GVCs and Trade Elasticities with Multistage Production

43 Pages Posted: 1 Jul 2019

See all articles by Robert C. Johnson

Robert C. Johnson

University of Notre Dame - Department of Economics

Andreas Moxnes

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: June 2019

Abstract

We build a quantitative model of trade with multistage manufacturing value chains, which features iceberg trade costs and technology differences across both goods and production stages. We estimate technology and trade costs via the simulated method of moments, matching bilateral shipments of final goods and inputs. Applying the model, we investigate how comparative advantage and trade costs shape the structure of global value chains and trade flows. As the level of trade costs falls, we show that the elasticity of bilateral trade to trade costs increases, due to the endogenous reorganization of value chains (increased export platform production). Surprisingly, however, the elasticity of world trade to trade costs is not magnified by multistage production.

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Suggested Citation

Johnson, Robert C. and Moxnes, Andreas, GVCs and Trade Elasticities with Multistage Production (June 2019). NBER Working Paper No. w26018. Available at SSRN: https://ssrn.com/abstract=3412692

Robert C. Johnson (Contact Author)

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Andreas Moxnes

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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