Just How Big Is Global Production Sharing?

The sharing of different stages of manufacturing processes between countries is of major and growing importance. However, due to previous deficiencies in the Standard International Trade Classification (SITC) Revision 1 system it was not possible to differentiate between two key elements of this process that involving international trade in components and parts as opposed to the exchange of fully fabricated manufactured goods. Such a distinction was needed in order to empirically estimate the size of global production sharing. Changes in the SITC classification system (Revision 2) now allow one to approximate how much production sharing occurs within the key machinery and transportation equipment (SITC 7) group which includes approximately 50 percent of world trade in all manufactures. In 1995, OECD exports of parts and components in this group totalled $440 billion which was about 30 percent of all shipments (components plus assembled goods) of machinery and transportation equipment. The data also show that developing countries produced and exported an additional $100 billion of these products which indicates global exports were in excess of one-half trillion dollars. However, the extent of product sharing is clearly larger than these figures indicate since the SITC Revision 2 system does not allow one to distinguish between components and parts in chemicals or other manufactured goods. Finally, the data also shows that over the last decade trade in machinery and transport equipment components has grown at a considerably faster pace than that for final stage products in this group. A different form of production sharing involves the use of special tariff provisions for the re-import of domestically produced components that have been assembled abroad. A second data source on this activity indicates that trade in these goods totals about $100 billion annually with most of the activity involving the European Union and the United States. However, there again are important reasons for believing that the available data understate the importance of this exchange. Even so, these supplemental statistics illustrate the overall importance of this activity to some developing countries as over 40 percent of the total manufactures exports of Mexico, Jamaica, Haiti, Dominican Republic and El Salvador involve assembly operations using components manufactured abroad. Just how big is global production sharing? The figures analyzed in this report suggest it involves more than $800 billion in manufactures trade annually, or at least 30 percent of the total world trade in these products. Another important finding is that trade in components and parts has been growing at a considerably faster pace than that for other (finished) products a point that clearly documents the growing interdependence of countries in international trade and production operations. Just How Big is Global Production Sharing?