# 1 Introduction

Modern production assigns a prominent role to international task trade. The delivery of a good or service to a consumer typically requires the completion of a myriad of tasks. Increasingly, the performance of these tasks is spread across the globe, with an impressive share of o¤shore production in the value of many ...nal goods. As a result, international trade is less today a matter of countries’specialization in particular industries and more about their specialization in particular occupations and tasks.

Much has been written about the growth of o¤shoring between countries that stand at di¤erent levels of development, i.e., countries that have dissimilar factor endowments and disparate technological capabilities.<sup>1</sup> Yet, as important as this sort of o¤shoring is becoming in world trade, it pales in comparison to task trade between countries that are similar in terms of these characteristics. Although aggregate data on o¤shoring from one developed country to others are di¢ cult to come by, we do know that most trade in intermediate goods takes place between and among the advanced industrialized economies and that most value added generated by foreign subsidiaries of American multinational corporations originates in other OECD countries.<sup>2</sup> Both facts suggest that the advanced economies are engaged in a substantial amount of international production sharing with others at similar levels of development.

Not only does most trade ‡ow between and among the advanced industrialized economies, but these economies are engaging in an ever more intricate web of production-sharing arrangements. The Boeing 787 Dreamliner is a case in point.<sup>3</sup> The production of this new midsize jet involves 43 suppliers spread over 135 sites around the world. Boeing relies heavily on local expertise when making its sourcing decisions. The wings are produced in Japan, the engines in the United Kingdom and the United States, the ‡aps and ailerons in Canada and Australia, the fuselage in Japan, Italy and the United States, the horizontal stabilizers in Italy, the landing gear in France, and the doors in Sweden and France. O¤shore production accounts for close to 70 percent of the many thousands of parts used to assemble the jet (Newhouse, 2007, p.29). Some parts are produced in foreign a¢ liates of the Boeing Corporation while others are supplied under international outsourcing agreements. The countries that perform the various tasks display no clear pattern of technological advantage. Rather, experience and local knowledge play a central role. Apparently, expertise most often

> 1 See, for example, Jones and Kierzkowski (2001), Feenstra and Hanson (1996), Deardor¤ (2001), Yi (2004), Egger and Falkinger (2003), Kohler (2004a, 2004b), and Baldwin and Robert-Nicoud (2010), as well as our own work in Grossman and Rossi-Hansberg (2008).

> 2 Many researchers have documented production sharing for particular countries in their trade with the rest of the world; see, for example, Campa and Goldberg (1997), Hummels, Rapoport and Yi (1998), Hummels, Ishii and Yi (2001), and Hanson, Mataloni and Slaughter (2005). Among these, only Hummels, Ishii and Yi (2001) go on to consider the geographic nature of the production-sharing relationships. They ...nd that North-North specialization is the most common form of vertical specialization in world trade. The data reported in WTO and IDE-JETRO (2011, p.84) show that intra-European and European-North American trade accounts for a large share of trade in intermediate goods. The data in Barefoot and Mataloni (2010) reveal that nonbank multinational subsidiaries of American parent companies hold a large fraction of their assets in other developed countries and generate a large share of their o¤shore value added there.

> 3 The sourcing of Boeing’s parts for the 787 is detailed at http://www.boeing.com/commercial/787family /background.html. See Newhouse (2007) for further discussion.

1