Trade Continuity and Global Production Sharing in Emerging Economies: Evidence from Panel Gravity Analysis

This paper examines whether trade continuity is a determinant of global production sharing and trade in intermediate goods. We argue that the literature on global production sharing overlooks the dependent and hierarchical nature of trade relations. Huge switching costs faced by countries warrant the continuity of trade relations. With an unbalanced panel dataset of finely disaggregated bilateral exports of 29 emerging economies for 2004-17, we estimate an augmented gravity model using the Poisson Pseudo Maximum Likelihood method. We show that trade continuity has a significantly positive impact on global production sharing. We also show that the nature of trade continuity in global production sharing is process-specific and may vary between exports of parts and components and final assembly.