Determinants of International Fragmentation of Production in the European Union

Goetz Zeddies

No 15/2007, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: The last decades were characterized by large increases in world trade, not only in absolute terms, but also in relation to world GDP. This was in large parts caused by increasing exchanges of parts and components between countries as a consequence of international fragmentation of production. Apparently, greater competition especially from the Newly Industrializing and Post-Communist Economies prompted firms in 'high-wage' countries to exploit international factor price differences in order to increase their international competitiveness. However, theory predicts that, beside factor price differences, vertical disintegration of production should be driven by a multitude of additional factors. Against this background, the present paper reveals empirical evidence on parts and components trade as an indicator for international fragmentation of production in the European Union. On the basis of a panel data approach, the main explanatory factors for international fragmentation of production are determined. The results show that, although their influence can not be neglected, factor price differences are only one out of many causes for shifting production to or sourcing components from foreign countries.

Keywords: economic integration; international fragmentation of production (search for similar items in EconPapers)
JEL-codes: F14 F23 L23 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Determinants of international fragmentation of production in European Union (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:iwh-15-07

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