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Why Is Manufacturing Trade Rising Even as Manufacturing Output is Falling?

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  • Raphael Bergoeing
  • Timothy J. Kehoe
  • Vanessa Strauss-Kahn
  • Kei-Mu Yi

Abstract

For the OECD as whole, as well as for the U.S., manufacturing exports have been rising, while manufacturing output (both expressed as a share of total GDP) has been falling. We examine the prevalence of this puzzling fact across individual OECD countries, as well as for particular sub-industries of manufacturing. We then address whether the standard international trade paradigms are capable of quantitatively resolving the puzzle. We extend the basic monopolistic competition-cum-Heckscher-Ohlin model to allow for non-homothetic preferences, non-unitary demand elasticities and for changing trade barriers and country-size distributions over time. In a calibrated version of the model, we find that while the extended model can replicate the puzzle qualitatively, it cannot do so quantitatively. We suggest that the unexplained part of the puzzle may be due to vertical specialization – the phenomenon by which countries specialize in particular stages of a good’s production sequence – leading to “back-and-forth” trade, and creating a distinction between ‘gross’ trade and value-added trade. The standard trade paradigms only include value-added trade.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 2 (May)
Pages: 134-138

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Handle: RePEc:aea:aecrev:v:94:y:2004:i:2:p:134-138

Note: DOI: 10.1257/0002828041302299
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References

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  1. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  2. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-76, December.
  3. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
  4. Vanessa Strauss-Kahn, 2004. "The Role of Globalization in the Within-Industry Shift Away from Unskilled Workers in France," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 209-234 National Bureau of Economic Research, Inc.
  5. Raphael Bergoeing & Timothy J. Kehoe, . "Trade Theory and Trade Facts," ILADES-Georgetown University Working Papers inv129, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  6. Spilimbergo, Antonio, 1998. "Deindustrialization and Trade," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 450-60, August.
  7. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
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Cited by:
  1. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers 0051, Bureau of Economic Analysis.
  2. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
  3. Altomonte, Carlo & di Mauro, Filippo & Ottaviano, Gianmarco & Rungi, Armando & Vicard, Vincent, 2012. "Global value chains during the great trade collapse: a bullwhip effect?," Working Paper Series 1412, European Central Bank.
  4. Marek Rojíček, 2010. "Competitiveness of the Trade of the Czech Republic in the Process of Globalisation," Politická ekonomie, University of Economics, Prague, vol. 2010(2), pages 147-165.
  5. Chen, Hogan & Kondratowicz, Matthew & Yi, Kei-Mu, 2005. "Vertical specialization and three facts about U.S. international trade," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 35-59, March.
  6. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
  7. Flückiger, Matthias & Ludwig, Markus, 2013. "Chinese Export Competition, Declining Exports and Adjustments at the Industry and Regional Level in Europe," MPRA Paper 48878, University Library of Munich, Germany.
  8. Martin Borowiecki & Bernhard Dachs & Doris Hanzl-Weiss & Steffen Kinkel & Johannes Pöschl & Magdolna Sass & Thomas Christian Schmall & Robert Stehrer & Andrea Szalavetz, 2012. "Global Value Chains and the EU Industry," wiiw Research Reports 383, The Vienna Institute for International Economic Studies, wiiw.
  9. Anu Kovarikova Arro, 2005. "Globalization, Increasing Returns in Component Production, and the Pattern of Trade," CERGE-EI Working Papers wp265, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. Ricotta, Fernanda, 2010. "Global Value Chain Indicators: Application to the Italian Sectors - Gli indicatori della global value chain: un’applicazione ai settori italiani," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 63(4), pages 423-450.

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