UK trading patterns within and between regions in the automotive sector—A network analysis

• Date: 01 February 2021
• Author: Yasaman Sarabi,Matthew Smith
• DOI: http://doi.org/10.1111/twec.13006
• Published date: 01 February 2021

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wileyonlinelibrary.com/journal/twec World Econ. 2021;44:510–529.

© 2020 John Wiley & Sons Ltd

Received: 25 September 2019

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Revised: 25 May 2020

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Accepted: 29 June 2020

DOI: 10.1111/twec.13006

ORIGINAL ARTICLE

UK trading patterns within and between regions in

the automotive sector—A network analysis

MatthewSmith1

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YasamanSarabi2

1Department of International Business & Economics, University of Greenwich, London, UK

2Edinburgh Business School, Heriot-Watt University, Edinburgh, UK

KEYWORDS

fragmentation of production, network analysis, regionalisation

1

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INTRODUCTION

There has been substantial debate in recent decades over whether production is becoming increasingly

regional or global (Baldwin & Lopez-Gonzalez, 2018). Production has undergone a transformation in

recent decades, where the process is increasingly fragmented. Products are no longer manufactured

entirely in one location, rather the process is fragmented across a wide geographic space (Helg &

Tajoli,2005). This suggests geographic distance is playing a lesser role in the production process.

However, there continues to be a high level of regional trade and a proliferation of regional trade agree-

ments. In particular, the question of whether production is regional or global, given the rise of global

supply chains and the fragmentation of production, has received increased attention in recent years

(Chen & De Lombaerde,2014; Hernández & Pedersen, 2017; Los, Lankhuizen, & Thissen,2016;

Los, Timmer, & Vries,2015). For instance, Johnson and Noguera (2017) note that regional supply

(or value chains) is more pronounced than global supply chains and can vary substantially by region.

Many argue that this fragmentation of production has increased the importance of regional trade,

as it has given rise of regional production networks and value chains (De Backer, De Lombaerde, &

Iapadre,2018; Pomfret & Sourdin,2018). Extant literature examining the interplay between region-

alisation and the fragmentation of production has often focused on the growing role of East Asia,

in particular how China acts as a hub for the region along with the impact of regional agreements

such as ASEAN (Andal,2017; Athukorala,2011; Zhang, Cui, Li, & Lu, 2018). This paper aims to

examine regional production patterns in relation to the UK, given the 2016 Brexit vote, which poses

challenges for the UK in the region. The production, investment and trading relationship between

the UK and EU members is likely to drastically change, shifting from frictionless trade and access

to the EU Single Market to potentially the WTO's most-favoured nation rules (Dhingra, Ottaviano,

Rappoport, Sampson, & Thomas, 2018; Dhingra, Ottaviano, & Sampson,2017). We examine the

features of production in the automotive sector, with a focus on the European region, and examining

the UK's role within this region. The 2016 Brexit vote has altered the UK's position within Europe

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SMITH and SaRaBI

and can have implications for the position it holds within the automotive sector, a politically important

sector that contributes significantly to employment levels. Since the Brexit vote, there have been sev-

eral studies examining the potential impact, especially on how the UK's withdrawal from free trading

agreements and custom arrangements will impact its economic growth (Anderson & Wittwer,2018;

Chang,2018; Greenaway & Milner,2019; Hantzsche, Kara, & Young,2019; Latorre, Olekseyuk, &

Yonezawa,2019; Minford,2019).

The automotive sector is an example of a sector characterised by both regional and global features

(Freyssenet & Lung,2000), with a substantial political and economic importance. The sector is espe-

cially important for European countries; Europe is one the world's main regional production sites, con-

tributing to a high level of total vehicle production (Pavlínek,2019). Brexit poses a risk to the sector,

in terms of manufacturing investment and exports (as noted by Gasiorek, Serwicka, & Smith,2019).

Bailey and De Propris (2017) note that since 2010, the UK has been a star performer in the automotive

sector, and that its performance in the sector has greatly benefitted from EU membership and access

to the single market. Therefore, this study examines how the UK is embedded in the region and wider

global trading system in the automotive sector.

We ask a set of central research questions:

1. What role does the UK play within the automotive sector in Europe; more specifically how

does it link to other nations in the region and how does it link the region to other regional

partitions?

2. What countries hold an equivalent position to the UK in the sector, both within and outside the

region? Are there any countries well positioned to potentially take the role of the UK in the region,

as it becomes disintegrated from the EU?

In order to address these research questions, a network analysis approach is utilised, analysing a set

of International Trade Networks (ITNs) representing different segments of the automotive sector and

examining the role of the UK in these networks.

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DATA AND EMPIRICAL SETTING

2.1

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Data

Various approaches and data sets have emerged to better understand the reorganisation of production

in recent decades. In this study, we make use of the approach developed by Yeats (2001), utilising

detailed disaggregated trade data on parts and components to examine the organisation of production.

The automotive classifications defined by Amighini and Gorgoni (2014) are employed, where they

establish a number of products groups. They make use of disaggregated product codes to establish

groups representing different segments of the automotive sector: electrical parts, engines and rubber

and metal parts. These groups have varying levels of technological content, ranging from the high-

tech electrical parts to the low-tech rubber and metal components. These product groupings and their

individual codes that make up these product groups are presented in the Appendix A. These product

groupings present a more accurate overview of the automotive sector compared to data at the aggre-

gated macro level.

The International Trade Networks (ITNs) have nodes as countries, where they are linked by inter-

national trade ties, directed from the exporter to the importer. A threshold was applied to the network,

where only trade ties that were greater than 0.01% of total trade in the product group were retained.