Summary: Trade in intermediate goods as one possible link between rising trade and foreign direct investment is examined. To explain growing intermediate goods trade, three hypotheses are brought forward: outsourcing, global sourcing and the increasing importance of MNE networks. These hypotheses are tested by employing a cross-section framework, which uses OECD input-output table data, and an analysis, which relies on German time-series data. Increasing importance of MNE networks is found to be a reason of growing trade in intermediate goods in the cross-section and the time-series framework. The evidence for outsourcing and global sourcing is found to be much weaker.
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