EU integration and production networks : evidence from Spain

The aim of this paper is to advance knowledge of Spain's participation in international production networks using data on trade in parts and components from 1990 to 2006. Data analysis shows a remarkable dynamism of Spanish trade in P&C, both in imports and exports, being capable of keeping their shares despite the intense competition from less developed countries. Additionally, Spanish participation in networks is mostly in Europe. In fact, Spain has maintained itself as one of the primary destinations of European P&C exports and has been the only economy that has improved its position as a supplier. These facts allow us to infer a significant competitive capacity of the Spanish economy in Europe, for both production and assembly of P&C. The EU enlargement to Eastern European countries seems not to have damaged Spanish competitiveness as an assembler. In order to analyse the nature of Spanish participation in production networks, we estimate the determinants of trade in P&C using an extended gravity panel data model. In addition to the standard variables in gravity models, we also examine the role of differences in technology and factor endowment between Spain and its trading partners, and the role of service link costs in P&C trade. We find that Spain's integration in production networking responds to comparative advantage but also to other factors such as EU membership and a good quality transport and communication infrastructures. Some lessons from the experience of a middle-income country like Spain may be useful for the CEECs, which have increased their presence in European production sharing in the last decade. Future EU enlargement towards lower costs countries could threaten their position in networking. The reinforcement of these other factors, besides comparative advantage, would act as key element to strengthen their participation in cross-border networks.