A Coasian Model of International Production Chains

Abstract

International supply chains require coordination of numerous activities across multiple countries and firms. We adapt a model of supply chains and apply it to an international trade setting. In each chain, the measure of tasks completed within a firm is determined by transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply-chain length and gross-output-to-value-added ratios, and determine countries' comparative advantage along and across supply chains. We calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.

Global Value Chains

“…D s j is larger the greater is the use of intermediate inputs as a share of Y s j , and particularly so if the directly purchased inputs are themselves multiple stages removed from primary factors. Fally (2012) and Miller and Temurshoev (2017) moreover establish that D s j is the unique solution 27 To see this, observe that when we stack (10) across all country-industries, the recurrence relation can be written in matrix notation as: U = 1 + BU. Here, U is a column vector whose ((i − 1) × J + r)-th entry is equal to U r i ; 1 is a JS × 1 vector of 1's; while B is the matrix of allocation coefficients.…”

“…26 This upstreamness measure has several interesting properties and interpretations. Fally (2012) 24 While Fally (2012) and Antràs et al (2012) proposed the production staging measures with domestic input-output tables in mind, these extend readily to the setting of a WIOT (see Miller and Temurshoev, 2017;Antràs and Chor, 2019). 25 In practice, one needs to account too for the value of net inventories N r i reported for each country-industry in a typical WIOT.…”

Internalizing Global Value Chains: A Firm-Level Analysis

“…Two additional remarks are in order. First, we should stress the distinction between upst ij and the upstreamness measure put forward previously in Fally (2012) and Antràs et al (2012).…”

“…To capture the position of different inputs along the value chain, we compute a measure of the upstreamness of each input i in the production of output j using U.S. Input-Output Tables. This extends the measure of the upstreamness of an industry with respect to final demand from Fally (2012) and Antràs et al (2012) to the bilateral industry-pair level. To provide a test of the model, we exploit information from WorldBase on the primary activity of each firm, and use estimates of demand elasticities from Broda and Weinstein (2006), as well as measures of contractibility from Nunn (2007).…”

Deglobalisation? The reorganisation of global value chains in a changing world

“…For each industry s and year t in the ICIO, 20 with 𝜃 𝑠 an industry-specific elasticity that can be estimated from the data. 21 Since the gravity equation divides trade flows of intermediate inputs by domestic flows in the dependent variable, this variable tells us how many times costs are higher for exporters of inputs as compared to domestic producers.…”