Working Paper: NBER ID: w26018
Authors: Robert C. 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: Global Value Chains; Trade Elasticities; Multistage Production
JEL Codes: F1
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 to trade costs (F14) |
| trade costs (F19) | export platform production (E23) |
| international trade costs (F19) | comparative advantage and specialization of countries (F11) |
| changes in trade costs (F12) | composition of trade (F10) |
| changes in trade costs (F12) | sensitivity of input trade relative to final goods trade (F14) |
| multistage model generates aggregate world trade elasticities similar to more standard models (F12) | structure of value chains plays a critical role in determining trade elasticities (F12) |