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Organizing the Global Value Chain

  • Pol Antras
  • Davin Chor


    (School of Economics, Singapore Management University)

We develop a property-rights model of the firm in which production entails a continuum of uniquely sequenced stages. In each stage, a final-good producer contracts with a distinct supplier for the procurement of a customized stage-specific component. Our model yields a sharp characterization for the optimal allocation of ownership rights along the value chain. We show that the incentive to integrate suppliers varies systematically with the relative position (upstream versus downstream) at which the supplier enters the production line. Furthermore, the nature of the relationship between integration and “downstreamness” depends crucially on the elasticity of demand faced by the final-good producer. Our model readily accommodates various sources of asymmetry across final-good producers and across suppliers within a production line, and we show how it can be taken to the data with international trade statistics. Combining data from the U.S. Census Bureau’s Related Party Trade database and estimates of U.S. import demand elasticities from Broda and Weinstein (2006), we find empirical evidence broadly supportive of our key predictions. In the process, we develop two novel measures of the average position of an industry in the value chain, which we construct using U.S. Input-Output Tables.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 25-2012.

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Length: 61 pages
Date of creation: May 2012
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:25-2012
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  1. Baldwin, Richard & Venables, Anthony J., 2013. "Spiders and snakes: Offshoring and agglomeration in the global economy," Journal of International Economics, Elsevier, vol. 90(2), pages 245-254.
  2. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  4. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  5. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  7. Arnaud Costinot & Jonathan Vogel & Su Wang, 2011. "An Elementary Theory of Global Supply Chains," NBER Working Papers 16936, National Bureau of Economic Research, Inc.
  8. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  9. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
  10. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  11. Andrei A. Levchenko & Julian di Giovanni, 2009. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," IMF Working Papers 09/181, International Monetary Fund.
  12. Pol Antràs & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," NBER Working Papers 17819, National Bureau of Economic Research, Inc.
  13. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
  14. Justin R. Pierce & Peter K. Schott, 2009. "A Concordance Between Ten-Digit U.S. Harmonized System Codes and SIC/NAICS Product Classes and Industries," NBER Working Papers 15548, National Bureau of Economic Research, Inc.
  15. Findlay, Ronald, 1978. "An "Austrian" Model of International Trade and Interest Rate Equalization," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 989-1007, December.
  16. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
  17. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  18. Philipp Harms & Oliver Lorz & Dieter Urban, 2009. "Offshoring Along the Production Chain," Working Papers 09.01, Swiss National Bank, Study Center Gerzensee.
  19. Sanyal, Kalyan K, 1983. "Vertical Specialization in a Ricardian Model with a Continuum of Stages of Production," Economica, London School of Economics and Political Science, vol. 50(197), pages 71-78, February.
  20. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  21. Antras, Pol, 2014. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," Scholarly Articles 12220386, Harvard University Department of Economics.
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