International Trade and Domestic Production Networks

Author Name FUJII Daisuke (Fellow, RIETI)
Creation Date/NO. October 2017 17-E-116
Research Project Dynamics of Inter-organizational Network and Geography
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This paper considers a model of international trade with a domestic interfirm production network, which gives rise to the emergence of indirect exporters. These indirect exporters do not export but supply goods and services to exporters, and hence, their value added is exported indirectly. Using the data of Japanese interfirm transaction networks and international trade, the features of indirect exporters are investigated. More than half of firms are connected to foreign markets within two transaction links, and manufacturing and wholesale sectors account for the largest shares of both direct and indirect exporters. A strict ordering of many variables such as sales or employment exists in direct, 1st-degree indirect, 2nd-degree indirect, and non-exporters. A significant and positive propagation effect is confirmed. Shocks to exporters, whether positive or negative, propagate to their domestic suppliers and decay as they travel through supply chains. The 1st-degree indirect exporters receive 2%-3% additional sales growth and 1%-1.5% for 2nd-degree indirect exporters. If a firm supplies to an intense exporter, the magnitude is larger. This suggests the importance of tracing indirect value-added exporters when considering the effect of trade liberalizations on firm size distributions or industry dynamics.