Global Value Chains and Changing Trade Elasticities

The trade collapse of 2008-2009 and the anemic trade growth since then raise the question of whether trade elasticities may be undergoing fundamental structural change. A potential source of such change is the spread of global value chains (GVCs), which have brought a marked increase in the use of intermediate goods and changes in the nature of trade competition. We review the recent literature on the impact of GVCs on measured trade elasticities and the ways in which their emergence may affect how we estimate and interpret trade responsiveness. We then draw out a few implications of recent research for global modeling.