Trade and Growth in the Age of Global Value Chains

70 Pages Posted: 10 Dec 2018

See all articles by Carlo Altomonte

Carlo Altomonte

Bocconi University - Department of Policy Analysis and Public Management

Italo Colantone

Bocconi University

Laura Bonacorsi

European Institute on Economics and the Environment

Date Written: December 2018

Abstract

We revisit the relationship between trade and growth taking into account the recent expansion of global value chains (GVCs). We develop a new instrument for trade based on gravity estimations. Our instrument exploits a recent transportation shock: the sharp increase in the maximum size of container ships, which has more than tripled between 1995 and 2007. This shock has an asymmetric impact on different bilateral trade flows, based on the ex-ante presence of deep-water ports across countries, since these are the only ports that can accommodate the new larger ships. Our empirical set-up allows us to obtain instrumental variables not only for gross trade flows, but also for the different value added components of exports, for which we run separate gravity estimations based on WIOD data. We find that trade has a positive effect on GDP per capita, both in levels and in growth terms. Evidence at the country and industry level suggests that the effect works through both productivity improvements and capital deepening. We show that the effect of exports on income is crucially moderated by differences in their value added composition. In particular, we find evidence of stronger export effects on growth for countries that upgrade their positioning or improve their participation to GVCs more than others over time.

Suggested Citation

Altomonte, Carlo and Colantone, Italo and Bonacorsi, Laura, Trade and Growth in the Age of Global Value Chains (December 2018). BAFFI CAREFIN Centre Research Paper No. 2018-97. Available at SSRN: https://ssrn.com/abstract=3295553 or http://dx.doi.org/10.2139/ssrn.3295553

Carlo Altomonte (Contact Author)

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

Italo Colantone

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Laura Bonacorsi

European Institute on Economics and the Environment ( email )

Milano Via Bergognone 34
Milan, 20144
Italy

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