Trade in intermediate goods: Trends, effects, and determinants

A large number of studies search for stylized facts on the rapid growth, impact, and determinants of international outsourcing of production. The analyses of these studies are considerably constrained by limitations in the international trade data, which do not differentiate between trade in intermediate and finished goods. I improve on these data and develop a trade dataset that draws a clear distinction between trade in intermediate and finished goods. I use new data to provide an integrated view of the importance of U.S. global production sharing. I assess the magnitude and nature of global production sharing, explore its impact on growing U.S. manufacturing wage inequality, and examine the forces driving the location and volume of this trade. My findings indicate that the composition of trade has not changed as previously speculated and that trade in intermediate inputs is just as prevalent as trade in consumer goods. Additionally, my results indicate that the impact of foreign offshoring of intermediate inputs on the growing wage gap in U.S. manufacturing industries is larger than previously estimated. Lastly, I show that quality of contracting environment and thickness of input supplier markets are important factors for the location and extent of trade in specialized inputs.