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International Division of Labor and Global Economic Processes: An Analysis of the International Trade of Cars with World Trade Data4

Lothar Krempel 2  and Thomas Pluemper 3

Contents

International Division of Labor and Economic Processes

Many political discussions share a common understanding of a rapidly changing world: an increasingly entwined world economy is seen to pose new demands for the national competitiveness and is expected to increase the international competition of locational factors.

Globalization, as the central keyword of this debate, describes an economic process which results from the changes of the investment-, production- and distribution decisions made by individual firms.

Evidence for globalizing world economy is seen in the increasing degree of economic integration, the growth of the number of transnational companies and the existence of global financial markets. An increased competition between national governments for the investments of transnational companies (TNCs) is expected to emerge from these changes: TNCs are in a position to exploit the international distribution of production factors to achieve comparative advantages against their competitors.

Negative consequences are expected for the industrialized countries: exports of employment due to the migration of parts of their production to low wage economies, resulting in a loss of central steps of the value chain.

The international car production is a market which is understood as a place where all problems of a globalizing economy accumulate: cars are the single industrial manufacture which holds the highest share in world trade and cars are the most important good in the exports of many industrialized countries.

The importance of the car production can be illustrated by following facts

Car manufacturing is characterized - unlike other sectors - by a comparatively small number of producers, most of which are transnational firms. This is due to the required size of fixed capital investments necessary to be able to produce cars. Assembly plants require smaller production volumina and investments than sites producing car engines, whereas sites for engines require smaller fixed investments than the production of car bodies in a body stamping site.

Under the conditions of an industrial mass production, the international market for automobiles is characterized by its economies of scale: an industry with a relatively large number of transnationals which move high financial volumes with any production decision they take, amounting to sums which can easily distort the balance of a national trade .

This explains why national governments have created a large body of actions to regulate and to support the trade in cars. These regulations can take various forms:

The production of cars is, on the one hand, a highly complex process in which the activities of many suppliers have to be organized through a central manufacturer. This manufacturer also has to provide a suitable distribution network. On the other hand the technology for producing cars is quite mature and in principle available to new industrializing countries.

New Methods of Analysis

Information concerning the composition and the changes in world trade has been documented for quite some years by international agencies. New visualization methods allows us to access the richness of this information today. Their availability enables us to study the structure and growth of transnational trade for specific markets. This can be pursued can in a much more elaborated manner than it was possible until now.

In the following we will try to grasp the current state of international trade with the help of tools for the analysis of social structures and visualization methods developed to display these structures. We will try to analyze where and to what degree an international division of labor has been established.

Visualization methods are able to use the large amounts of statistical information in a systematic manner, and they are able to reconstruct the overall global structure of the international trade system from data on trade flows.5 This allows us to evaluate specific phenomena from a global systems perspective and to identify specific structures which can be analyzed with additional information available.

Information on the change of trade volumes or the information about the change in the composition of traded goods can be mapped onto the resulting trade structures summarizing and aggregating this additional information visually in such a way that it can be linked to the restructuring internal system. This allows us to inspect any structural change and its correlates in the overall solutions and will help to identify some of the underlying dynamics of change.

For the case of world trade in cars, we will apply these methods to analyze the degree of internationalization, to identify wether the overall structure consists mainly of regional patterns or wether we can identify a global tendency towards integration.

For the overall structure, we will try to identify the degree to which it exhibits an international division of labor. The comparison of the flows of traded finished goods (cars) to the trade in components (car parts) allows us to identify border crossing supply chains, and patterns of an international organization of labor.

The Data

Our analysis is based on the statistics published by UNCTAD, which have been further enhanced for statistical purposes by Statistics Canada. These data are comparable across time. The statistics describe the trade among 160 countries on a yearly basis between 1980 and 1994 . The tradeflows are broken down to a 4 digit SITC level. This allows specific evaluations of any finding by using one of the more than 600 products groups which are distinguished in the international standard classification for traded goods.

Data on world trade only partly describe the international production of cars: they are reports of the imports and exports for national production domains and allow therefore to inspect the state of the national sectoral trade balance. This sectoral balance often triggers political action and regulations. The focus of our inquiry is to describe the consequences of world trade for the national balances as a potential impact for national regulations.

Central Questions

The Structure of the World Car Trade

The World Motor Vehicle Data Handbook (1995) reports for 1993 the production of over 34 million passenger cars worldwide, being produced by no more than 38 manufacturers . According to the trade statistics of UNCTAD cars in the value of 200 Billion US$ have been traded across national borders. Depending on the average value of a single car this allows to estimate that between 23 % (25000 $) and 39% (15000$) of the total world production is traded on the world market. The share of trade in passenger cars amounts to about 5 per cent of all internationally traded goods.

