What can we say about trade and growth when trade becomes a complex system?

Abstract

Outsourcing in different modalities is a dominant element of domestic economies and of the world economy. Although the literature is new international production is not a new phenomenon. Yet, the scale of international operations was extended and the pace was accelerated with the movement of trade liberalisation, privatisation and market deregulation of the past decades, together with great progress in technologies of transportation, information and communication that drastically reduced the costs of coordinating international transactions. Internationally dispersed activities have been integrated into production systems through different co-ordination mechanisms some of them internal to large multinational enterprises. The vertical disintegration of the production process, broadly defined to include ex-ante and ex-post assembly operations such as research and development, product design, marketing, distribution, and after-sales services, is a trend of the world economy of vast complexity. Attempts of the conventional theory of trade to deal with the complexities of international production and trade through increasing returns and imperfect competition have been frustrating because the models overlook important non-market mechanisms. It is suggested that the new conditions of global production sharing introduce significant changes in the basic assumptions of international trade models. Therefore, the normative results that are derived from those models may not hold. In particular, the relations between trade and growth can become indeterminate when exports are characterised as import-intensive in the presence of high mobile assembling operations.