How far do we trade intermediate inputs?
We look at determinants of intermediates inputs imports focusing on the role of distance as a direct measure of the costs involved in spreading a production process across different economies. We consider imports to two countries - Italy, whose competitive advantage is still hinged in the traditional sectors, and Germany, strongly specialized in skilled and capital intensive activities; in two sectors, footwear and PCs; in two periods end of the 80s and end of the 90s. Delocalization of stages of that part of the production which serves the domestic market to a foreign country is a costly activity at least because of the transport costs from re-importing goods home. The evidence of falling off imports with distance captures exactly how transport costs can offset other cost advantages from the use of cheaper resources. Our results would suggest this is not the case in all sectors, at least not in the production of computers and their parts. Imports of intermediates inputs for electronic components are not a clear indication of activities outsourced, delocalized with the aim of reducing costs. Other characteristics of trade patterns and of their production technology will have to investigated in order to understand the map of their production and their movements across borders, i.e. the determinants of the fragmentation of their production process.
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