Has Shifting End Markets Lost Its Steam? the Dynamics of International Manufacturing Trade in Post-Crisis Global Value Chains

Over the last several decades it became apparent that manufacturing production increasingly shifted to developing countries through foreign direct investment and offshore outsourcing. It has increased the exports of manufacturing goods from the Global South to the North, giving rise to a fragmented cross-national production system called global value chains (GVCs). A new trend has emerged, however, since the global financial crisis of 2007-08 and the ensuring recession, i.e., the rise of the South, particularly emerging economies like China, India and Brazil, as end markets in many GVCs, or “shifting end markets” as GVC scholars called. The shift was facilitated by the rapid growth of domestic markets in emerging and developing economies, and the rising import of raw material and intermediate goods for further processing in manufacturing centers like China. Developing country exporters increasingly paid attention to the Southern markets in the face of stagnant demand growth in post-crisis advanced economies. The share of South-to-South trade more than doubled in 1995-2012, from 12% to 26% of the total world trade.

In the last few years, however, many emerging economies have found their economic growth slowing down, leading some observers to warn a looming economic crisis in some emerging economies. Recently, China ended its 25-year streak of economic growth higher than 7% as it posted a 6.9% GDP growth rate in 2015. In the meantime, some developed economies have been bouncing back from the crisis. This change raises the question to GVC scholars whether the trend of shifting end markets still continues despite the recent troubles in emerging economies, or it has been moderated or even reversed because of them. To answer the questions, this paper examines the dynamics of international manufacturing trade with focus on shifting end markets in GVCs. Using the UN Comtrade dataset, it analyzes trade patterns and their changes in 2005-2013, the period intermitted by the global economic crisis, in three key manufacturing sectors widely studied by GVC scholars – textile and apparel, automobile, and electronics. The paper discusses findings from the analysis in terms of sectoral variations in the end market shift as well as differences among developing countries in the degree of their participation in South-South trade.