Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing, or Increasing Importance of MNE Networks?

Abstract

Growth in trade is often seen to have played a dominant role in integrating national economies. Analyses of this role have, however, almost exclusively been based on trade in final goods. This paper attempts to address this problem by analyzing recent growth in intermediate goods. Three possible causes are posited for this growth: outsourcing, global sourcing, and the increasing importance of MNE networks. These are examined in two analytical frameworks: one using OECD input–output table data and one using German time‐series data. Results from both frameworks give strong support to the hypothesis that international production plays a great role in explaining the strong increase in intermediate inputs imports of developed countries. The evidence for the hypothesis that the increasing importance of the MNE network causes the growing trade in intermediate goods is especially strong. The outsourcing hypothesis receives also some support.