Industries with low levels of productivity may have greater potential for fragmentation and offshoring of production stages. This would suggest that there should be an inverse relationship between both the level of productivity and fragmentation, and productivity and offshoring, across industries and countries. The extent of vertical fragmentation can also depend on physical capital intensity. Capital-intensive industries rely more on centralised investment decisions and are thus more likely to be integrated, whereas decisions taken by suppliers are relatively more important in labour-intensive industries, leading to more offshoring in these industries (Antras 2003). We therefore predict that higher ` physical capital use will be associated with less fragmentation. Human capital intensity – measured through skill intensity and the complexity of tasks – can also affect the level of fragmentation. In general, more complex tasks are more likely to be performed within the firm (Costinot, Oldenski and Rauch 2011). Consequently, industries and countries with lower levels of human capital intensity should be more fragmented. Finally, the regression specification also includes a composite error term (νict), which consists of a country-industry specific effect (θic), a year fixed effect (ηt ) and an idiosyncratic term (εict). Country-industry fixed effects are included to control for unobserved factors that vary by country and industry but not by time. This would include factors such as geographic location and the nature of the industry’s product. The year fixed effects capture factors that affect all countries and industries at a given point in time, such as the global financial crisis