Rising Protectionism and Global Value Chains: Quantifying the General Equilibrium Effects

Abstract

Quantifying the effects of trade policy in the age of 'global value chains' (GVCs) requires an enhanced analytical framework that takes the observed international input-output relations in due account. However, existing quantitative general equilibrium models generally assume that industrylevel bilateral final and intermediate trade shares are identical, and that the allocation of imported inputs across sectors is the same as the allocation of domestic inputs. This amounts to applying two proportionality assumptions, one at the border to split final goods and inputs, and another behind the border to allocate inputs across industries. In practice, neither assumption holds in available inputoutput data sets. To overcome this limitation of existing models, we consider a richer input-output structure across countries and sectors that we can match with the actual structure reported in inputoutput tables. This allows us to investigate the relation between the effects of changes in trade policies and GVCs. When we apply the enhanced quantitative general equilibrium model to the assessment of the effects of Brexit, we find trade and welfare losses that are substantially larger than those obtained by previous models. This is due to the close integration of UK-EU production networks and implies that denser GVCs amplify the adverse effects of protectionist trade policies.

Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty

“…First, Brexit has been predicted to negatively affect both the UK and, to a lesser extent, the EU whatever the deal scenario, in terms of value-added, employment, and trade costs (e.g., Cappariello et al, 2018;Vandenbussche et al, 2017). Second, unsurprisingly, the impact of Brexit on trade and foreign direct investment (FDI) will be strongly negative and more severe in the case of a no-deal Brexit and, more specifically, for denser GVCs (e.g., Cappariello et al, 2020;Dhingra et al, 2016;Mulabdic et al, 2017). Third, Brexit may also affect extra-EU countries engaged with FDI or sourcing relationships with the UK (e.g., Ijtsma et al, 2018).…”

“…Indeed, uncertainty becomes a source of agglomeration for securing timely delivery of components when production is fragmented across stages of the value chain that are physically separated and dispersed across countries (Harrigan & Venables, 2006). GVCs also exacerbate trade decline in the transmission of shocks through the production linkages across countries, with imported intermediate inputs acting as conduits (Cappariello et al, 2020;Sun Tam, 2018). Therefore, more research efforts are needed to understand how trade policy shocks and uncertainty affect international business operations along GVCs as well as their structure and configuration (Van Assche & Gangnes, 2019).…”

COVID-19 Shocking Global Value Chains

“…EATON-KORTUM WORLD Finally, we contrast our findings with an alternative way of shutting down GVCs, akin to Cappariello et al (2020). In this exercise we ignore the input-output structure in the WIOD, assuming that production uses only labor and all trade is in final goods.…”

A globális értékláncok hálózatelméleti vizsgálata

“…Az egy értékláncon elhelyezkedő ágazatokat hagyományosan egyenrangúként szokás kezelni, és ábrázolni (Cappariello et al, 2020). Előfordul, hogy a csomópontok is súlyt kapnak, amely az összes előállított hozzáadott értékkel arányos (Li et al, 2019).…”