footwear. Changes in the geographical composition of exports of parts and components
segments follow the same pattern but their magnitude has been much greater. For
example, uppers of leather and other parts made of leather were mainly exported to
OECD countries during the 1970s and the first part of the 1980s, but by 1994 less than
20 per cent of EU12 exports were directed to the OECD region. In 1994 the majority,
over 70 per cent, of such parts and components were exported to Central and Eastern
European countries. These changes in the geographical structure of exports of parts and
components may be linked to the relocation of production out of the EU12 in response
to increasing import competition from low-wage regions, which brings us to the issue of
outsourcing.
Outsourcing occurs when firms take advantage of low-wage costs in labour abundant
countries by moving the low-skill intensive parts of the production process abroad, but
continue to carry out the high-skill activities themselves in the domestic economy.
Trade with low-wage countries via this route shifts employment away from less-skilled
workers in industrial countries and puts downward pressure on the relative wages and
employment of less-skilled workers within industries. The phenomenon has been
investigated by Feenstra and Hanson (1996) using data on imports of intermediate
inputs by domestic firms. The underlying intuition is that intermediate inputs are
associated with unskilled labour activities which domestic firms choose to move abroad
to cheap labour locations as a response to more intense import competition from low-
wage countries.
One feature that is apparent for the EU is that the value per unit of imports of parts and
components is greater than the unit value of exports of parts and components, both in
total and for various sub-categories (almost tariff line level). Such a difference,
moreover, has increased over time. The is consistent with the view that an important
feature of manufacturing trade over the last two decades has been the increasing
division of the value chain (Krugman, 1995) and the relocation of certain activities (the
most unskilled intensive) to low-wage economies. Here the evidence suggests that the
value-added embodied in European exports of parts and components of footwear is less
than that embodied in European imports of footwear parts and components, suggesting
that additional value to parts and components is added outside of Europe. We now
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