Production Staging: Measurement and Facts

What is the average number of production stages for the US? Is production more vertically fragmented now than decades ago? Do upstream or downstream stages contribute to a larger share of value-added? To answer these questions, I develop two simple measures of vertical fragmentation of production chains across plants using input-output tables. Against common belief, I find that production has become less vertically fragmented over the past 50 years, whether I include services or focus only on tradable goods. An important part of this overall reduction in production staging reflects a shift of value-added towards industries that are closer to final demand, while upstream industries contribute less to the value of final goods. Looking at changes within industries, the production of more complex goods appears to be relatively less fragmented but these goods exhibit the largest increase in the number of production stages. Also, I show that international trade has provided new opportunities to fragment production and, to a small extent, dampened the overall decline in vertical fragmentation. Finally, I provide an alternative application of this index to the study of comparative advantage along production chains: I find evidence that goods that involve fewer production stages and goods that are closer to final demand are more likely to be imported to the US from rich countries.

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