Log of trade costs used. Moreover, country ad valorem transport costs of 20 per cent on both final output and intermediate goods reduce domestic value added (including wages and profits) by 60 per cent when intermediate goods account for 50 per cent of costs. The implication is that because of geographical location, foreign firms might be reluctant to move or relocate their production to these countries - even when wages are low (Redding and Venables 2001). It has been argued that distance matters more in supply chains and, even with today’s information and communications technology revolution, global production networks are likely to remain concentrated in low-wage nations that are near, or even contiguous with, high-technology nations (Baldwin 2011). This reality poses a major challenge to the current GVC narrative. The fragmentation process of the future will be different from that of the past and is likely to be at a much lower level of disaggregation.