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

Gianfranco de Simone ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: 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

Keywords: Trade in Parts and Components; Fragmentation of Production; Industry Localisation; Comparative Advantages; New Trade Theory; Economic Geography (search for similar items in EconPapers)
JEL-codes: F10 F12 F14 F15 (search for similar items in EconPapers)
Date: 2007-05-10
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Citations: View citations in EconPapers (2)

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