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Title: Trade in parts and components across Europe

Author(s): Richard Frensch, Jan Hanousek and Evzen Kocenda

Publication Date: November 2015

Keyword(s): European Union, gravity model, international trade, panel data and production networks

Programme Area(s): International Trade and Regional Economics

Abstract: Using the factor-proportion based gravity framework we identify driving forces for trade in parts and components. We test our model empirically by using a detailed and large data set of European trade in parts and components of capital goods and show that such trade between East and West Europe is driven by relative supply-side country differences, compatible with models of incomplete specialization and trade. We take our results as evidence for the existence of international East-West production networks in Europe, driven by trade-offs between wages and coordination costs. Our results also reveal that in response to stronger relative wage differences trade in parts and components across Europe is predominantly realized along the extensive margin.

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Bibliographic Reference

Frensch, R, Hanousek, J and Kocenda, E. 2015. 'Trade in parts and components across Europe'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10932