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Organizing the Global Value Chain

  • Pol Antràs
  • Davin Chor

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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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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  1. 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.
  2. 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.
  3. Philipp Harms & Oliver Lorz & Dieter Urban, 2012. "Offshoring along the production chain," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 93-106, February.
  4. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
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  8. Christian Broda & David E. Weinstein, 2004. "Globalization and the Gains from Variety," NBER Working Papers 10314, National Bureau of Economic Research, Inc.
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  15. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  16. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  17. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
  18. Pol Antràs, 2011. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," NBER Working Papers 17470, National Bureau of Economic Research, Inc.
  19. Findlay, Ronald, 1978. "An "Austrian" Model of International Trade and Interest Rate Equalization," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 989-1007, December.
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