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A Coasian Model of International Production Chains

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  • Fally, Thibault
  • Hillberry, Russell

Abstract

International supply chains require coordination of numerous activities across multiple countries and firms. We adapt a model of supply chains and apply it to an international trade setting. In each chain, the measure of tasks completed within a firm is determined by a tradeoff between transaction costs and diseconomies of scope linked to management of a larger measure of tasks within the firm. The structural parameters that determine firm scope explain variation in supply-chain length and gross-output-to-value-added ratios, and determine countries' comparative advantage along and across supply chains. We calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.
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Suggested Citation

  • Fally, Thibault & Hillberry, Russell, 2017. "A Coasian Model of International Production Chains," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0272z291, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt0272z291
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    Cited by:

    1. Bosker, Maarten & Westbrock, Bastian, 2018. "The network origins of the gains from trade," CEPR Discussion Papers 13285, C.E.P.R. Discussion Papers.
    2. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    3. E. Dhyne & C. Duprez, 2017. "The world is a village… The integration of Belgian firms into the world economy," Economic Review, National Bank of Belgium, issue ii, pages 25-36, september.
    4. Peter B. Dixon & Maureen Rimmer, 2019. "Integrating a Global Supply Chain Model With a Computable General Equilibrium Model," Centre of Policy Studies/IMPACT Centre Working Papers g-292, Victoria University, Centre of Policy Studies/IMPACT Centre.
    5. Tomoo Kikuchi & Kazuo Nishimura & John Stachurski & Junnan Zhang, 2019. "Coase Meets Bellman: Dynamic Programming and Production Chains," Papers 1908.10557, arXiv.org.
    6. Thibault Fally & James Sayre, 2018. "Commodity Trade Matters," 2018 Meeting Papers 172, Society for Economic Dynamics.
    7. Maarten Bosker & Bastian Westbrock, 2019. "The network origins of the gains from trade," CESifo Working Paper Series 7552, CESifo.
    8. Udo Kreickemeier & Zhan Qu, 0. "International trade with sequential production," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 0, pages 1-25.
    9. Kenji Suganuma, 2016. "Upstreamness in the Global Value Chain: Manufacturing and Services," IMES Discussion Paper Series 16-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    10. Emmanuel Dhyne & Cedric Duprez, 2017. "It’s a Small, Small World... A Guided Tour of the Belgian Production Network," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 84-96, Spring.
    11. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    12. Kikuchi, Tomoo & Nishimura, Kazuo & Stachurski, John, 2018. "Span of control, transaction costs and the structure of production chains," Theoretical Economics, Econometric Society, vol. 13(2), May.
    13. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    14. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.

    More about this item

    Keywords

    Social and Behavioral Sciences;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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