International trade with sequential production

Udo Kreickemeier and Zhan Qu

Economic Theory, 2020, vol. 69, issue 4, No 7, 1125 pages

Abstract: Abstract We develop a tractable general equilibrium model of international trade with firm heterogeneity and sequential production, based on the partial equilibrium model of Antràs and Chor (Econometrica 81:2127–2204, 2013). The length of supply chains is endogenous, and in the autarky equilibrium more productive final-good producers are served by longer supply chains. International trade in final goods magnifies the differences in the length of supply chains between firms, with exporting firms being served by longer supply chains, and non-exporting firms being served by shorter supply chains than in autarky. We show that, for given model parameters, the gains from trade are larger than in the canonical Melitz model with Pareto-distributed productivities, since production along a sequential supply chain in the Antràs–Chor model is subject to external increasing returns to scale.

Keywords: Trade liberalisation; Sequential production; Supply chains; General equilibrium; Gains from trade (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s00199-019-01190-y

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