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International Supply Chains and the Volatility of Trade

Listed author(s):
  • Benjamin Bridgman

    (Bureau of Economic Analysis)

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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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
Handle: RePEc:bea:wpaper:0059
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  1. Ariel Burstein & Christopher Johann Kurz & Linda Tesar, 2004. "Trade, Production Sharing and the International Transmission of Business Cycles," Working Papers 522, Research Seminar in International Economics, University of Michigan.
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  12. Pinelopi Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2009. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," Working Papers 1179, Princeton University, Department of Economics, Center for Economic Policy Studies..
  13. Chor, Davin & Manova, Kalina, 2012. "Off the cliff and back? Credit conditions and international trade during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 117-133.
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  16. Benjamin Bridgman, "undated". "Energy Prices and the Expansion of World Trade," Departmental Working Papers 2003-14, Department of Economics, Louisiana State University.
  17. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating Trade Restrictiveness Indices," CEPR Discussion Papers 5576, C.E.P.R. Discussion Papers.
  18. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
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  23. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  24. Benjamin Bridgman, 2008. "Data files for "Energy Prices and the Expansion of World Trade"," Technical Appendices 06-199, Review of Economic Dynamics.
  25. Virgiliu Midrigan & Joseph Kaboski & George Alessandria, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," 2010 Meeting Papers 107, Society for Economic Dynamics.
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