IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/12303.html
   My bibliography  Save this paper

Global Value Chains, Trade Shocks And Jobs: An Application to Brexit

Author

Listed:
  • Vandenbussche, Hylke
  • Connell Garcia, William
  • Simons, Wouter

Abstract

This paper develops a gravity model with sector-level input-output linkages in production. In contrast to a traditional gravity approach, which relies on direct gross exports between bilateral trade partners, our model additionally includes (1) domestic and global value chain linkages between goods and services sectors, (2) bilateral tariffs that affect direct production for a final destination as well as indirect production (shipped via third countries) to a final destination and (3) value added rather than gross production. Including input-output linkages implies that domestic production of intermediates can serve as inputs in foreign products and subsequently be exported "indirectly" to a final destination. Our input-output model can be taken to the sectoral World Input Output Database (WIOD) and can be used to evaluate trade policy shocks. While our framework is entirely general, we use it to predict the impact of the UK's withdrawal from the European Union ("Brexit") in terms of value added production and employment for every individual EU country involved. We find that Brexit hits the UK relatively harder than the EU-27. In contrast to other studies, we find EU-27 losses from Brexit to be substantially higher than hitherto believed.

Suggested Citation

  • Vandenbussche, Hylke & Connell Garcia, William & Simons, Wouter, 2017. "Global Value Chains, Trade Shocks And Jobs: An Application to Brexit," CEPR Discussion Papers 12303, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12303
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP12303
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Swati Dhingra & Gianmarco I. P. Ottaviano & Thomas Sampson, 2015. "Should We Stay or Should We Go? The economic consequences of leaving the EU," CEP Election Analysis Papers 022, Centre for Economic Performance, LSE.
    2. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, vol. 104(7), pages 1942-1978, July.
    3. Anderson, James & Larch, Mario & Yotov, Yoto, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    4. Jung, Benjamin, 2012. "Gradualism and dynamic trade adjustment: Revisiting the pro-trade effect of free trade agreements," Economics Letters, Elsevier, vol. 115(1), pages 63-66.
    5. Raffaele Giammetti & Alberto Russo & Mauro Gallegati, 2020. "Key sectors in input–output production networks: An application to Brexit," The World Economy, Wiley Blackwell, vol. 43(4), pages 840-870, April.
    6. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    7. Bruce A. Blonigen, 2016. "Industrial Policy and Downstream Export Performance," Economic Journal, Royal Economic Society, vol. 126(595), pages 1635-1659, September.
    8. A. Kerem Co?ar & Nezih Guner & James Tybout, 2016. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," American Economic Review, American Economic Association, vol. 106(3), pages 625-663, March.
    9. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Bonus vetus OLS: A simple method for approximating international trade-cost effects using the gravity equation," Journal of International Economics, Elsevier, vol. 77(1), pages 77-85, February.
    10. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    11. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    12. Emily J. Blanchard & Chad P. Bown & Robert C. Johnson, 2016. "Global Supply Chains and Trade Policy," NBER Working Papers 21883, National Bureau of Economic Research, Inc.
    13. Gabriel Felbermayr & Jasmin Gröschl & Marina Steininger, 2022. "Quantifying Brexit: from ex post to ex ante using structural gravity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(2), pages 401-465, May.
    14. Dennis Novy, 2013. "Gravity Redux: Measuring International Trade Costs With Panel Data," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 101-121, January.
    15. Hylke Vandenbussche & Christian Viegelahn, 2016. "Input reallocation within firms," Working Papers of Department of Economics, Leuven 553943, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    16. Pieter IJtsma & Peter Levell & Bart Los & Marcel P. Timmer, 2018. "The UK's Participation in Global Value Chains and Its Implications for Post‐Brexit Trade Policy," Fiscal Studies, John Wiley & Sons, vol. 39(4), pages 651-683, December.
    17. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
    18. Yoto Yotov & Mario Larch & James Anderson, 2015. "Growth and Trade: A Structural Estimation Framework," 2015 Meeting Papers 851, Society for Economic Dynamics.
    19. repec:eee:labchp:v:1:y:1986:i:c:p:429-471 is not listed on IDEAS
    20. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 1-29, March.
    21. Robert C. Feenstra & Akira Sasahara, 2018. "The ‘China shock,’ exports and U.S. employment: A global input–output analysis," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1053-1083, November.
    22. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    23. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    24. Magee, Christopher S.P., 2008. "New measures of trade creation and trade diversion," Journal of International Economics, Elsevier, vol. 75(2), pages 349-362, July.
