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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.

Suggested Citation

  • Fally, Thibault & Hillberry, Russell, 2018. "A Coasian Model of International Production Chains," CEPR Discussion Papers 13062, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13062
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    References listed on IDEAS

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    Cited by:

    1. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    2. Thibault Fally & James Sayre, 2018. "Commodity Trade Matters," 2018 Meeting Papers 172, Society for Economic Dynamics.

    More about this item

    Keywords

    Boundary of the firm; Fragmentation of production; Trade in intermediate goods; transaction costs;

    JEL classification:

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

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