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A theory of trade in a global production network

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  • Bosker, Maarten
  • Westbrock, Bastian

Abstract

This paper develops a novel theory of trade in a global supply chain. We expand on a monopolistic competition trade model. Countries produce both intermediate and final goods that are sold domestically or, incurring country-pair specific trade costs, internationally. This links countries in a multi-stage production network. In the unique general equilibrium of the model, goods prices and wages in each country depend on the entire structure of trade connections. Drawing on methods from the social network literature, we then determine each country's importance in the global production network and analyse the welfare consequences of a further integration of the network. Our findings highlight the role of a few key countries that bring other nations closer together by intermediating their value added. Proximity to these key countries is crucial for other nations' income growth. An accompanying empirical analysis shows strong support in favor of the predicted network effects.

Suggested Citation

  • Bosker, Maarten & Westbrock, Bastian, 2014. "A theory of trade in a global production network," CEPR Discussion Papers 9870, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9870
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    Cited by:

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    2. Hellmann, Tim & Landwehr, Jakob, 2018. "Pairwise stable networks in homogeneous societies," Center for Mathematical Economics Working Papers 517, Center for Mathematical Economics, Bielefeld University.
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    5. King, Maia & Tarbush, Bassel & Teytelboym, Alexander, 2019. "Targeted carbon tax reforms," European Economic Review, Elsevier, vol. 119(C), pages 526-547.

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    More about this item

    Keywords

    global supply chains; international trade; network effects;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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