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

Abstract

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.