Patterns and Determinants of International Fragmentation of Production. Evidence from Outward Processing Trade between the EU and the Countries of Central-Eastern Europe

Both theoretical and applied research have benne devoting much attention to the fact that large and growing shares of international trade floes among industrialized countries consist of intermediate goods. The new configuration of the productive structure underlying such phenomenon has been named ‘internationally fragmented’. In this paper we investigate patterns giving rise to international trade for reasons of processing. Data on textile and apparel trade between major EU countries and sic major Central.-European countries show that the magnitude of traffic for reasons of processing greatly overshadows that of final trade. The implication is that the industry appears to be affected by a process of international fragmentation whose understanding requires anew definition of the concept of comparative segments of previously integrated production processes is activated by labor cost differentials activated, EU firms appear not to favour a strategy of further decentralization of production in the least-wage country. Rather, there is evidence that in time further segments of the production processes are allocated to the partner country originally chosen.