    25. Wen Chen & Bart Los & Philip McCann & Raquel Ortega‐Argilés & Mark Thissen & Frank van Oort, 2018. "The continental divide? Economic exposure to Brexit in regions and countries on both sides of The Channel," Papers in Regional Science, Wiley Blackwell, vol. 97(1), pages 25-54, March.
    26. Jozef Konings & Alan Patrick Murphy, 2006. "Do Multinational Enterprises Relocate Employment to Low-Wage Regions? Evidence from European Multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 267-286, July.
    27. Ossa, Ralph, 2015. "Why trade matters after all," Journal of International Economics, Elsevier, vol. 97(2), pages 266-277.
    28. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    29. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2015. "The Impact of Trade on Labor Market Dynamics," NBER Working Papers 21149, National Bureau of Economic Research, Inc.
    30. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    31. Robert C. Johnson, 2014. "Five Facts about Value-Added Exports and Implications for Macroeconomics and Trade Research," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 119-142, Spring.
    32. Robert C. Feenstra, 2015. "Advanced International Trade: Theory and Evidence Second Edition," Economics Books, Princeton University Press, edition 2, number 10615.
    33. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    34. Foster-McGregor, Neil & Stehrer, Robert, 2013. "Value added content of trade: A comprehensive approach," Economics Letters, Elsevier, vol. 120(2), pages 354-357.
    35. Marcel P. Timmer & Abdul Azeez Erumban & Bart Los & Robert Stehrer & Gaaitzen J. de Vries, 2014. "Slicing Up Global Value Chains," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 99-118, Spring.
    36. Rafal Kierzenkowski & Nigel Pain & Elena Rusticelli & Sanne Zwart, 2016. "The Economic Consequences of Brexit: A Taxing Decision," OECD Economic Policy Papers 16, OECD Publishing.
    37. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
    38. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    39. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hylke Vandenbussche & William Connell & Wouter Simons, 2022. "Global value chains, trade shocks and jobs: An application to Brexit," The World Economy, Wiley Blackwell, vol. 45(8), pages 2338-2369, August.
    2. Hylke Vandenbussche & William Connell Garcia & Wouter Simons, 2018. "The cost of non-TTIP: a global value chain approach," Working Papers of Department of Economics, Leuven 614781, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    3. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    4. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    5. Nenci, Silvia & Fusacchia, Ilaria & Giunta, Anna & Montalbano, Pierluigi & Pietrobelli, Carlo, 2022. "Mapping global value chain participation and positioning in agriculture and food: stylised facts, empirical evidence and critical issues," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 11(2), July.
    6. Pol Antràs & Alonso de Gortari, 2020. "On the Geography of Global Value Chains," Econometrica, Econometric Society, vol. 88(4), pages 1553-1598, July.
    7. Kohler Wilhelm & Jung Benjamin, 2017. "Wie vorteilhaft ist internationaler Handel?: Ein neuer Ansatz zur Vermessung der Gewinne," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(1), pages 32-55, April.
    8. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    9. Emmanuel Dhyne & Ayumu Ken Kikkawa & Magne Mogstad & Felix Tintelnot, 2021. "Trade and Domestic Production Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 643-668.
    10. Robert C. Feenstra, 2017. "Statistics to Measure Offshoring and its Impact," NBER Working Papers 23067, National Bureau of Economic Research, Inc.
    11. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    12. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    13. Simon Galle & Andrés Rodríguez-Clare & Moises Yi, 2023. "Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 331-375.
    14. Pamela Smith & Xiangwen Kong, 2022. "Intellectual property rights and trade: The exceptional case of GMOs," The World Economy, Wiley Blackwell, vol. 45(3), pages 763-811, March.
    15. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    16. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    17. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    18. Amiti, Mary & Dai, Mi & Feenstra, Robert C. & Romalis, John, 2020. "How did China's WTO entry affect U.S. prices?," Journal of International Economics, Elsevier, vol. 126(C).
    19. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    20. Pol Antràs & Davin Chor, 2021. "Global Value Chains," NBER Working Papers 28549, National Bureau of Economic Research, Inc.
    21. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    22. Felbermayr, Gabriel & Gröschl, Jasmin & Heiland, Inga, 2022. "Complex Europe: Quantifying the cost of disintegration," Journal of International Economics, Elsevier, vol. 138(C).

    More about this item

    Keywords

    Global value chains; Wiod; Armington; Brexit; Sectors; Input-output linkages;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:12303. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.