Working Paper: NBER ID: w16936
Authors: Arnaud Costinot; Jonathan Vogel; Su Wang
Abstract: This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity differences are a source of comparative advantage among nations. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.
Keywords: No keywords provided
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in complexity (C69) | Increase in inequality (D31) |
| Increase in complexity (C69) | Move up the supply chain (L14) |
| Standardization (L15) | Decrease in inequality (D31) |
| Standardization (L15) | Move up the supply chain (L14) |
| Local technological changes (O30) | Move down the supply chain (countries at the bottom) (F29) |
| Local technological changes (O30) | Move up the supply chain (countries at the top) (O51) |