Japan and Germany are worldwide the biggest exporters of motor vehicles. Japan exports almost 25 % of all cars traded on the world market and Germany , the second largest exporter, reaches 20 % of the total market.

No more than 25 different countries account for 85 % of the total volume of cars (by value) traded worldwide in 1994. These countries are - as expected - mostly the high industrialized countries of the OECD.

Change between 1980 and 1994

85 per cent of the total volume of the world market is traded between no more than 25 highly industrialized countries in 1994 . For these we find two regional clusters, one which consists of Japan and North America while the second contains only European countries. The other European exporters group themselves around Germany, the largest exporter of the European cluster. Trade occurs between both clusters, but the intensity of these flows is not high enough to integrate both clusters into a system with a single center. The configuration found for 1980 remains mostly stable in the 1994 solution.

The comparison of the structures of 1994 and 1980 demonstrates some changes: within the European cluster Germany increased its orientation toward Japan in 1994. This results from an increase of Germany's shipments to Japan and the smaller volume of German exports to the US in 1994. Due to the strong inter-European trade flows the whole European cluster is reoriented. Spain has gained importance in 1994 and Portugal is a new comer for the European cluster of 1994. The European cluster is more highly condensed than it was in 1980. The rank order of size of the countries, which is informative about their shares in car trade, remains mainly unchanged.
 
 

Figure: The world trade in cars for 1980 and 1994 for the 25 most important countries
\resizebox*{12.5cm}{!}{\includegraphics{global/cars/c2580c.ps}}

\resizebox*{12cm}{!}{\includegraphics{global/cars/c2594c.ps}}

The North-American - Japanese cluster contains two new members in 1994: Mexico and Korea. While Mexico is linked to both the USA and Canada, Korea is almost exclusively connected to the US.

There are also stronger connections from the periphery of the total system to both clusters in 1994: the trade with Argentina and Brazil, as well as the trade with China and Hong Kong surpass the volume threshold which was imposed for the flows the above images6.

Under the newly industrialized and developing economies, we find Mexico and Korea as the most important new exporters, followed by Brazil and Argentina. Despite exhibiting high growth rates the overall share of these countries is modest, which can also be read from the following table.
 
 

Table: The shares of the leading countries for the international market of passenger cars, 1980-1994 (computed in US$)
  1980 1982 1984 1986 1988 1990 1992 1994
DEU 23,14 25,23 22,40 23,94 24,07 24,24 22,35 21,05
JAP 27,51 30,17 29,95 30,70 27,47 24,80 25,04 20,69
KAN 7,00 10,27 15,34 12,6 10,51 8,65 8,01 11,46
BEL 7.29 7,17 5,67 6,53 7,73 7,90 7,23 8,31
USA 7,57 5,49 7,37 6,51 6,77 6,67 7,79 8,17
FRA 10,72 7,92 6,20 6,19 7,05 7,98 7,58 6,89
SPA 2,42 2,03 2,77 2,55 3,12 4,35 5,95 6,05
GBR 3,08 2,67 1,90 1,78 2,60 3.48 3.80 3.93
ITA 3.93 2.45 2.19 2.45 2,92 3.55 2,58 2,92
MEX 0.13 0.07 0.15 0,30 0,39 1,67 1,82 2,60
KOR 0.08 0,08 0.24 1,24 2,36 1,09 1,29 2,06
SWE 1,90 2,30 2,73 2,40 2,17 1,93 1,75 1,69
Rest 5,13 4,23 3,07 2,75 3,49 3,61 4,70 4,09

Table 1 presents the share of world trade in passenger cars for those countries, that accounted for more than 1 per cent of world trade in 1994. From these altogether 12 countries, seven increased their share between 1980 and 1994, whereas five countries decreased in importance. The strongest decrease occurred for Japan and France, whereas Canada shows the strongest growth in absolute numbers. South Korea and Mexico are the strongest growing countries. Both countries have increased their share from nearly zero up to 2.60 % respectively 2.06 %. Mexico has increased its exports in absolute terms from 83 Million to more than $ 5.6 Billion and South Korea from 52 Million to $ 4.4 Billion .

The correlation between the exports of 1994 and 1980 can be used as a crude measure of social change. It yields an r2 for of 0.933 when computed for all countries. Increasing the number of countries to the most important 35 countries in the world car trade this drops to 0.917. Despite some changes the overall structure has remained largely unchanged.

