A theory of trade in a global production network

Bastian Westbrock and Maarten Bosker

No 9870, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper argues that the determinants of the welfare gains from trade have fundamentally changed with the emergence of a global production network. Towards this end, we develop a novel counterfactual approach to decompose the welfare effects of any small trade cost variation in any general equilibrium model of international trade. Our findings stress a unique feature of supply chain trade: the gains from a further integration of the global production network are not so much determined by a country's own local conditions or those of its direct trade partners. Instead, the economic prospects of a country depend on its connections to important trade intermediaries, countries that provide indirect access to the demand and supply of many other nations. We complement our theoretical findings by an easy-to-implement empirical strategy and identify each country's key intermediaries.

Keywords: Global supply chains; International trade; Network effects (search for similar items in EconPapers)
JEL-codes: C67 F12 F63 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-int and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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