Incomplete specialization and offshoring across Europe

0387068 - NHU-C 2013 AT eng V - Research Report
Frensch, R. - Hanousek, Jan - Kočenda, Evžen
Incomplete specialization and offshoring across Europe.
Vienna: FIW, 2012. 36 s. FIW Working Paper Series, 91.
R&D Projects: GA ČR(CZ) GAP403/12/0080
Institutional support: PRVOUK-P23
Keywords : international trade * gravity model * offshoring
Subject RIV: AH - Economics
http://www.fiw.ac.at/fileadmin/Documents/Publikationen/Working_Paper/N_091-FrenschHanousekKocenda.pdf

Recent empirical studies have been searching for evidence on and driving forces for offshoring. Frequently, this has been done by analyzing gross trade flows related to offshore activities using gravity equations augmented by ad hoc measures of supply-side country differences. This paper suggests that gravity formulations of this sort are mis-specified, due to theoretically unmotivated attempts to allow for both complete and incomplete specialization influences on gross trade flows within the same gravity framework. We suggest an alternative specification rooted in incomplete specialization that views bilateral gravity equations as statistical relationships constrained on countries’ multilateral specialization patterns. This view reveals that countries’ multilateral specialization incentives drive bilateral trade, corresponding to and competing with the role of multilateral trade resistance. Our results support evidence for offshoring activities across Europe, driven by countries’ multilateral specialization incentives, as expressed by supply-side country differences relative to the rest of the world.
Permanent Link: http://hdl.handle.net/11104/0216272