Trends, patterns and determinants of production sharing in Australian manufacturing

Australian manufacturing trade has witnessed a significant structural change in the past two decades. One of the noticeable developments has occurred in the area of parts and components (PCs) trade—a phenomenon that has been observed globally. Our analysis suggests that exports of PCs from Australia has fallen marginally while their imports in total manufacturing trade remains very high. A fall in the share of PCs exports is not surprising given the migration of PCs producing firms from Australia to low-cost production locations in Asia. We observe a dramatic increase in the shares of Asian countries in PCs imports to Australia while a falling share of NAFTA and EU countries. Econometric results based on panel data suggest that market size, the distance between trading partners, proximity to Asia and common language are important determinants in explaining a surge in PCs trade in Australian manufacturing.