Evolution of Machinery Production Networks: Linkage of North America with East Asia

Abstract

This paper investigates new developments in the pattern of machinery trade, with a focus on the extent and depth of production networks in North America. We pay particular attention to North America's trade links with East Asia, which have intensified in the last two decades. Investigation of changes in total trade value and the growth of trade on the extensive margin both demonstrates the expanding fragmentation of production in North America as well as the strengthening of connections with Mexico. Our quantitative analysis, which is based on gravity estimation of trade volume and extensive margin trade responses, also provides evidence that U.S. imports of machinery from East Asia are especially strong, and further, that Mexico's role has changed, as it now provides a bridge for trade between East Asia and the United States. These new developments in the pattern of machinery trade reflect reductions in services link costs, the further evolution of production sharing in the U.S.–Mexico nexus, and the strengthening competitiveness of production networks based in East Asia.