American Economic Review: Vol. 102 No. 3 (May 2012)


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Proximity and Production Fragmentation

Article Citation

Johnson, Robert C., and Guillermo Noguera. 2012. "Proximity and Production Fragmentation." American Economic Review, 102(3): 407-11.

DOI: 10.1257/aer.102.3.407


Cross-border production chains tend to include geographically proximate countries. This suggests that increases in fragmentation should be largest among nearby trading partners, and thus may serve to localize gross trade. Using data on gross and value added trade from 1970-2009, we present three results supporting this conjecture. First, value added to export ratios are lower and falling more rapidly within geographic regions than between them. Second, gross trade travels shorter distances from source to destination than value added trade, and this gap is growing over time. Third, bilateral value added to export ratios have fallen most among nearby trading partners.

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Johnson, Robert C. (Dartmouth College)
Noguera, Guillermo (Columbia U)

JEL Classifications

M11: Production Management
F14: Country and Industry Studies of Trade
L14: Transactional Relationships; Contracts and Reputation; Networks

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