Working Paper: CEPR ID: DP9870
Authors: Maarten Bosker; Bastian Westbrock
Abstract: This paper argues that the determinants of the welfare gains from trade have fundamentally changed with the emergence of a global production network. Towards this end, we develop a novel counterfactual approach to decompose the welfare effects of any small trade cost variation in any general equilibrium model of international trade. Our findings stress a unique feature of supply chain trade: the gains from a further integration of the global production network are not so much determined by a country's own local conditions or those of its direct trade partners. Instead, the economic prospects of a country depend on its connections to important trade intermediaries, countries that provide indirect access to the demand and supply of many other nations. We complement our theoretical findings by an easy-to-implement empirical strategy and identify each country's key intermediaries.
Keywords: global supply chains; international trade; network effects
JEL Codes: C67; F12; F63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade cost reductions (F14) | welfare gains (D69) |
| network exposure (D85) | economic prospects (E66) |
| trade intermediation (G20) | predicted income gains (E25) |
| reduction in export costs along a single trade route (F10) | positive externalities for third countries (F69) |
| decrease in trade costs (F19) | per capita income gains (D31) |
| network exposure to indirect trade partners (F10) | welfare gains (D69) |