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Recently published studies stress the importance of trade in intermediate goods. The literature on determinants of trade, however, have largely focused on the sources of comparative advantage in determining aggregate trade flows rather than trade in intermediate goods. The purpose of this paper is to examine the role of institutional quality and trade costs to explain the determinants of trade in intermediates.

The simple model is based on the model of comparative advantage in the gravity framework used by Eaton and Kortum (2002) and Chor (2010) to relate trade flows of intermediate goods to institutional parameters, factor endowments and geography. The empirical tests use a data set containing 172 countries and 17 industries spanning ten years.

The results confirm the theoretical prediction that a country with higher institutional quality has a comparative advantage in institution-intensive goods and trade costs have a negative effect on trade. The author further finds that these effects are stronger in share of trade in intermediate goods vis-à-vis final goods.

To highlight the distinct nature of trade in intermediate goods, the author separates industry trade flows as intermediate input trade and final goods (consumption goods) trade to compare the importance of different sources of comparative advantage among different types of trade flows. Unlike Eaton and Kortum (2002) and Chor (2010) who used cross-sectional data for final goods trade, the ten-year industry-level panel data are used to compare the relative importance of institutions and geography as determinants in trade in intermediate goods compared to final goods trade and capture the macroeconomic time variant factors as well as industry–country pair characteristics. A significant caveat in gravity regression is that an empirical finding may often be driven by omitted variables. Inclusion of a set of country variables such as GDP, production costs and institutional level may still allow omitted variables to bias the estimation. To avoid this problem, the author includes a fixed effect of exporter and importer as well as industry and year, instead of a set of country characteristics.

This paper explores the regionalisation of the European Union’s supply chains and the impact of enlargement by looking at trends in trade in intermediate products between 1995‐2007. The findings show that enlargement has not significantly impacted overall levels of regionalization although it has led to quite major changes in the division of labor within the EU. In addition, the impacts have been very varied depending on the sector involved. There has been a greater consolidation of the EU supply chain in medium‐tech and up‐market goods while in low‐market and high‐tech goods, market share has been ceded to non‐EU sources.

Rules of origin (ROOs) are often cited as major trade barriers even after tariff barriers are removed with the formation of preferential trade agreement (PTA) as shown in a survey result that a large number South Korean firms in the textile industry give up utilizing tariff-free exports to the USA after the bilateral Free Trade Agreement (FTA) due to ROOs. The purpose of this paper is to examine the impact of ROOs on the equilibrium FTA regime and the welfare effects.

The authors determine the impact of ROOs on the equilibrium FTA regime based on an oligopolistic model where there are asymmetry in production technologies of intermediate goods and the capacity of outsourcing intermediate goods.

The authors demonstrate that ROOs are used as a protective trade policy against the FTA member country with an outsourcing option for technologically dominant intermediate goods.

The non-cooperative features of ROOs found in this paper necessitates the introduction of an international coordination mechanism to avoid the prisoners’ dilemma-type implementation of ROOs.

This paper provides a theoretical frame to analyze the protective effects of ROOs under PTAs.

This paper aims to examine the experience of ten Asian countries with respect to growth, trade and FDI. It seeks to explore relationships between the nature of exports and imports and growth, as well as the relevance of FDI as a channel for these relationships.

The paper opted for an empirical approach. It included collecting standardize data on international trade, GDP per capita, and FDI inflows. The trade data and GDP data were used in creating the productivity level for exports and imports for all of the relevant countries. The paper analyses how these productivity levels compare to GDP per capita, change over time, and relate to FDI inflows.

The authors find that FDI is positively correlated with higher productivity levels in exports and imports for many of the countries in their sample. The effect for imports is particularly apparent for imported intermediate goods, reflecting the emergence of greater trade fragmentation. In turn, both imported intermediates and exports that are associated with higher productivity levels are positively correlated with per capita GDP.

There are a couple of research limitations. First, the work does not determine causality; future econometric work should help to identify the causality mechanism. Second, trade fragmentation might lead to an overestimation of “productivity” levels; future work should try to identify the extent of the bias and a way to fix the issue.

This work may have implications for how policymakers view trade and FDI policies, and the possible links between them, in the context of promoting growth.

This work may have implications for understanding the links between growth and structural change in the economy, which is in turn linked to societal change.

This paper brings together empirical evidence that integrates discussions of FDI, trade fragmentation and improvements in the productivity of traded goods.

This paper aims to examine the effects of adding non-tradable sector and trade in intermediate goods sector and their impact on the “Backus-Smith” (BS) puzzle and the features of the non-tradable output. Conventional international real business cycle models show that the real exchange rate and the terms of trade are positively correlated to the relative consumption movement between the home and foreign economies when there is a total factor productivity shock, whereas the correlation in the data is negative. The author develops a two-country, dynamic, stochastic and general equilibrium (DSGE) model with staggered price setting in the non-tradable sector and international trade in intermediate goods sector because of product differentiation in a high-asset market frictions situation.

In this paper, DGSE simulation and calibration are performed using Matlab with Dynare.

