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Trade in parts and components and Central Eastern European Countries’ industrial geography

  • Gianfranco DE SIMONE

    ()

Growing inflows of FDI and the increasing integration of domestic firms into International Production Networks (IPNs) set up by EU-15 principals have yielded a rise in trade in parts and components for Central Eastern European Countries (CEECs). As a consequence, new patterns of localisation of industrial activities have been observed in the region since mid-1990s. In this paper, I propose a comprehensive model of trade and production which tries to explain cross-country variations of sectoral output on the basis of both comparative advantages (Ricardo, Heckscher-Ohlin) and agglomeration forces (home market effect, market potential), and singles out the role played by trade in middle products. The empirical implementation, on a panel of the four sectors where the largest share of CEECs’ trade in intermediates with EU-15 is concentrated, reveals that the higher is the involvement in IPNs the larger is the domestic share of regional output. Comparative advantages are a crucial determinant of localisation as opposite to the negligible role played by possible magnification effects due to domestic demand and market potential. I argue that results can be interpreted as an assessment of the predictive power of two alternative trade theories

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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2007-17.

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Date of creation: 10 May 2007
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Handle: RePEc:mil:wpdepa:2007-17
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