Working Paper: CEPR ID: DP13062
Authors: Thibault Fally; Russell Hillberry
Abstract: International supply chains require coordination of numerous activities across multiple countries and firms. We adapt a model of supply chains and apply it to an international trade setting. In each chain, the measure of tasks completed within a firm is determined by a tradeoff between transaction costs and diseconomies of scope linked to management of a larger measure of tasks within the firm. The structural parameters that determine firm scope explain variation in supply-chain length and gross-output-to-value-added ratios, and determine countries' comparative advantage along and across supply chains. We calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.
Keywords: fragmentation of production; transaction costs; trade in intermediate goods; boundary of the firm
JEL Codes: F10; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structural parameters (C23) | supply chain length (M11) |
| structural parameters (C23) | GOVA ratios (C29) |
| supply chain length (M11) | comparative advantage (F11) |
| GOVA ratios (C29) | comparative advantage (F11) |