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...

Global value chains in a post-Washington Consensus world

“…After more than six years of positive trade growth, all OECD countries registered a decline in exports and imports exceeding 10 per cent between 2008 and 2009, reaching a record negative growth of -37 per cent in April 2009 (Beltramello et al, 2012: 27). The trade collapse was much larger in intermediates than in final consumption goods, which underscores the existence of a 'bullwhip' effect in GVCs -namely, lower demand for final consumption goods (downstream) is amplified in more dramatic demand reductions for intermediates that are upstream in the value chain (Altomonte et al, 2012).…”

Value Chains and the Great Recession: Evidence from Italian and German Firms

“…Such an adjustment inventories mechanism resembles the well-known bullwhip effect (Forrester, 1961). While Altomonte et al (2012), working on a firm level, confirm that inventory adjustments along GVCs greatly contributed to the great trade decrease. Escaith et al (2010) only partially agree on the role played by the "inventory effect", underlying that other factors might also be at work.…”

Up or Down the Value Chain? A Comparative Analysis of the GVC Position of the Economies of the New EU Member States

“…1 A slight drop in the share of intermediates in exports and imports that was due to the great trade collapse that led to breaking of some of the GVC linkages, see, for example, Amador et al (2013) and Altomonte et al (2012). Source: Authors' own calculations using WIOD data.…”