Trade Openness and International Fragmentation of Production in the European Union: The New Divide?

37 Pages Posted: 30 Mar 2012

See all articles by Paolo Guerrieri

Paolo Guerrieri

University of Rome "La Sapienza" - Department of Economics

Filippo Vergara Caffarelli

Bank of Italy

Date Written: February 23, 2012

Abstract

This paper analyses the relationship between international fragmentation of production, trade openness and global export performance in the European Union from 2000 to 2009. As most trade models featuring international production sharing show, the higher the level of fragmentation and related international openness the better the export performance of a country. Our econometric analysis confirms this hypothesis. We estimate an error correction model based on panel data on the EU Member States and find that inter-European fragmentation and openness significantly improve their long-run export performance. Policy implications could be that restrictive policies preventing firms from internationalizing production would weaken a country’s position in global production networks, with long-term negative effects on domestic jobs and growth.

Keywords: international fragmentation of production, trade openness, export performance, European Union

JEL Classification: F14, L23

Suggested Citation

Guerrieri Paleotti, Paolo and Vergara Caffarelli, Filippo, Trade Openness and International Fragmentation of Production in the European Union: The New Divide? (February 23, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 855, Available at SSRN: https://ssrn.com/abstract=2030828 or http://dx.doi.org/10.2139/ssrn.2030828

Paolo Guerrieri Paleotti

University of Rome "La Sapienza" - Department of Economics ( email )

Via del Castro Laurenziano 9
Rome, 00161
Italy

Filippo Vergara Caffarelli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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