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International Supply Chains and the Volatility of Trade

  • Benjamin Bridgman

    (Bureau of Economic Analysis)

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    The world trade collapsed in the most recent recession. Some analysts have suggested the increasing offshoring of the supply chain, or vertical specialization (VS) trade, can explain the apparent increase in volatility of trade over the business cycle. This paper develops a model of VS trade to examine its impact on the volatility of trade. The model features increased trade volatility as VS trade increases when goods production is more volatile than services production. While the simulated model generates the observed increase in relative volatility of trade to GDP from 1967 to 2002, most of the increase is due to GDP’s shift to less volatile services production. VS trade only accounts for a third of the increase. Counterintuitively, VS trade can moderate trade volatility.

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    File URL: http://www.bea.gov/papers/pdf/InternationalSupplyChains.pdf
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    Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0059.

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    Date of creation: Sep 2010
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    Handle: RePEc:bea:wpaper:0059
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    Web page: http://www.bea.gov/research/index.htm
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    1. Benjamin Bridgman, 2008. "Data files for "Energy Prices and the Expansion of World Trade"," Technical Appendices 06-199, Review of Economic Dynamics.
    2. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating Trade Restrictiveness Indices," CEPR Discussion Papers 5576, C.E.P.R. Discussion Papers.
    3. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc.
    4. Logan Lewis & Linda Tesar & Andrei Levchenko, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," 2010 Meeting Papers 109, Society for Economic Dynamics.
    5. Kose, M. Ayhan & Yi, Kei-Mu, 2006. "Can the standard international business cycle model explain the relation between trade and comovement?," Journal of International Economics, Elsevier, vol. 68(2), pages 267-295, March.
    6. Andreas Hornstein & Jack Praschnik, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Working Paper 97-06, Federal Reserve Bank of Richmond.
    7. George Alessandria & Joseph Kaboski & Virgiliu Midrigan, 2008. "Inventories, lumpy trade, and large devaluations," Working Paper Series 2008-24, Federal Reserve Bank of San Francisco.
    8. Pinelopi K. Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2008. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," NBER Working Papers 14416, National Bureau of Economic Research, Inc.
    9. Kei-Mu Yi & Rudolfs Bems & Robert C. Johnson, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Working Papers 10/142, International Monetary Fund.
    10. Davin Chor & Kalina Manova, 2010. "Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis," NBER Working Papers 16174, National Bureau of Economic Research, Inc.
    11. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," NBER Working Papers 16059, National Bureau of Economic Research, Inc.
    12. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," NBER Working Papers 14048, National Bureau of Economic Research, Inc.
    13. Grossman, Gene M. & Rossi-Hansberg, Esteban, 2011. "Task trade between similar countries," Policy Research Working Paper Series 5819, The World Bank.
    14. Samuel S. Kortum & Jonathan Eaton & Brent Neiman & John Romalis, 2010. "Trade and the Global Recession," DEGIT Conference Papers c015_002, DEGIT, Dynamics, Economic Growth, and International Trade.
    15. Boileau, Martin, 1999. "Trade in capital goods and the volatility of net exports and the terms of trade," Journal of International Economics, Elsevier, vol. 48(2), pages 347-365, August.
    16. Ariel Burstein & Christopher Kurz & Linda Tesar, 2008. "Trade, Production Sharing, and the International Transmission of Business Cycles," NBER Working Papers 13731, National Bureau of Economic Research, Inc.
    17. Ananth Ramanarayanan & Costas Arkolakis, 2009. "Vertical Specialization and International Business Cycle Synchronization," 2009 Meeting Papers 780, Society for Economic Dynamics.
    18. Mary Amiti & Jozef Konings, 2005. "Trade Liberalization, Intermediate Inputs, and Productivity; Evidence From Indonesia," IMF Working Papers 05/146, International Monetary Fund.
    19. Amiti, Mary & Weinstein, David E., 2009. "Exports and Financial Shocks," CEPR Discussion Papers 7590, C.E.P.R. Discussion Papers.
    20. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    21. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
    22. Benjamin Bridgman, . "Energy Prices and the Expansion of World Trade," Departmental Working Papers 2003-14, Department of Economics, Louisiana State University.
    23. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May.
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