The Network Origins of the Gains from Trade

74 Pages Posted: 21 Mar 2019

See all articles by Erik Maarten Bosker

Erik Maarten Bosker

University of Groningen; Erasmus University Rotterdam (EUR) - Department of Economics

Bastian Westbrock

Utrecht University School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

In this paper, we develop a network perspective on the welfare gains from trade in today’s internationally fragmented supply chains. Towards this end, we study a Ricardian trade model featuring trade in final and intermediate products, and introduce a novel comparative statics approach to decompose the total welfare effects of an arbitrary trade cost shock into several meaningful, easily quantifiable, components. This approach uncovers a unique feature of supply chain trade: the gains from trade are not so much determined by a country's own access to the technologies and markets of its direct trading partners, but rather by its supply chain exposure to countries further up- and downstream in the global supply chain. We develop a set of simple statistics to measure each country’s supply chain exposure, show how it predicts the gains from trade, and identify each country's key trade intermediaries, i.e., other nations that primarily leverage its supply chain exposure.

Keywords: global supply chains, gains from trade, network diffusion, network exposure, trade intermediation

JEL Classification: F100, F110

Suggested Citation

Bosker, Erik Maarten and Westbrock, Bastian, The Network Origins of the Gains from Trade (2018). CESifo Working Paper No. 7552, Available at SSRN: https://ssrn.com/abstract=3357129 or http://dx.doi.org/10.2139/ssrn.3357129

Erik Maarten Bosker (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Bastian Westbrock

Utrecht University School of Economics ( email )

Adam Smith Building
Kriekenpitplein 21-22
Utrecht, 3584 EC
Netherlands

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