Working Paper: CEPR ID: DP13285
Authors: Maarten Bosker; Bastian Westbrock
Abstract: In this paper, we develop a network perspective on the welfare gains from trade in today's internationally fragmented supply chains. Towards this end, we study a Ricardian trade model featuring trade in final and intermediate products, and introduce a novel comparative statics approach to decompose the total welfare effects of an arbitrary trade cost shock into several meaningful, easily quantifiable, components. This approach uncovers a unique feature of supply chain trade: the gains from trade are not so much determined by a country's own access to the technologies and markets of its direct trading partners, but rather by its supply chain exposure to countries further up- and downstream in the global supply chain. We develop a set of simple statistics to measure each country's supply chain exposure, show how it predicts the gains from trade, and identify each country's key trade intermediaries, i.e., other nations that primarily leverage its supply chain exposure.
Keywords: Global Production Network; Supply Chains; Gains from Trade; Network Diffusion; Network Exposure; Trade Intermediation
JEL Codes: F10; F11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| supply chain exposure (M11) | welfare gains from trade (F10) |
| unilateral export cost reduction (F14) | welfare gains for exporter (F10) |
| unilateral export cost reduction (F14) | welfare gains for supply chain partners (L14) |
| uniform trade cost reduction (F13) | disproportionate welfare gains for countries with greater downstream exposure (F61) |
| isolation from global production network (F60) | negative impact on remaining nations (F69) |