Working Paper: CEPR ID: DP13827
Authors: Robert Johnson; Andreas Moxnes
Abstract: We build a quantitative model of trade with multistage manufacturing value chains, which features iceberg trade costs and technology differences across both goods and production stages. We estimate technology and trade costs via the simulated method of moments, matching bilateral shipments of final goods and inputs. Applying the model, we investigate how comparative advantage and trade costs shape the structure of global value chains and trade flows. As the level of trade costs falls, we show that the elasticity of bilateral trade to trade costs increases, due to the endogenous reorganization of value chains (increased export platform production). Surprisingly, however, the elasticity of world trade to trade costs is not magnified by multistage production.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade costs (F19) | elasticity of bilateral trade (F14) |
| endogenous reorganization of value chains (O36) | elasticity of bilateral trade to trade costs (F14) |
| multistage production (L23) | elasticity of world trade to trade costs (F14) |
| rise of input trade relative to final goods trade (F14) | overall elasticity of trade to trade costs (F19) |
| level of trade costs (F19) | model's predictions regarding trade elasticities (F17) |
| declining trade costs (F12) | elasticity of trade flows (F14) |