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The network origins of the gains from trade

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  • Bosker, Maarten
  • Westbrock, Bastian

Abstract

This paper develops a network perspective on the gains from trade in today's international supply chains. In particular, we demonstrate that the comparative statics predictions of a standard general-equilibrium trade model with input-output linkages can be expressed as a network diffusion model. This model captures the relevant dimensions of the production network's structure by just two easily quantifiable statistics: A country's upstream exposure to supply shocks further up in the network and its downstream exposure to demand shocks further down. We then show how up- and downstream exposure crucially determine the welfare effects from various types of trade cost shocks. In some cases, they even capture the entire welfare effect.

Suggested Citation

  • Bosker, Maarten & Westbrock, Bastian, 2024. "The network origins of the gains from trade," Journal of Economic Theory, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:jetheo:v:216:y:2024:i:c:s0022053124000061
    DOI: 10.1016/j.jet.2024.105800
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    More about this item

    Keywords

    Global trade network; Gains from trade; Network diffusion; Trade intermediation;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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