A second table allows further investigation of this interpretation of change. This table reports the share of passenger cars compared to all exports of a given country.
 
 

Table: The Share of Exports in passenger cars as Percentage of Total Exports 1980-1994. ( computed in in US $) 
  1980 1982 1984 1986 1988 1990 1992 1994
DEU 7.63 8.87 9.54 10.97 10.32 10.36 10.10 9.99
JAP 12.43 13.02 12.89 15.75 14.89 14.41 14.32 11.37
CAN 6.23 8.81 12.31 14.89 12.55 11.03 11.14 14.10
BEL 7.12 8.52 8.14 10.74 10.97 11.54 11.48 12.30
USA 1.97 1.51 2.35 3.06 2.85 2.75 3.23 3.24
FRA 6.07 5.36 4.91 5.83 6.04 6.49 6.35 5.92
SPA 7.38 6.28 8.78 10.54 10.70 13.34 16.78 16.72
GBR 1.56 1.61 1.39 1.73 2.24 3.04 3.64 3.61
ITA 3.18 2.10 2.20 2.81 3.15 3.60 2.81 3.11
MEX 0.51 0.21 0.40 2.29 2.54 9.86 7.38 8.60
KOR 0.28 0.22 0.60 3.89 5.50 2.82 3.29 4.66
SWE 3.88 5.40 6.91 7.26 6.05 5.74 6.09 5.56
NDL 0.50 0.59 0.70 0.73 1.03 1.19 1.10 1.03

Table 2 shows to what degree cars contribute to the total exports in different countries. This table may also be read as an indicator of the development of comparative competitive advantages. In Germany, Japan, Canada, Belgium and Spain the export share of cars exceeds 10 percent of the total exports. The importance of car making has increased for all these countries except Japan. Interestingly Japan - the most car export dependent country - has switched its position with Spain which is the most car dependent trader of the 90s.

Visual Explorations of Trade Data

Before we proceed to more complex visualizations in the next chapters we will give some explanations how to read these images.

\resizebox*{15.5cm}{!}{\includegraphics{global/illust/illust10.ps}}

The volumes of the trade flows between any two countries describe the exports and imports of each country and its bilateral trading balance. The sectoral balance for each country is symbolized with spheres. The size of the spheres represents the sectoral volumes of imports and exports.

A 'mushroom' symbolizes a country with a sectoral trade deficit ( higher imports than exports), a complete 'sphere' a country with a balanced sectoral balance and a ' belly bottom' a country with a sectoral surplus.

The image below uses the shares of the country specific destinations and origins as additional information. This allows to read the direction of sectoral trade from the pie charts which are drawn onto each country symbol.

We can now read the origin of the imports (top) and the destination of a countries exports (bottom). The dominant light blue sector in the bottom of the Japanese pie illustrates the importance of the US market for the Japanese exporters, whereas the Japanese imports from the US ( light blue, top) yield only a small share of all Japanese imports.

Penetration of the Global Market and Competition on Third Markets

 
Figure:Japan's and Germany's participation in the world trade of passenger cars. Exports and Imports by destination and their relative shares on third markets in 1994.
[Japan´s trade]\resizebox*{13cm}{!}{\includegraphics{global/cars/compjp94.ps}}
[Germany´s trade]\resizebox*{13cm}{!}{\includegraphics{global/cars/compde94.ps}}

The notion of a growing economic world system and the decline of transportation costs implies a picture of emerging global competition. The market shares with which dominant exporters face themselves on third markets is an illustration to what degree global competition exists today.

The next visualizations show the structure of imports and exports of the Japanese and German trade in cars. The images give the shares of all export destinations for Japan and for Germany in relation to the total Japanese and German exports. For all other trade partners we give the Japanese shares as red and the German shares as yellow pies for the total amount of cars a specific country imports.

dvips
 
 

Figure: Japan's versus Germany's penetration of third markets. 
\begin{figure}\par\centering\epsfig{file=/root/root/lklyx/global/cars/compjpde94.ps,height=15cm,bbllx=0,bblly=0,bburx=640,bbury=480,clip}\par\par\end{figure}

For both Germany and Japan, we find a decrease of imports with increasing distances in the image. This points to the fact that even today geographic distance is an important factor in trade volumes and that globalization is still far from equalizing geographic distance as a transaction cost. It also means - that at least for the world trade in cars - that we find no strong support for a significant decline in transaction and transportation cost, from which we have to expect sudden changes of the world trade structure.

