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Global Value Chains and the Transmission of Business Cycle Shocks

Author

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  • Gangnes, Byron

    (University of Hawaii)

  • Ma, Alyson C.

    (University of San Diego)

  • Van Assche, Ari

    (HEC Montréal)

Abstract

The collapse of trade during the great recession of 2008–2009 has raised the question of whether the rise of global value chains (GVCs) has increased or accelerated the international transmission of business cycle shocks. In this paper, we empirically investigate two channels through which a country’s integration into GVCs may increase the income elasticity of its exports. First, GVCs may simply be concentrated in sectors that are more sensitive to external income fluctuations (composition effect). Alternatively, there may be characteristics that are inherent to GVCs that trigger a faster and more amplified propagation of business cycle shocks (supply chain effect). Using trade data from the People’s Republic of China, we find supporting evidence for the composition effect. However, we find no evidence that trade within GVCs have an intrinsically higher income elasticity than regular trade.

Suggested Citation

  • Gangnes, Byron & Ma, Alyson C. & Van Assche, Ari, 2012. "Global Value Chains and the Transmission of Business Cycle Shocks," ADB Economics Working Paper Series 329, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0329
    Note: http://www.adb.org/sites/default/files/pub/2012/economics-wp-329.pdf
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    Cited by:

    1. Byron Gangnes & Ari Van Assche, 2016. "Global Value Chains and Changing Trade Elasticities," Working Papers 201617, University of Hawaii at Manoa, Department of Economics.
    2. Wang, Zhi & Wei, Shang-Jin & Yu, Xinding & Zhu, Kunfu, 2022. "Global value chains over business cycles," Journal of International Money and Finance, Elsevier, vol. 126(C).
    3. Peter H. Egger & Jiaqing Zhu, 2022. "How COVID‐19 travels in‐ and outside of value chains and then affects the stock market: Evidence from China," The World Economy, Wiley Blackwell, vol. 45(2), pages 523-538, February.
    4. Deborah Swenson, 2014. "Changes in the production stage position of People’s Republic of China trade," Chapters, in: Benno Ferrarini & David Hummels (ed.), Asia and Global Production Networks, chapter 6, pages 179-214, Edward Elgar Publishing.

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