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Stagnating global trade partly caused by decreased fragmentation of production chains

25 November 2016
Marcel Timmer

New research by University of Groningen economists Marcel Timmer, Bart Los and Gaaitzen de Vries together with their colleague Robert Stehrer from the Vienna Institute for International Economic Studies Globalization reveals that globalization has had its heyday. In a study that has just been published they provide insights into the malaise in global trade. They conclude that international production chains ceased being fragmented in 2011. They recently presented their results to the International Monetary Fund.

Timmer, Professor of Economic Growth and Development, sees a fundamental change in the relationship between trade and global production processes. Ever fewer imports are needed per dollar of production, he explains in Dutch newspaper NRC Handelsblad . The ratio of global revenue that comprises the import of goods and services has gradually dropped since 2011, whereas it rapidly increased before the crisis.

China less dependent on imports

According to Timmer, one of the cornerstones of globalization is under threat: the international fragmentation of production chains. This fragmentation, which means that different production phases take place in different countries, increased in the 1990s and first decade of this century, but stopped increasing in 2011.

This is mainly due to China, for a long time the main driver of growth in global trade. Chinese production has become less dependent on imports because technological advances have enabled the country to produce more goods itself. And the Chinese are getting richer, which means their consumption is shifting from goods to services, which are less trade-intensive.

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Last modified:08 November 2017 2.25 p.m.

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