Production Globalization or Localization?

Abstract

As the global production expanding, vertical specialization is thinner and thinner; most countries are just one “node” of product value chain, and the trade of intermediate products is the goods transferring from one node to another. We may wonder whether there is a law in the connections between the “nodes”, whether the connections are subject to political system, religious culture or geographic distance. This paper adopts a new accounting system — value added accounting system—to measure the trade flows between countries, and the ratio of value added export (VAX ratio) is used to measure the degree of processing trade. Setting 60 major economies trading with China as samples, it turns out that processing trade tend to occur between countries closed or with regional trade agreements. With time going, the influence of distance on processing trade is becoming more and more significant, naming localization.