Integrating Trade and Disintegrating Production in Manufacturing Industries: Evidence from APEC and EU Nations

Nowadays, the bulk of world trade in commodities consists of intermediate goods that play a crucial role in developing production and value. As a result, the global process of production is becoming much more interconnected than ever before. Production fragmentation due to vertical disintegration has profoundly impacted growth in world trade and production by vertical specialization. This study is purported to analyze the vertical integration and international outsourcing of manufacturing firms at the cross-country level. We have calculated domestic and foreign value-added contents in export and output to measure the degree of integration and outsourcing of the manufacturing firms using the World Input-Output Database. Our analysis shows growing backward linkages and global outsourcing in developed countries in APEC and EU regions. Region-wise, we see that high-tech processed intermediate manufacturing like chemicals, pharma, computer, electronics, optical machinery equipment, and motor vehicles have expanded in the developed countries of APEC and EU. Developing APEC has revealed higher linkages in the value chain of low-tech primary products used as intermediaries and processed intermediate goods like food; coke and refined petroleum, basic metal, etc. Among emerging Asia, China has increased its linkages in GVCs in high-tech industries like computers, electronics, optical, electrical equipment, etc. JEL Classification: C67, F14