Fragmentation and parts and components trade in the Western Balkan countries

Abstract

As a consequence of the increasing globalization and integration of the world's markets, there has been an intensive process of international fragmentation of the production over the last few decades. This phenomenon whereby previously integrated productive activities are segmented and internationally spread is reflected in the rapid increase in parts and components trade, growing at higher rates than final goods trade. In this process, the Western Balkan countries (WBC) have not been an exception. With their recent integration into the global markets, the WBC have witnessed growth in parts and components trade that has even exceeded the world average. This paper examines the determinants of the trade that stems from the international fragmentation of production in the WBC. Using a panel data set of disaggregated bilateral trade flows, we estimate gravity equations for the period 2000-2009. Our findings support the hypothesis drawn from the theory of fragmentation that trade in parts and components is motivated by labor cost differences and by geographical and proximity reasons. The relevance of additional service link costs, as well as the influence of institutional similarity and infrastructure quality or political-economic agreements is also confirmed by our empirical research.

Export Structure Upgrading and Economic Growth in the Western Balkan Countries

“…First, it reveals that they became increasingly export-oriented, as indicated by the growing share of exports in GDP. Second, this transformation has been largely due to an increasing share of the manufactures sector in overall exports, a process which has been accompanied by a greater participation in IPNs (Shimbov et al, 2013(Shimbov et al, , 2016) (see Figure 3). Finally, we observe a positive shift from low-to medium-skill and technology-intensive manufactures goods, giving the WBC the potential for increased productivity and output in the future.…”

“…Currently, five of the six countries are either in negotiations to join the European Union (EU) or are candidate countries, a situation that has led to a significant improvement in their legal and regulatory frameworks 3 . This combined economic and political transformation resulted in a substantial shift in the productive and export structure of the WBC which helped them to quickly integrate into the world economy through IPNs, especially the EU, which accounts for more than 80 percent of the overall processing trade exports of the region and around 70 percent of the overall exports (Shimbov et al 2013 and2016).…”

“…For more detail on the phenomenon of delocalization of the production process (or international fragmentation of production as it is also known) refer toJones and Kierzkowski (1990),Deardorff, (2001),Baldone et al (2007),Jones et al (2005),Kaminski and Ng (2005), OECD (2013) andShimbov et al (2013).…”

“…Albania, Bosnia and Herzegovina, Rep. of Macedonia, Montenegro and Serbia are either negotiating or candidate countries, while Croatia joined the EU in 2013.4 For further details on the products included, see the table on data sources and definitions or refer toShimbov et al (2013). 5 Some authors have also looked at the relevance of the overall balance of payments, such asSoukiazis et al (2017).…”

Does it make sense to deepen the economic cooperation of the western balkan economies?

“…But, in spite of that, the major problem for WB states remains their poor integration into Europe's developed GVCs, while trade within the region is limited and tends to be bilateral rather than cluster-like. This is the case despite the fact that WB states have seen a growth of trade in components and parts above the global average, mostly due to factors of proximity, geography and labour cost differences, and due to the international fragmentation of production (Shimbov et al, 2013). To quote one example, the Fiat Chrysler Automobiles plant in Serbia exports cars to the EU market, while its suppliers from N. Macedonia specialise in the production of insulated electrical wiring.…”