Combining both single images further allows identification of the degree of market penetration of Japanese and German car exports on single markets and to point to those markets where market shares of the Japanese exports meet German exports in similar amounts. Due to the logic of visual reconstruction we find this situation to occur for those countries which are placed between Japan and Germany in the images: Thailand, Switzerland and Sweden and in the periphery of the system for Denmark and Hong Kong. For all countries placed left of Japan or placed right of Germany we find a clear Japanese or respectively German dominance. This allows us to conclude that there are only comparatively few markets among the 25 most important car exporting nations which can be characterized by a large coexistence of Japanese and German imports. This holds true if we expand our analysis to a larger number of countries.

The comparison of German and Japanese exports - from the perspective of their potential competition on third markets- shows a very strong dependency of Japan from the US-American market, whereas the German imports and exports are much more diversified by destination and origin.

Growth and Structural Change in the World Market for Car Parts and Components

Based on the previous overall descriptions we are now prepared to proceed with our analysis order to trace the consequences of an internationally intensified trade. As mentioned earlier, we set out to describe the potential impact of these developments for an international division of labor. In order to asses the degree to which this occurs, we will use the trade volumes for the trade in car components as additional information. The comparison of both types of trade allows to identify the locations connected by border crossing production of cars.

In a first step we will look solely at the organization of international trade in car components and its growth between 1980 and 1994. For the following image, we have colored the volumes of the bilateral trade in components of 1994 by their growth rate since 1980. Red arrows indicate trade flows in 1994, which have grown strongly compared to 1980 ( more than 3 times their amount in 1980). The import and export symbols for the nodes now aggregate the exports and imports which originate or depart from a specific country on the basis of this growth classification. The pies show the shares of all destinations in 1994 which have strongly increased, stayed unchanged and those which have declined for the total exports and imports of a country in 1994. A completely red pie (Japan) describes a country which has increased the trade in components with almost any destination, a blue pie chart (Canada) a country for which the volume of trade with any destination has declined.dvips
 
 

Figure: Growth rates for trade in parts and components 1994/1980
\begin{figure}\par\centering\epsfig{file=/root/root/lklyx/global/parts/partsgrow......he growth of their component exportsand imports.}{\small\par }\par\end{figure}

A strong growth in the trade of components can be seen for Mexico and Japan and for a smaller total volume we find this also to be true for Korea. In the European cluster, we identify the UK and Spain and to a smaller degree Germany ( where the changes in import composition dominate the change in exports).

The component trade of Japan and Germany, both dominant exporters of their clusters, target mainly smaller countries in the periphery of the total system. Receivers of Japanese exports are Taiwan, Thailand and Korea. The US industry exports components and parts mainly to Canada, Mexico and Australia. High shares of German components are received by Mexico, Brazil and Argentina.

The high US shares of component shipments to Canada seem to be traditional ones. They have not significantly increased if we limit our attention to growth between 1980 and 1994. Japan's overall exports have increased sharply and are, with the exception of the UK, mainly directed to the periphery of the North-American-Japanese cluster. Exports and imports of components for Germany show increases only for very specific destinations: the UK and Spain.

For the international trade in components we can identify centers in both clusters: in the North-American cluster we find especially Japan, Mexico and Korea as countries with a strong growth of trade in car components. In the European cluster this is true for Spain, the UK and for Germany.

Preliminary Results: Trade in Components between Import Substitution and International Division of Labor

The question of a transnational organization of an international auto production can now be answered with a simultaneous classification of the trade flows of cars and the trade in components. We use both types of trade to classify the total flow by the share of components in 1994.

If the trade between any two countries consists mainly of components, this points to either a border crossing organization of production or to an assembly of car components in the destination country ( in the sense of an import substitution of finished cars). In the image below, we mark trade flows consisting mainly out of parts as red. Dark green are flows where trade contains almost only complete finshed cars.

dvips
 
 

Figure: Shares of the component deliveries
\begin{figure}\par\centering\epsfig{file=/root/root/lklyx/global/parts/partscars......ts (red) or exclusivelyout of cars (blue-green).}{\small\par }\par\end{figure}

Dark green flows occur mainly between both clusters of the world car trade. The trade between the North-American and Japanese and the European cluster trade consists mainly out of finished cars.

There are two reasons for a high degree of component shipments between two countries. A high degree of component imports will be found for those countries which assemble imported components to deliver cars locally. Such a pattern is typical for smaller countries or less developed countries. The reason is the substitution of the expensive imported finished product which additional to the cost of the components contain the cost of labor provided by the exporting country . A local assembly of components is often a first step to build up local industries and to create work places inside the importing country in the long run. Real import substitution will thus lead to a relative decrease of the imports of finished cars or even to the absence of any imports of finished products.

