Trade Integration, Global Value Chains and Capital Accumulation

38 Pages Posted: 13 Nov 2020

See all articles by Michael Sposi

Michael Sposi

Southern Methodist University (SMU)

Kei-Mu Yi

Federal Reserve Banks - Federal Reserve Bank of Dallas

Jing Zhang

Federal Reserve Bank of Chicago

Multiple version iconThere are 3 versions of this paper

Date Written: November, 2020

Abstract

Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multistage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, impacting the dynamics of GVC trade: a country becoming more capital abundant concentrates more on the capital-intensive stage of the production.

JEL Classification: E22, F10, F43

Suggested Citation

Sposi, Michael and Yi, Kei-Mu and Zhang, Jing, Trade Integration, Global Value Chains and Capital Accumulation (November, 2020). Globalization and Monetary Policy Institute Working Paper No. 404, Available at SSRN: https://ssrn.com/abstract=3729667 or http://dx.doi.org/10.24149/gwp404

Michael Sposi (Contact Author)

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Kei-Mu Yi

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Jing Zhang

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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