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| Source: The Economist |
In the first stage, things are produced locally for local markets. This would be the oldest historical stage. Transportation would have been slow and expensive, so production would have usually been for relatively circumscribed local market, and therefore relatively small scale.
The second stage involved an improvement of transportation systems which greatly reduced the time and cost of transportation. It also involved mechanization of production; economies of scale greatly reduced per unit costs and markets became increasingly larger. Eventually manufacturing clusters developed with local markets (and market like institutions) for intermediate goods and services. I am impressed that simultaneously markets for final products were expanding, but markets for intermediate goods and services were local -- I suppose that needs for information and speed of delivery of those intermediate goods and services made clusters most useful. I also note that the second stage was linked to imperialism, with metropolitan powers assuring large areas in which people would provide primary inputs and form markets for final goods for the manufacturing industries centralized at home.
The third and most recent stage is seeing the geographic distribution of manufacturing industries change. Of course transportation technology continues to improve and of course manufacturing is becoming still more automated, but a new element is introduced -- the global information and communication technology infrastructure. Markets for final manufactured products become global. Supply chains for goods became multinational. I would suggest that the liberal trade policy that spread throughout the world encouraged and was encouraged by change in trade patters, and all were influenced by the technological and industrial development.
The graph on the right shows the rapid growth of world trade since the mid 1980s. The VAX Ratio is the ratio of value added to trade value. The graph shows a decades long declining trend in this indicator. That means that countries were importing partially finished products, adding value, and reexporting more finished products. That means that the production process was being split among countries -- no longer done entirely within a single national cluster.
The left hand table indicates the rate of change of GDP, indicating that during the last decade (at long last) developing countries began to catch up with advanced countries economically.
Here are the articles used by the authors of the article in The Economist:
- Richard Baldwin, “Trade And Industrialisation After Globalisation's 2nd Unbundling: How Building And Joining A Supply Chain Are Different And Why It Matters”, NBER Working Paper No. 17716, December 2011
- Robert C. Johnson, Guillermo Noguera, “Fragmentation and Trade in Value Added over Four Decades”, NBER Working Paper No. 18186, June 2012
- Robert C. Johnson and Guillermo Noguera, “Proximity and Production Fragmentation”, American Economic Review, Vol. 102, No. 3, May 2012
- David Hummels, Georg Schaur, “Time as a Trade Barrier”, NBER Working Paper No. 17758, January 2012
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