Working Paper: CEPR ID: DP12063
Authors: Pol Antràs; Alonso de Gortari
Abstract: This paper develops a multi-stage general-equilibrium model of global value chains (GVCs) and studies the specialization of countries within GVCs in a world with barriers to international trade. With costly trade, the optimal location of production of a given stage in a GVC is not only a function of the marginal cost at which that stage can be produced in a given country, but is also shaped by the proximity of that location to the precedent and the subsequent desired locations of production. We show that, other things equal, it is optimal to locate relatively downstream stages of production in relatively central locations. We also develop and estimate a tractable, quantifiable version of our model that illustrates how changes in trade costs affect the extent to which various countries participate in domestic, regional or global value chains, and traces the real income consequences of these changes.
Keywords: global value chains; sequential production; trade costs; specialization; gains from trade
JEL Codes: C67; D21; D22; D58; F11; F14; F60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower trade costs (F19) | Comparative advantage in downstream stages of GVCs (F12) |
| Lower trade costs (F19) | Specialization in stages of production closer to final consumption (L23) |
| Trade costs (F19) | Location of production stages in GVCs (L23) |
| Trade elasticity larger for downstream stages (F12) | Impact of trade costs on GVCs (F12) |
| Structure of production (L23) | Economic outcomes (F69) |