Global Value Chains During the Great Trade Collapse: A Bullwhip Effect?

Abstract

This paper analyzes the performance of global value chains during the trade collapse.To do so, it exploits a unique transaction-level dataset on French …rms containing information on cross-border monthly transactions matched with data on worldwide intra-…rm linkages as de…ned by property rights (multinational business groups, hierarchies of …rms).This newly assembled dataset allows us to distinguish …rm-level transactions among two alternative organizational modes of global value chains: internalization of activities (intragroup trade/trade among related parties) or establishment of supply contracts (arm's length trade/trade among unrelated parties). After an overall assessment of the role of global value chains during the trade collapse, we document that intra-group trade in intermediates was characterized by a faster drop followed by a faster recovery than arm's length trade. Ampli…ed ‡uctuations in terms of trade elasticities by value chains have been referred to as the "bullwhip e¤ect" and have been attributed to the adjustment of inventories within supply chains. In this paper we …rst con…rm the existence of such an e¤ect due to trade in intermediates, and we underline the role that di¤erent organizational modes can play in driving this adjustment.JEL codes: F23, F15, L22.Keywords: trade collapse, multinational …rms, global value chains, hierarchies of …rms , vertical integration. Non-technical summaryThe "Great Trade Collapse" has been one of the most striking features of the recent global financial crisis, with the ongoing recovery still driving a wedge between output and trade. The drop in trade flows has been very fast, particularly severe and synchronized across all countries, as several empirical studies already suggest. Such features make the current trade drop quite unique among the many episodes of trade decline typically associated to economic crises, and a number of transmission mechanisms have been proposed which could account for these peculiarities. Among those mechanisms, a particular role has been attributed to the emergence over the last decade of global supply chains, and to the different compositional effects of the demand shock entailed by vertical linkages on trade and GDP.In this paper we exploit transaction-level French trade data matched with ownership data for the period 2007-2009 to find evidence of a role for global value chains in explaining the magnitude of the trade collapse. Consistent with other results, we find that trade in intermediates has been the main driver of the trade collapse. However we also find that different organizational modes of the supply chain entailed different dynamic responses: related-party trade in intermediates exhibits a faster drop followed by a faster rebound with respect to arm's length trade in intermediates. In other words, trade originated within multinational groups seems to have reacted faster to the negative demand shock but has also recovered faster in the following months than arm's length trade. Among the alternative channels of t...

The Global Trade Slowdown: Cyclical or Structural?

“…The literature on the trade collapse discussed several mechanisms through which vertical specialization may increase the short-term responsiveness of trade to GDP -e.g. if expenditure declines more in vertically specialized sectors (Bems et al, 2011), if there are inventory -also called bullwhip-effects (Altomonte et al, 2012), or if there is re-nationalization of production chains (Buono and Vergara-Caffarelli, 2013). 15 Similarly, we find evidence that the elasticity of durables trade has decreased from 2.7 in the long 1990s to 0.8 in the 2000s.…”

The DNA of the domestic value added (DVA) in exports: Firm‐level analysis of DVA in exports

“…In their study, Altomonte, Mauro, Ottaviano, Rungi, and Vicard () use novel data for French firms (combined customs and ownership data for the period 2007–09) to compare the performance of trade in intermediates among different modes of firms’ organisational structure in GVCs during the trade collapse. They find that trade among parties related through FDI dropped faster than arm's‐length trade but also rebounded faster than the latter.…”

Global value chains and changing trade elasticities

“…Here, attention has been given to the role of inventory dynamics. The management of inputs by GVC firms may be one driver that amplifies the volatility of GVC trade to income movements (Alessandria et al, 2010;Altomonte et al, 2012). The logic for such a bullwhip effect is the following: businesses typically face errors in their sales forecasts against which they hedge by accumulating buffer stocks of inventories.…”

“…Alessandria et al (2011 find that in the U.S. auto industry twothirds of the decline in imports was due to firms running down their inventory stocks. Altomonte et al (2012) use French firm-level data to show that imports of intermediate goods during the crisis overreacted to the final demand shock as firms ran down their inventory stocks. Ma and Van Assche (2011) find that China's processing imports across industries contracted more severely than processing exports in the first quarter of 2009 compared to a year earlier (see figure 6).…”