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Title:Incomplete specialization and offshoring across Europe PDF Logo
Authors:Frensch, Richard
Hanousek, Jan
Kocenda, Evézen
Issue Date:2012
Series/Report no.:CESifo working paper: Trade Policy 3809
Abstract: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.
Subjects:international trade
gravity model
offshoring
panel data
European Union
JEL:F14
F16
L24
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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