Working Paper: NBER ID: w28087
Authors: Michael Sposi; Keimu Yi; Jing Zhang
Abstract: Motivated by increasing trade and fragmentation of production across countries, accompanied by income convergence by many emerging economies, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. Via Heckscher-Ohlin forces, GVC trade can generate back-and-forth feedback between comparative advantage and capital accumulation (growth). Moreover, GVC trade increases both steady-state and dynamic gains from trade.
Keywords: trade integration; global value chains; capital accumulation
JEL Codes: E22; F10; F43; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade costs (F19) | GVC dynamics (F12) |
| GVC dynamics (F12) | comparative advantage (F11) |
| comparative advantage (F11) | capital accumulation growth (E22) |
| GVC trade (F19) | capital accumulation growth (E22) |
| GVC trade (F19) | investment dynamics (G31) |
| GVC trade (F19) | steady-state gains from trade (F11) |
| GVC trade (F19) | dynamic gains from trade (F12) |
| GVC trade (F19) | investment decline (without GVC trade) (F19) |
| GVC trade (F19) | investment rise (with GVC trade) (F23) |
| GVC trade (F19) | non-uniform effects across economies (F69) |