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Organizing the Global Value Chain

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  • Pol Antràs
  • Davin Chor

Abstract

We develop a property-rights model of the firm in which production entails a continuum of uniquely sequenced stages. In each stage, a final-good producer contracts with a distinct supplier for the procurement of a customized stage-specific component. Our model yields a sharp characterization for the optimal allocation of ownership rights along the value chain. We show that the incentive to integrate suppliers varies systematically with the relative position (upstream versus downstream) at which the supplier enters the production line. Furthermore, the nature of the relationship between integration and "downstreamness" depends crucially on the elasticity of demand faced by the final-good producer. Our model readily accommodates various sources of asymmetry across final-good producers and across suppliers within a production line, and we show how it can be taken to the data with international trade statistics. Combining data from the U.S. Census Bureau's Related Party Trade database and estimates of U.S. import demand elasticities from Broda and Weinstein (2006), we find empirical evidence broadly supportive of our key predictions. In the process, we develop two novel measures of the average position of an industry in the value chain, which we construct using U.S. Input-Output Tables.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 81 (2013)
Issue (Month): 6 (November)
Pages: 2127-2204

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Handle: RePEc:ecm:emetrp:v:81:y:2013:i:6:p:2127-2204

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References

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  1. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  2. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  3. Pol Antràs & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," NBER Working Papers 17819, National Bureau of Economic Research, Inc.
  4. Arnaud Costinot & Jonathan E. Vogel & Su Wang, 2011. "An Elementary Theory of Global Supply Chains," CESifo Working Paper Series 3402, CESifo Group Munich.
  5. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," 2004 Meeting Papers 530, Society for Economic Dynamics.
  6. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 569-600, 05.
  7. Justin Pierce & Peter Schott, 2009. "A Concordance Between Ten-Digit U.S. Harmonized System Codes and SIC/NAICS Product Classes and Industries," Working Papers 09-41, Center for Economic Studies, U.S. Census Bureau.
  8. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  9. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  10. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
  11. Philipp Harms & Oliver Lorz & Dieter Urban, 2009. "Offshoring Along the Production Chain," Working Papers 09.01, Swiss National Bank, Study Center Gerzensee.
  12. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
  13. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
  14. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," Working Papers 149, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  15. Sanyal, Kalyan K, 1983. "Vertical Specialization in a Ricardian Model with a Continuum of Stages of Production," Economica, London School of Economics and Political Science, vol. 50(197), pages 71-78, February.
  16. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
  17. Richard Baldwin & Anthony Venables, 2010. "Spiders and snakes: offshoring and agglomeration in the global economy," NBER Working Papers 16611, National Bureau of Economic Research, Inc.
  18. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  19. Antràs, Pol, 2011. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," CEPR Discussion Papers 8598, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Philipp Harms & Jaewon Jung & Oliver Lorz, 2014. "Offshoring and Sequential Production Chains: A General-Equilibrium Analysis," MAGKS Papers on Economics 201402, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Richard Baldwin & Frédéric Robert-Nicoud, 2010. "Trade-in-goods and trade-in-tasks: An Integrating Framework," NBER Working Papers 15882, National Bureau of Economic Research, Inc.
  3. Marc J. Melitz & Stephen J. Redding, 2014. "Missing Gains from Trade?," NBER Working Papers 19810, National Bureau of Economic Research, Inc.
  4. Nowak, Verena & Schwarz, Christian & Suedekum, Jens, 2014. "Asymmetric spiders: Supplier heterogeneity and the organization of firms," DICE Discussion Papers 141, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  5. Pol Antràs & Stephen R.Yeaple, 2013. "Multinational Firms and the Structure of International Trade," NBER Working Papers 18775, National Bureau of Economic Research, Inc.
  6. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
  7. Schwarz, Christian & Suedekum, Jens, 2014. "Global sourcing of complex production processes," Journal of International Economics, Elsevier, vol. 93(1), pages 123-139.
  8. Kalina Manova & Zhihong Yu, 2012. "Firms and Credit Constraints along the Global Value Chain: Processing Trade in China," NBER Working Papers 18561, National Bureau of Economic Research, Inc.
  9. Tomohiro MACHIKITA & Yasushi UEKI, 2013. "Who Disseminates Technology to Whom, How, and Why: Evidence from Buyer-Seller Business Networks," Working Papers DP-2013-26, Economic Research Institute for ASEAN and East Asia (ERIA).
  10. Heiwai Tang & Fei Wang & Zhi Wang, 2014. "The Domestic Segment of Global Supply Chains in China under State Capitalism," CESifo Working Paper Series 4797, CESifo Group Munich.

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