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An Elementary Theory of Global Supply Chains

  • Su Wang

    (MIT)

  • Jonathan Vogel

    (Columbia University)

  • Arnaud Costinot

    (MIT)

This paper develops an elementary theory of global supply chains. In spite of its simplicity, our theory is consistent with a number of stylized facts and able to deliver a rich set of predictions regarding how vertical specialization shapes the interdependence of nations. Among other things, our analysis predicts that poor countries have higher shares of primary production and assembly in value added, and provides a novel rationale for why rich countries both tend to trade relatively more with other rich countries and export and import goods with higher unit values. Our analysis also demonstrates that observing a country "moving up the chain"--an observation which is often taken as good news among policy makers--does not necessarily signal an improvement in its relative competitiveness and may very well be associated with a welfare loss. Our results point towards the importance of modeling the sequential nature of production for understanding the consequences of technological changes in developing and developed countries on their trading partners worldwide.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 95.

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Date of creation: 2011
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Handle: RePEc:red:sed011:95
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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