Trade Openness and International Fragmentation of Production in the European Union: The New Divide?

The relationship between international fragmentation of production, trade openness, and global export performance in the European Union (EU) from 2000 to 2009 is analyzed. As most trade models featuring international production sharing show, higher levels of fragmentation and of related international openness improve the export performance of a country. The empirical analysis confirms this hypothesis. This paper estimates an error correction model on the panel of the EU Member States and finds that inter-European fragmentation and openness significantly improve their long-run export performance. Policy implications could be that restricitve policies preventing firms from internationalizing production would weaken a country's position in global production networks, with long term negative effects on domestic jobs and growth