When the world economy has positive country-specific productivity shock, the benchmark model with non-tradable sector and intermediate goods sector successfully solves the BS puzzle and is able to match several features of the data. The dynamic responses to productivity shock show that integrating product differentiation is necessary to generate a more volatile and counter-cyclical non-tradable output.

The paper investigates the effects of incorporating non-tradable sector and trade in interemediate goods sector to standard two-country DSGE model through simulation and calibration.

The fact that many international companies remain strongly orientated towards their home region has been highlighted in the work of several international business scholars. This work has given rise to the concept of “the liability of inter‐regional foreignness”. This paper aims to argue that the data that have so far been exploited in this debate are too aggregated and that more attention needs to be paid to differences between different types of companies if we are to better understand the reasons for this liability of inter‐regional foreignness and how companies can overcome it.

This paper uses trade data to explore levels of global and regional orientation in international exchanges of goods. It disaggregates the trade data by type of product (final goods or inputs to production), level of technology (high, medium and low tech) and direction of flow (imports and exports).

The paper finds striking differences between regions, types of products and trade direction. The trade data do not show an overwhelming home region bias in exchanges, but neither are these exchanges overwhelmingly global. Companies in different regions and different sectors seem to experience the liability of inter‐regional foreignness differently. In particular there is some evidence that high‐tech companies may be less subject to such difficulties. These findings imply that more attention needs to be paid to sectoral differences when analysing international business.

The trade data also suffer from some aggregation bias, as highlighted in the paper. In addition the inability to differentiate between inter‐ and intra‐firm trade limits the usefulness for theory building. However the results do provide some pointers for further research and imply that greater attention should be paid to the type of company and its position in the supply chain when considering the impact of the liability of inter‐regional foreignness.

The debate so far has been based on either Fortune 500 data or foreign direct investment data. Both of these datasets mix companies with very different market structures and operating practices. The originality of this work is to explore macro data extensively and look at exchanges differentiating by type of good. The results have implications for work on aggregated datasets. Simply differentiating by technology alone may lead to interesting variations in findings from firm‐level studies.

This paper reviews the theoretical case for industrial policy (coordination) provided by theories of multiple equilibria. It is argued that for most less developed countries the case for industrial policy (government coordination) is best made with respect to agriculture. Those states that have succeeded in terms of government policy promoting economic development, began with the agricultural sector.

The paper underpins an advanced domestic manufacturing that comes with some advanced employment specialization status of individual industries as the key determinant of foreign direct investment (FDI) and considers how FDI in the food processing industry in India relates to this focal point.

This paper investigates how inward FDI inflows relate to domestic investment and revival in the industry using Auto Regressive Distributed lags (ARDL) model over the period 2000–2017. The model allows for different specifications to study whether FDI is responsible for the revival or the prior revival induces the FDI.

The results show the lack of proper advanced specialized employment status of the food processing industry. FDI in food processing is mainly guided by exports and imports opportunities and FDI plays no role in the revival of advanced growth in the industry. This finding explains why FDI in the industry is predominantly service sector oriented.

The paper underlines (1) the proper conceptualization of human capital as an important determinant of FDI; (2) reinterpretation of Kaldor's technical progress function that uncovers how employment dynamics embedded in intermediate goods specializations play a key role in supporting a higher pace of investment (and FDI); (3) labor costs' importance should involve not only the wage rate but also the advantages that a specialized employment base and (4) FDI in manufacturing demands a greater policy focus on developing domestic bases of intermediate goods specializations.

This chapter applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a trade bloc. We focus on the MERCOSUR case, using a model with 48 sectors and 5 countries. Motivated by recent policy discussions, we quantify Uruguay's trade and welfare effects from signing a Free Trade Agreement with the United States and leaving MERCOSUR. We find positive welfare effects for Uruguay from bilaterally reducing tariffs with the United States. Most of the gains come from having access to lower-cost intermediate inputs for production. We then consider the policy experiment of bilaterally eliminating tariffs between all members of MERCOSUR and the United States. We find that Uruguay has the largest gains, while Argentina and Brazil do not benefit much. This chapter also illustrates how new models are a promising tool for the analysis of trade.

Recently, decoupling between the US and China has emerged as an important issue in global economics. We propose an analytical framework for trade decoupling analysis, borrowing the idea from the production function in non-competitive input-output tables. Using that methodology, we analyze the mobile phone trade network subject to various measures imposed by the US. A scenario analysis is performed to compare the extent of decoupling after a trade war with worst-cases. In bilateral trade, China’s share of total US imports fell significantly in 2019 compared to 2017. However, China’s indirect exports to the US increased during the same period. A similar pattern is observed in the global trade network visualized via multidimensional scaling (MDS). China’s out-degree centrality decreased slightly, while Vietnam’s role expanded. Actual figures for 2019 show a decreased out-degree centrality for Chinese final good exports, but a much higher one in the scenarios. Also, China’s indirect exports to the US have increased. But China does not appear to play a key role in the network as assumed in the scenario. Throughout the study, intermediate goods were treated homogeneously, and further studies considering the heterogeneity of input-output linkages are needed.