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International Supply Chains And The Volatility Of Trade

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  • BENJAMIN BRIDGMAN

Abstract

The world trade collapsed in the most recent recession. Some analysts have suggested the increasing offshoring of the supply chain, or vertical specialization (VS) trade, can explain the apparent increase in volatility of trade over the business cycle. This paper develops a model of VS trade to examine its impact on the volatility of trade. The model features increased trade volatility as VS trade increases when goods production is more volatile than services production. While the simulated model generates the observed increase in relative volatility of trade to GDP from 1967 to 2002, most of the increase is due to GDP’s shift to less volatile services production. VS trade only accounts for a third of the increase. Counterintuitively, VS trade can moderate trade volatility.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 4 (October)
Pages: 2110-2124

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:4:p:2110-2124

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References

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  1. Costas Arkolakis & Ananth Ramanarayanan, 2009. "Vertical Specialization and International Business Cycle Synchronization," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 655-680, December.
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Cited by:
  1. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.

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