEPR, London)

  • Evzen Kocenda

    (Institute of Economic Studies, Charles University, Prague
    Institute of Information Theory and Automation, Czech Academy of Sciences, Prague
    CESifo, Munich
    Institute for East and Southeast European Studies (IOS), Regensburg)

Abstract

Based on the factor-proportion gravity framework, we build a model that identifies the driving forces for trade in parts and components. We test our model empirically by using a detailed and large European data set. We show that trade in parts and components is driven by relative supply-side country differences, proxied by wages and capital labor ratios. The pattern is compatible with models of incomplete specialization and trade. We take our results as evidence for the existence of international East-West production networks in Europe, driven by tradeoffs between wages, capital labor ratios and coordination costs. Our results also reveal that (i) in response to stronger relative wage differences, trade in parts and components across Europe is predominantly conducted along the extensive margin but (ii) the potential to intensify the trade and international production network in new EU members has not been exhausted yet.

Suggested Citation

  • Richard Frensch & Jan Hanousek & Evzen Kocenda, 2016. "Trade in Parts and Components across Europe," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(3), pages 236-262, June.
  • Handle: RePEc:fau:fauart:v:66:y:2016:i:3:p:236-262
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    3. Jan Hanousek & Evzen Kocenda & Pavla Vozarova, 2017. "Horizontal Crowding-Out Versus Vertical Synergies Under The Mne Presence," Proceedings of Economics and Finance Conferences 4507366, International Institute of Social and Economic Sciences.
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    5. Jan Hanousek & Evzen Kocenda, 2016. "FDI and Ownership in Czech Firms: Pre- and Post-crisis Efficiency," KIER Working Papers 942, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    international trade; production networks; gravity model; panel data; European Union;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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