An Elementary Theory of Global Supply Chains

50 Pages Posted: 4 Apr 2011

See all articles by Arnaud Costinot

Arnaud Costinot

Massachusetts Institute of Technology (MIT) - Department of Economics; University of California, San Diego (UCSD) - Department of Economics

Jonathan Vogel

UCLA; NBER

Su Wang

Department of Economics, M.I.T.

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Date Written: March 31, 2011

Abstract

This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity differences are a source of comparative advantage among nations. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.

JEL Classification: F100

Suggested Citation

Costinot, Arnaud and Vogel, Jonathan and Wang, Su, An Elementary Theory of Global Supply Chains (March 31, 2011). CESifo Working Paper Series No. 3402, Available at SSRN: https://ssrn.com/abstract=1802386

Arnaud Costinot

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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University of California, San Diego (UCSD) - Department of Economics ( email )

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Jonathan Vogel (Contact Author)

UCLA ( email )

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NBER ( email )

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Su Wang

Department of Economics, M.I.T. ( email )

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Cambridge, MA 02139-4307
United States

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