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An Elementary Theory of Global Supply Chains

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Author Info

  • Su Wang

    (MIT)

  • Jonathan Vogel

    (Columbia University)

  • Arnaud Costinot

    (MIT)

Abstract

This paper develops an elementary theory of global supply chains. In spite of its simplicity, our theory is consistent with a number of stylized facts and able to deliver a rich set of predictions regarding how vertical specialization shapes the interdependence of nations. Among other things, our analysis predicts that poor countries have higher shares of primary production and assembly in value added, and provides a novel rationale for why rich countries both tend to trade relatively more with other rich countries and export and import goods with higher unit values. Our analysis also demonstrates that observing a country "moving up the chain"--an observation which is often taken as good news among policy makers--does not necessarily signal an improvement in its relative competitiveness and may very well be associated with a welfare loss. Our results point towards the importance of modeling the sequential nature of production for understanding the consequences of technological changes in developing and developed countries on their trading partners worldwide.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 95.

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Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:95

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Fax: 1-314-444-8731
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Web page: http://www.EconomicDynamics.org/society.htm
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References

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  1. Ariel Burstein & Christopher Johann Kurz & Linda Tesar, 2004. "Trade, Production Sharing and the International Transmission of Business Cycles," Working Papers 522, Research Seminar in International Economics, University of Michigan.
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  24. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and the Shrinking Middle Class," CESifo Working Paper Series 4141, CESifo Group Munich.
  25. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  26. Luis Garicano & Esteban Rossi-Hansberg, 2005. "Organization and Inequality in a Knowledge Economy," NBER Working Papers 11458, National Bureau of Economic Research, Inc.
  27. Juan Carlos Hallak, 2006. "A Product-Quality View of the Linder Hypothesis," NBER Working Papers 12712, National Bureau of Economic Research, Inc.
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