Working Paper: NBER ID: w21520
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 transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs 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: International trade; Production chains; Transaction costs; Coordination costs
JEL Codes: F10; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade costs (F19) | structure of international production (L23) |
| trade costs (F19) | fragmentation along supply chains (F12) |
| transaction costs (D23) | average position of countries in chains (Y10) |
| productivity shock in China (O49) | downstream shift for China (F69) |
| productivity shock in China (O49) | upstream shift for the rest of the world (F69) |