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An Elementary Theory of Global Supply Chains

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  • Arnaud Costinot
  • Jonathan Vogel
  • Su Wang

Abstract

This article develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations. Copyright , Oxford University Press.

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  • Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 109-144.
    • Handle: RePEc:oup:restud:v:80:y:2013:i:1:p:109-144
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    File URL: http://hdl.handle.net/10.1093/restud/rds023
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    • F10 - International Economics - - Trade - - - General

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