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Production Networks and Patterns of Trade: Evidence from Taiwan
Author(s) -
Chen TainJy,
Liu Mengchun
Publication year - 1998
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.00041
Subject(s) - production (economics) , economics , product (mathematics) , horizontal and vertical , aside , bilateral trade , international economics , international trade , econometrics , industrial organization , microeconomics , mathematics , china , art , geometry , literature , political science , law
This paper investigates the role of production networks in determining the pattern of international trade. Using Taiwan's trade data for 1991, production networks are found to have a discernible impact on the pattern of trade, aside from the variables typically envisaged by conventional and new trade theories, including factor proportions and technological difference. Taiwan's industries are shown to be relatively strong in horizontal networks, but weak in vertical ones. However, the strength in horizontal networks can be undermined by high wages, and the weakness in vertical networks can be strengthened by high R&D intensities. Both networks are conducive to intra‐industry trade, which means that networks are useful devices for product differentiation.