Transnational production chains of cars take advantage of the different cost of production factors in the connected countries. Indicators of an international division of labor can be found in the images for those countries where a high share of components in the imports occurs with a reverse flow characterized by high share of finished products. Such pairs of different colored trade relations can be found mainly in the North American-Japanese cluster. US exports contain mainly parts and the destinations of these exports are Canada and Mexico. While the US trade with Canada is more important (by volume), the pattern of specialization for trade with Mexico is almost unique : Mexico imports almost entirely car components from the US, while the exports (back) to the US consist almost exclusively out of finished cars

Patterns of such clarity are not found in Europe and if patterns exist they are far less dominant. We find a complementing trade flow between France and Spain with flows of components out of France and a reciprocal import of finished cars from Spain, but it is far less developed than the similar structure between the US and Mexico. For Germany, we find a reversed pattern of component imports: the trade with Austria and with a lesser extend the trade with the UK. In both cases Germany imports components from Austria and the UK and exports mainly finished cars. In Europe, contrary to the North American division of labor, we find component suppliers to be internationalized, whereas the production and assembly of finished products remains in the old industrial centers.

Resume

Starting from the public worries about the potential negative consequences from a globalization of international economic activities for the industrialized countries, we have tried to identify the degree to which we can find an international organization of the production in the automobile industry.

Our reconstruction of the world economy on the basis of trade data for the international trade in passenger cars has revealed two local clusters, which have remained stable in their overall structure between 1980 and 1994. In both clusters we have identified new producer countries, which are positioned at the periphery of the local clusters. The volumes which these new countries contribute to the total trade are relatively small. Between both clusters we find mainly trade with finished products (cars), whereas trade with car components occurs mainly inside both clusters or with the globale periphery of the total system.

Significant indicators for a drastic increase of a international division of labor for the time period between 1980 and 1994 are found for the North American-Japanese cluster only. A consistent and strongly complementary pattern exists for the US trade relations: both Canada and Mexico receive to a very high proportion US component shipments and export mainly complete cars (back) into the US.

In the European cluster we find such patterns only to a (much) smaller extend: The American pattern exists only between France and Spain: France exports components and imports finished cars from Spain. For Germany, Austria, and England we find a second type of international organization: here Austria and the UK export components to Germany, whereas Germany ships almost only complete cars.

The amount of change we found for the international automobile industry is far less then was expected based on the framing by the published literature about a globalizing world economy. We cannot state the existence of a global trend by which parts of the domestic productions are transfered to countries with low wages for the automobile industry . The only country in our study for which the data point into such a direction is the US. The American auto makers use the instrument of low-wage assembly to a much higher degree than their European or Japanese counterparts. At least the comparison of the US and European situation points to deficits of the literature on globalization, especially since the labor costs in Europe are much higher than in North America, which would suggest that European producers are faced with a much higher pressure to relocate their industries.

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About this document ...

International Division of Labor and Global Economic Processes: An Analysis of the International Trade of Cars with World Trade Data4

 This document was generated using the LaTeX2HTML translator Version 98.1p1 release (March 2nd, 1998)

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Footnotes

...@@footnote1
... Krempel 2
Max Planck Institute for the Study of Societies, Cologne, Germany. email: krempel@mpi-fg-koeln.mpg.de
... Pluemper 3
Fakultät für Verwaltungswissenschaft, University of Konstanz, Germany. email: thomas.pluemper@uni-konstanz.de
... Data4
Earlier versions of this paper have been presented on several occasions: a the Working Group Netzwerkanalye (Netzkränzchen) , at the MPIfG, and the World Congress of Sociology July 10th 1997, Cologone. We thank participants at these seminars and conferences for helpful and encouraging comments. Special thanks to Gregory Jackson who has improved our english manuscript.
... flows.5
These methods use the volume of the trade flows to create images which try to conserve at least the rankorder of the trade volumes. High volumes between any two countries result typically in a placement of the countries as neighbors unless a specific high volume link is counterbalanced by the joint volume of links to other countries . Additional aesthetical constraints enhance the readability by enforcing a minimal distance between any two nodes. The resulting placement of the countries in the images is an equilibrium distribution of the connectedness by trade volumes and the imposed aesthetics. These models are typically known as spring embedders. These techniques are based on force directed placement algorithms (Eades(1984), Kamada &Tawai (1989)), which can be extended to handle valued graphs and two-mode data (Krempel (1999, forthcoming).
... images6
While we have imposed value threshholds for the presentation , the actual country positions have been computed on the basis of all trade flows.

nextupprevious
Lothar Krempel, lk@mpi-fg-koeln.mpg.de

1999-01-14