Global Production Networks: Participation and Structural Break

Abstract

International trade of intermediate goods has increased along with the development of the global production network. The contemporary debate is the opportunity to reap gain from economic globalization by linking production to global production network. Specific recent studies that identify the determinants of participation have evolved through a variety of methodologies, but consider less the economic shocks that occur. In its development, the global production network was also affected by the economic crisis in Asia in 1997/1998 and the economic shock of 2008/2009, which caused a contraction of trade. By using fixed effect regression with least square dummy variable model, this study aims to answer the question whether considering the contraction of trade as a structural break in the study will portray the close relationship between trade contraction and the participation of global production network. The results indicate that the economic crisis of 1997/1998 and the economic shock of 2008/2009 have a causal relation to the participation of the global production network.