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The emergence of global value chains and the expansion of activities of multinational enterprises have increased the value of intra-firm trade flows. Despite growing attention from policymakers, few data are collected on trade transactions between related parties. Available evidence suggests that intra-firm trade represents a significant share of world trade but differs widely across countries and industries. Trade statistics and firm-level data point out that intra-firm trade and vertical integration occur predominantly among OECD countries and that firm behaviour and relationships between buyers and suppliers explain the patterns of intra-firm trade. The report analyses the implications of intra-firm trade for trade liberalisation, transfer pricing and the transmission of macroeconomic shocks. It finds that for trade policymakers, the rise of intra-firm trade underscores the benefits of trade liberalisation when domestic firms have affiliates abroad and foreign firms are established in the domestic economy. Trade policy should remain neutral with respect to firms. sourcing strategies but trade agreements should increasingly take into account vertical relationships between buyers and suppliers. Analysing the role of intra-firm trade during the 2008-09 trade collapse, the report furthermore highlights that while the role of global value chains was questioned in the transmission of the crisis, vertically integrated production networks can be more resilient in the context of an economic downturn.

Trade

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Specialisation or division of labour is an important source of economic growth, but the degree of division of labour is constrained by the extent of the market. Trade in tasks represents the latest turn in a virtuous cycle of deepening specialisation, expansion of the market and productivity growth. It has attracted a lot of attention in the policy debate not for its contribution to international division of labour and productivity growth, but for its possible detrimental impact on labour markets, particularly in high income countries. This paper analyses the task content of goods and services and sheds light on structural changes that take place following trade liberalisation. The task content of goods and services is estimated by combining information from the O*Net database on the importance of a set of 41 tasks for a large number of occupations and information on employment by occupation and industry. The study shows that tasks that can be digitised and offshored are often complementary to tasks that cannot. Therefore, the assessment of the offshorability of a job requires that one take into account all tasks being performed. The paper finds that import penetration in services has a small, but positive effect on the share of tasks related to getting and processing information being performed in the local economy. In other words, offshoring complements rather than replaces local information processing. As distortions in the market for intermediate inputs, including offshored tasks, have a larger negative impact the more diversified and complex the economy, possible adverse effects of offshoring on the labour market should be dealt with through social and labour market policy measures, not trade restrictions. In addition, if trade restrictions are imposed, they should be levied on imported value added, not on the total import value.

Trade