Global Value Chains and the Transmission of Business Cycle Shocks

39 Pages Posted: 10 Aug 2012

See all articles by Byron Gangnes

Byron Gangnes

University of Hawaii - Department of Economics

Alyson C. Ma

University of San Diego School of Business

Ari Van Assche

HEC Montreal; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Date Written: June 1, 2012

Abstract

The collapse of trade during the great recession of 2008-2009 has raised the question of whether the rise of global value chains (GVCs) has increased or accelerated the international transmission of business cycle shocks. In this paper, we empirically investigate two channels through which a country’s integration into GVCs may increase the income elasticity of its exports. First, GVCs may simply be concentrated in sectors that are more sensitive to external income fluctuations (composition effect). Alternatively, there may be characteristics that are inherent to GVCs that trigger a faster and more amplified propagation of business cycle shocks (supply chain effect). Using trade data from the People’s Republic of China, we find supporting evidence for the composition effect. However, we find no evidence that trade within GVCs have an intrinsically higher income elasticity than regular trade.

Keywords: trade elasticities, income adaptability, composition effect, supply chain effect, bullwhip effect, global value chains trade, income fluctuations, emirical strategy, People's Repubilc of China, China

JEL Classification: F14, F40

Suggested Citation

Gangnes, Byron and Ma, Alyson C. and Van Assche, Ari, Global Value Chains and the Transmission of Business Cycle Shocks (June 1, 2012). Asian Development Bank Economics Working Paper Series No. 29, Available at SSRN: https://ssrn.com/abstract=2127450 or http://dx.doi.org/10.2139/ssrn.2127450

Byron Gangnes (Contact Author)

University of Hawaii - Department of Economics ( email )

Honolulu, HI 96822
United States

Alyson C. Ma

University of San Diego School of Business ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Ari Van Assche

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

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Montreal H3C 3J7, Quebec
Canada

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