International trade can have two opposite effects on the level of vertical
fragmentation. International trade provides new opportunities to reduce costs
by shifting production processes abroad, in which case we might expect a positive
effect of trade on the fragmentation of production. However, much of this effect
is likely to be already captured by the inclusion of international trade costs in the
set of explanatory variables. An increase in trade can also reduce the measure of
fragmentation if it reduces the relative price of intermediate goods and the total amount of expenditure on these goods, thereby reducing the share of value-added
associated with upstream stages