Network Effects on Trade in Intermediate Goods: Evidence from the Automobile Industry

Growing production fragmentation makes analysis of network effects on trade in parts and components more important than ever. This study examines network effects on auto parts exports from six major auto producing countries using a panel dataset covering 49 destinations and 31 products over the period from 2002 to 2008. Unlike previous research, this study finds that, in the case of Japanese automakers, overseas production by subsidiary plants is less important in determining auto parts exports from Japan than it is for the other major auto producing countries. Japanese auto parts suppliers, unlike their counterparts in other countries, have a tendency to follow the Japanese auto makers in internationalizing their operations. This practice of meeting the need of automakers from overseas production plants weakens the network effects on auto parts exports from Japan.