International Fragmentation of Production in the Portuguese Economy: What do Different Measures Tell Us?

This paper analyses the relevance and the characteristics of the international fragmentation of production in the Portuguese economy. The empirical trade literature suggests different measures of fragmentation, changing the scope of the concept and using alternative sets of information. The existing measures can be broadly divided in those that make use of Input-Output matrices together with international trade data and those that look at specific elements of international transactions, namely trade in parts and components and outward-inward processing trade. In this paper, we survey the different measures of international fragmentation of production and apply them to Portuguese data. Our results of Input-Output based measures point to a substantial increase of the vertical linkages in the Portuguese economy, in particular since the nineties. Nevertheless, it seems that the pace of vertical specialization has been somewhat modest in international terms. The share of exports of parts and components in total trade has almost doubled in the last two decades, while the import share of these goods has remained nearly stable. Processing trade represents a very low share of Portuguese international trade.

Vertical Specialization Across the World: A Relative Measure

This paper investigates a specific aspect of international production linkages that, following Hummels et al. (2001), is commonly designated as vertical specialization (VS) - the use of imported inputs to produce goods that are afterwards exported. We propose a relative measure of VS-based trade that combines information from Input-Output matrices and international trade data, producing results for a large sample of individual countries and geographical areas with a detailed product breakdown over the 1967-2005 period. This measure identifies a country’s trade flow as associated with VS activities when the share of exports of a good relatively to the world average is above a given threshold and it is accompanied by a relative share of imports of a related intermediate product that is also above the threshold. The quantification of VS-based trade for each country/product pair in each period is made in a relative and conservative manner, since it includes only the value of intermediate imports that surpasses what is implied by the chosen international threshold. The detailed results can be subsequently added up to get any product or geographical breakdown desired. We illustrate this measure by showing the evolution of VS activities at the world level over the last four decades using a product breakdown by technological intensity and a geographical breakdown by main areas. The results point to a substantial increase of VS in high-technology products over the last two decades. There is also empirical evidence on the sharp increase of VS activities in East Asia.

International Trade Patterns over the Last Four Decades: How does Portugal Compare with other Cohesion Countries?

This paper compares the international trade pattern of Portugal with the other three EU15 Cohesion countries - Spain, Greece and Ireland - over the last forty years. The paper adopts a fact-finding approach, investigating the degree of openness of these economies and making extensive use of the standard Balassa (1965) index to assess the technological content of these countries' manufacturing trade. In order to infer on international trade specialization and on the persistence of trade patterns, the paper provides empirical evidence on the shape of the cross-sector distribution of 120 manufacturing exports and examines the intra-distribution dynamics. The Balassa index is also computed using import data, which allows for an assessment on the similitude of relative import structures and a crude identification of major vertical specialization activities. The paper concludes that there was a significant increase in the degree of openness of all economies, particularly in Ireland. Over the last four decades, Portugal shows a tendency to reduce its overall extent of export specialization, but significant differences with the world average still remain. The same behaviour is found in Greece and, more strongly, in Spain, which is the least specialized country. Conversely, Ireland shows the strongest export specialization and there is evidence of an increase in the last twenty years. The overall degree of specialization is higher on the export than on the import side, as the four countries analyzed show an import structure very close to the world average in the 2000-04 period. In the Portuguese case, we also find evidence that the degree of persistence of export patterns is higher than that of imports, in particular over longer horizons.