Global production sharing and the measurement of price elasticity in international trade

- Examine the effect of global production sharing on price elasticity of international trade.
- Use a new quarterly panel dataset for manufacturing imports of the USA at the 3-digit SITC level.
- The import demand function is estimated using the dynamic fixed effect estimator.
- Imports of parts and components are found to be insensitive to relative price changes.

The implications of global production sharing for the measurement of price elasticity in international trade is examined using a unique dataset relating to manufacturing imports of the USA. There is strong evidence that parts and components, which account for a growing share of manufacturing trade, are remarkably less sensitive to changes in relative prices compared to final goods. This finding casts doubt on the conventional approach to trade flow modelling that treats parts and components and finals goods as a unified product.