Vi. Intra-industry and Intra-firm Trade and the Internationalisation of Production

Internationalisation of production has important effects on world trade The growing “internationalisation” of production systems, which increasingly involve vertical trading chains spanning a number of countries, each specialising in a particular stage of production, is an important feature behind the changing nature and increasing scale of world trade. Although there is considerable anecdotal evidence concerning this phenomenon, there is surprisingly little in the way of data at the aggregate level to gauge its overall importance, and measurement problems attach to available macro data. Subject to these limitations, this chapter reviews recent evidence relating to the internationalisation of production over the past decade, firstly based on intra-industry trade data and then analysing intra-firm trade data.1 The broader macroeconomic significance of these trends is also considered. Tentative conclusions are that: the impact of some shocks on output (as measured by value added) may be more dispersed internationally; the speed with which certain shocks are transmitted as well as the volatility of world trade may have increased; and trade may be less sensitive in the short-term to changes in price competitiveness.