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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. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  2. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
  3. Avinash K. Dixit & Gene M. Grossman, 1982. "Trade and Protection with Multistage Production," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 583-594.
  4. Christian Broda & David E. Weinstein, 2004. "Globalization and the Gains from Variety," NBER Working Papers 10314, National Bureau of Economic Research, Inc.
  5. 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.
  6. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 109-144.
  7. Justin R. Pierce & Peter K. Schott, 2009. "A Concordance Between Ten-Digit U.S. Harmonized System Codes and SIC/NAICS Product Classes and Industries," NBER Working Papers 15548, National Bureau of Economic Research, Inc.
  8. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  9. 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.
  10. 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.
  11. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
  12. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
  13. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  14. Thomas, Jonathan & Worrall, Tim, 1990. "Foreign direct investment and the risk of expropriation," Kiel Working Papers 411, Kiel Institute for the World Economy.
  15. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
  16. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA.
  17. Julian di Giovanni & Andrei A. Levchenko, 2008. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," Working Papers 580, Research Seminar in International Economics, University of Michigan.
  18. 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.
  19. 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.
  20. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
  21. 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.
  22. 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.
  23. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  24. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1375-1418.
  25. Baldwin, Richard & Venables, Anthony J, 2010. "Spiders and Snakes: Offshoring and Agglomeration in the Global Economy," CEPR Discussion Papers 8163, C.E.P.R. Discussion Papers.
  26. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
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