Footloose Global Value Chains: How Trade Costs Make a Difference
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Footloose Global Value Chains: How Trade Costs Make a Difference Adam Jakubik1 · Victor Stolzenburg1
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The geography of global value chains (GVCs) depends crucially on trade costs between countries that host the various stages of production, and some stages might be more sensitive to trade costs than are other stages. In this paper, we exploit a value-added decomposition of bilateral trade flows to distinguish the low valueadded GVC trade that is typically associated with production stages such as assembly, from the high value-added GVC trade that is associated with stages such as R&D and design. We test the hypothesis that low value-added stages are more easily rerouted—given changes in trade costs between importing and exporting countries—than are high value-added stages. The intuition for this hypothesis is that trade costs accumulate with multiple border crossings and are larger relative to the profit margins in low value-added stages. Furthermore, high value-added stages often require larger fixed cost investments that are often highly relationship-specific and knowledge-intensive, making them harder to relocate. We find strong empirical support for this hypothesis. This observation has important implications for development policies and bilateral trade policies that are aimed at reducing imbalances by repatriating offshored production stages. Keywords Value added trade · Trade costs · Organisation of production JEL Classification C23 · L23 · F13
* Adam Jakubik [email protected] Victor Stolzenburg [email protected] 1
World Trade Organization, Rue de Lausanne 154, 1202 Geneva, Switzerland
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A. Jakubik, V. Stolzenburg
1 Introduction International trade occurs increasingly within global value chains (GVCs), which combine raw materials, intermediate parts, and services—often in long sequences and complex production networks that span multiple countries—into final products which are exported to consumers all over the world. Over the last decades, the increased fragmentation of the production process—which has been enabled by technological innovations in manufacturing, communications, and transport— has led to increased international specialisation according to comparative advantage (Hummels et al. 1998, 2001). These developments have led to welfare gains through higher productivity and lower prices for consumers (Amiti and Konings 2007; Caliendo and Parro 2015; Kummritz 2016; Caliendo et al. 2019). Furthermore, they have allowed developing countries to participate in global production according to their capabilities, which has resulted in increased incomes and positive knowledge spillovers (Beverelli et al. 2019). These developments have also brought new prominence to trade policy. While trade costs for decades have decreased due to trade liberalisation and technological innovation such as container shipping and airfreight, recent policy decisions have resulted in increased trade costs. In pa
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