Just How Big Is Global Production Sharing?

Abstract

Sharing different stages of manufacturing between countries is of major and growing importance. But because of previous deficiencies in the Standard International Trade Classification (SITC Revision 1) system, it was not possible to differentiate between the international trade in components and parts and the exchange of fully fabricated manufactured goods. Such a distinction was needed to empirically estimate theamount of global production sharing. Changes in the SITC classification system (Revision 2) now allow one to approximate how much production sharing occurs within the key machinery and transportation equipment (SITC 7) group, which includes about 50 percent of world trade in all manufactures. In 1995, OECD (Organization for Economic Cooperation and Development) exports of parts and components in this group totaled $440 billion, which was about 30 percent of all shipments (components plus assembled goods) of machinery and transportation equipment. Developing countries produced and exported an additional $100 billion of these products -- which indicates global exports exceeded one-half trillion dollars. But the extent of production sharing is clearly greater than these figures indicate, because the SITC Revision 2 system does not allow one to distinguish between components and parts in chemicals or other manufactured goods. The data also show that over the past decade trade in machinery and transport equipment components has grown considerably faster than final stage products in this group. A different form of production sharing involves the use of special tariff provisions for the re-import of domestically produced components that have been assembled abroad. A second data source on this activity indicates that trade in these goods totals about $100 billion annually, with most of the activity involving the European Union and the United States. (Again, the available data probably understate the importance of this exchange.) Even so, these supplemental statistics illustrate the importance of this activity to some developing countries, as more than 40 percent of manufactured exports from the Dominican Republic, El Salvador, Haiti, Jamaica, and Mexico involve assembly operations using components manufactured abroad.