Trade Continuity and Global Production Sharing in Emerging Economies: Evidence from Panel Gravity Analysis

ABSTRACT

This article examines the effect of trade continuity, measured by the lagged imports of intermediate goods, on global production sharing in emerging economies. We estimate an augmented gravity model using the Poisson pseudo maximum likelihood method with a panel dataset of bilateral exports of 29 emerging economies from 2004 to 2017. Our results show that trade continuity positively affects global production sharing. We provide new empirical evidence that trade continuity is process-specific and may vary between parts and components and final assembly stages. Our findings have policy implications on the process-specific nature of global production sharing.

KEYWORDS:

• Global production sharing
• parts and components
• trade continuity
• gravity model
• Poisson pseudo maximum likelihood
• emerging economies

Acknowledgments

We are grateful to the participants of the 29^th International Conference of the International Trade and Finance Association, held in Livorno in May 2019. Comments received have enriched the article substantially.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/08853908.2022.2072416

Notes

¹ The literature uses terms such as international fragmentation of production (Shimbov, Alguacil, and Celestino 2013), global production sharing (Athukorala, Talgaswatta, and Majeed 2017), vertical specialization (Hummels, Ishii, and Kei-Mu 2001), and material offshoring (Crino 2009) interchangeably.

² The global South refers to developing countries or emerging economies. Please refer to Prema‐Chandra and Nasir (2012) for a detailed analysis on how emerging economies have performed in global production sharing.

³ We provide the list of countries used in the sample in Appendix AI. The appendix can be found online at www.tandfonline.com/uitj.

⁴ We detail the selection criteria for the sample period in the online Appendix. Kindly please refer to the supplementary material.

⁵ We provide the definition of the commodity categories under SITC Rev. 3 in Appendix B online. Kindly please refer to the supplementary material.

⁶ In the econometrics literature, this is referred to as Jenson’s inequality. Please refer to Santos Silva and Tenreyro (2006) for an explanation of Jensen’s inequality and its potential econometric issues.

⁷ We detail the construction of SC in Appendix AII online.

⁸ We detail the construction of RER in Appendix AIII online.