Fragmentation of production: a cointegration analysis

In the last two decades the majority of papers dealing with international fragmentation of production developed around the gravity models. As such, trade flows in parts, components and final products are employed together with a set of macroeconomic variables of partner countries to get the most accurate picture of bilateral relations. This paper focuses on the textile and clothing industry and examines time series of quarterly trade flows between some provinces of the Veneto Region on one hand, and Romania and Tunisia on the other, first from 1991q1 to 2001q1 and then from 2001q2 to 2010q4. According to these premises, the present contribution aims at testing two hypotheses. First, different trajectories and modes of internationalization in the province-country trade relationships should vary on the basis of the economic and competitive context. Second, trade flows between local systems of the Veneto Region and the selected partner countries ought to be described through back-and-forth transactions in raw materials, semi-processed and final goods. In particular, the paper analyses the relationship between imports of final goods and exports of raw materials, semi-processed and final goods. The nonstationarity of some time series suggested to test for the cointegration hypothesis, and the use of an UECM as an interpretative tool of fragmentation itself. Conversely, once stationarity is detected, a standard estimation is employed. The econometric exercises provide broad support of both abovementioned hypotheses, although sensible heterogeneity is detected across provinces.