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Intra-Firm Trade: Patterns, Determinants and Policy Implications

Author

Listed:
  • Rainer Lanz

    (OECD)

  • Sébastien Miroudot

    (OECD)

Abstract

The emergence of global value chains and the expansion of activities of multinational enterprises have increased the value of intra-firm trade flows. Despite growing attention from policymakers, few data are collected on trade transactions between related parties. Available evidence suggests that intra-firm trade represents a significant share of world trade but differs widely across countries and industries. Trade statistics and firm-level data point out that intra-firm trade and vertical integration occur predominantly among OECD countries and that firm behaviour and relationships between buyers and suppliers explain the patterns of intra-firm trade. The report analyses the implications of intra-firm trade for trade liberalisation, transfer pricing and the transmission of macroeconomic shocks. It finds that for trade policymakers, the rise of intra-firm trade underscores the benefits of trade liberalisation when domestic firms have affiliates abroad and foreign firms are established in the domestic economy. Trade policy should remain neutral with respect to firms. sourcing strategies but trade agreements should increasingly take into account vertical relationships between buyers and suppliers. Analysing the role of intra-firm trade during the 2008-09 trade collapse, the report furthermore highlights that while the role of global value chains was questioned in the transmission of the crisis, vertically integrated production networks can be more resilient in the context of an economic downturn.

Suggested Citation

  • Rainer Lanz & Sébastien Miroudot, 2011. "Intra-Firm Trade: Patterns, Determinants and Policy Implications," OECD Trade Policy Papers 114, OECD Publishing.
  • Handle: RePEc:oec:traaab:114-en
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    File URL: http://dx.doi.org/10.1787/5kg9p39lrwnn-en
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    Citations

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    Cited by:

    1. Predrag Bjelic & Ivan Markovic & Ivana Popovic Petrovic, 2012. "Transnational Companies And A Changing Structure Of International Trade," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 8(4), pages 61-77.
    2. Ronald B. Davies & Rodolphe Desbordes & Anna Ray, 2015. "Greenfield versus Merger \& Acquisition FDI: Same Wine, Different Bottles?," The Institute for International Integration Studies Discussion Paper Series iiisdp469, IIIS.
    3. Ruzzenenti, Franco & Basosi, Riccardo, 2017. "Modelling the rebound effect with network theory: An insight into the European freight transport sector," Energy, Elsevier, vol. 118(C), pages 272-283.
    4. Jan Hanousek & Evzen Kocenda & Pavla Vozarova, 2017. "Productivity and Trade Spillovers: Horizontal Crowding-Out Versus Vertical Synergies in Europe as a Response to Foreign Direct Investment," CERGE-EI Working Papers wp601, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Osnago,Alberto & Rocha,Nadia & Ruta,Michele, 2015. "Deep trade agreements and vertical FDI : the devil is in the details," Policy Research Working Paper Series 7464, The World Bank.
    6. Ilya Bolotov, 2014. "New Member States of the European Union and the Current Trends in the World Economy," Central European Business Review, University of Economics, Prague, vol. 2014(4), pages 7-13.
    7. Becker, Johannes & Davies, Ronald B. & Jakobs, Gitte, 2017. "The economics of advance pricing agreements," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 255-268.
    8. Clipa Raluca Irina, 2014. "Reflections On Production Internalization And Its International Trade Implications," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 74-77, June.
    9. Kukharskyy, Bohdan, 2016. "Relational contracts and global sourcing," Journal of International Economics, Elsevier, vol. 101(C), pages 123-147.
    10. Kohler, Wilhelm & Smolka, Marcel, 2013. "Global Sourcing: Towards an Empirical Test of the Hold-up Model," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80049, Verein für Socialpolitik / German Economic Association.
    11. Anca D. Cristea & Daniel X. Nguyen, 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 170-202, August.
    12. di Mauro, Filippo & Ottaviano, Gianmarco I.P. & Vicard, Vincent & Altomonte, Carlo & Rungi, Armando, 2012. "Global value chains during the great trade collapse: a bullwhip effect?," Working Paper Series 1412, European Central Bank.
    13. repec:bla:worlde:v:40:y:2017:i:9:p:1958-1988 is not listed on IDEAS
    14. Ndonga Dennis, 2013. "Increasing Africa’s Share of Vertical Investments through Single Window Systems," The Law and Development Review, De Gruyter, vol. 6(2), pages 181-215, August.
    15. Lee, Il Houng & Park, Yung Chul, 2014. "Use of National Currencies for Trade Settlement in East Asia: A Proposal," ADBI Working Papers 474, Asian Development Bank Institute.
    16. Mattia Di Ubaldo, 2015. "Product Cost-Share: a Catalyst of the Trade Collapse," Working Paper Series 8015, Department of Economics, University of Sussex.

    More about this item

    Keywords

    foreign affiliates; global production networks; global value chains; intra-firm trade; multinational enterprises; related party trade; sourcing strategies; trade liberalisation; transfer-pricing; vertical FDI;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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