A Coasian Model of International Production Chains

71 Pages Posted: 20 Apr 2016

See all articles by Thibault Fally

Thibault Fally

UC Berkeley - ARE Department

Russell H. Hillberry

University of Melbourne - Department of Economics; World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: October 6, 2015

Abstract

International supply chains require the coordination of numerous activities across multiple countries and firms. This paper develops a theoretical model of supply chains in which the measure of tasks completed within a firm is determined by parameters that define transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply chain length as well as cross-country variation in gross-output-to-value-added ratios. The structural parameters are linked to comparative advantage along and across supply chains. The paper provides an analytical treatment of trade and welfare responses to trade cost change in a simple two-country model. To explore the model's implications in a richer setting, the model is calibrated to match key observables in East Asia, and the calibrated model is used to evaluate implications of changes in model parameters for trade, welfare, the length of supply chains, and countries' relative position within them.

Keywords: International Trade and Trade Rules

Suggested Citation

Fally, Thibault and Hillberry, Russell H., A Coasian Model of International Production Chains (October 6, 2015). World Bank Policy Research Working Paper No. 7434, Available at SSRN: https://ssrn.com/abstract=2670358

Thibault Fally (Contact Author)

UC Berkeley - ARE Department ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://are.berkeley.edu/~fally/

Russell H. Hillberry

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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