Jean Imbs, Laurent Pauwels, 26 June 2020

Exposure to foreign shocks is often thought to be highly dependent on foreign trade and measures of openness usually build exclusively on measures of direct trade. This column argues that in a world of global value chains, focusing on direct trade gives a distorted view of the exposure to foreign shocks. It proposes a new measure of openness which computes the fraction of gross output sold to downstream customers located abroad. This measure finds most sectors to be more open and this increased openness is estimated to cause rises in productivity and contagion, without observable effects on growth.

Sébastien Miroudot, 18 June 2020

Some governments assert that global value chains create economic vulnerabilities in times of a pandemic. This column, taken from a recent Vox eBook, examines recent experiences and the risk-management literature. It concludes that it is a mistake to equate self-sufficiency with robustness – putting all the eggs in one basket is still not a good idea.  It is also a mistake to focus on production location when the imperative is to radically scale up production of vital medical supplies. Importantly, international supply chains will be needed to produce the billions of doses of COVID-19 vaccine we will soon need to manufacture and distribute. 

Penny Bamber, Karina Fernandez-Stark, Daria Taglioni, 27 May 2020

Anna Stellinger, Henrik Isakson, Ingrid Berglund, 01 May 2020

The world is in the midst of a dual crisis, threatening both the health of millions of people and the world economy. The crisis also touches upon various aspects of trade policy. Once the immediate crisis has abated it is not unlikely that the major trade debate will be about reshoring production. The argument goes that it is dangerous – both from an economic point of view and from a public health perspective – to be so dependent on imports. This column argues that the opposite is in fact true.

Adnan Seric, Deborah Winkler, 28 April 2020

The COVID-19 pandemic has exposed the vulnerabilities of global value chains. In response to supply chain risks, global lead firms have relied on Industry 4.0 technologies as well as reshoring parts of production. This column explores the potential impacts of these developments on the breadth and depth of global value chains. Automation and reshoring allow for more flexible adjustment to changing demand and the mitigation of supply-side risks. Ultimately, the implications of automation on development will depend on both the types of foreign inputs sourced as well as the relationship between robots and labour.

Keiko Ito, Kenta Ikeuchi, Chiara Criscuolo, Jonathan Timmis, Antonin Bergeaud, 23 April 2020

Interconnectedness and relative position in global production networks is an important factor for modern economies. In recent years, Japanese firms have lost their relative influence within the regional value chain. This column analyses the relationship between measures of network centrality and firm innovation output. It finds that having access to a greater breadth of customers is positively related to innovative activities, measured by patent applications. The results suggest an important role of knowledge spillovers from foreign markets.

Chad Bown, Aksel Erbahar, Maurizio Zanardi, 23 March 2020

The decades preceding the Trump era saw a significant decline in trade barriers and a concurrent rise in global value chains. Evidence on the direction of causality between the two is still lacking. Using an exogenously timed WTO requirement for countries to re-evaluate previously imposed tariffs, this column argues that increased activity through global value chains had an important role to play in the countries’ choice to reduce trade protection during this period. 

Peter Egger, Jiaqing Zhu, 09 January 2020

The US and China have been exchanging threats and imposing tariffs in a ‘trade war’ since early 2018. Sound statistical and holistic economic analysis of the trade dispute’s consequences is difficult due to data limitations. This column scrutinises global stock market responses to assess the effects of the trade war and finds that, on average, the US and Chinese tariffs have directly hurt targeted firms/sectors abroad as intended, but they have also hurt firms at home. It also reveals unintended effects on third parties, mediated by global value chain interdependencies.

Cecilia Bellora, Lionel Fontagné, 22 April 2019

Since 2018, the US administration has implemented several measures limiting free trade with China and other countries. Using cross-country data and a general equilibrium model, this column argues that a trade war hurts not only the targeted countries but also the country imposing the tariffs. Global value chains prompt countries to decrease tariffs when the domestic content of foreign-produced final goods and the imported content of domestic production of final goods are high. Once imposed, tariffs have an indirect effect on third sectors and countries through global value chains.

Susan Lund, Jacques Bughin, 10 April 2019

The history of trade reflects the ongoing march of technological innovation. This column argues that despite today’s increased trade tensions, rising nationalism, and slowdown in global goods trade, globalisation is not in retreat. Instead, it is entering a new chapter that is being driven by flows of information and data, as well as technological changes that are reshaping industry value chains.

Rita Cappariello, Michele Mancini, Filippo Vergara Caffarelli, 22 March 2019

EU and the UK production networks are highly integrated, and Brexit poses a threat to supply and demand linkages between the two economies. This column describes how the effect of tariffs will be magnified due to back-and-forth trade across the Channel. This will increase production costs in the UK and, to a lesser extent, in the EU.

Bernhard Michel, Caroline Hambÿe, Bart Hertveldt, 21 January 2019

Domestic value creation is shaped by how and to what extent economies integrate into global value chains. This column argues that further insights can be gained by distinguishing export-oriented and domestic market firms in standard indicators of global value chain integration and participation. Using data for Belgium, it documents that export-oriented firms differ from domestic market firms in terms of input structure and import patterns. These two types of firms play different roles in determining the nature of a country’s global value chain participation.

Chad Bown, 30 October 2018

President Trump’s protectionism has a distinctive focus on disrupting US access to global supply chains. This column reveals that the major economies had in fact begun to impose additional trade protection on intermediate inputs even prior to 2016. New barriers targeting cross-border supply chains simply arose through policies aside from headline tariffs. Some of this new protection has also already spread beyond China’s trade and begun to cover exports from other countries. These results, combined with more recent policy actions, widen the possibility of a negative protectionist impact on the global sourcing of parts and components.

Francois de Soyres, Erik Frohm, Vanessa Gunnella, Elena Pavlova, 09 October 2018

When a country’s currency depreciates, its export volumes are expected to increase. Yet some recent episodes suggest that exports now barely respond to significant exchange rate movements. This column argues that global value chains are an important part of the answer, as countries now need to import to export, and often re-import their exports. To assess the consequences of international input-output linkages on exchange rate elasticities, policymakers need indices of global value chain participation based on currencies rather than countries.

Laura Alfaro, Alejandro Cuñat, Harald Fadinger, Yanping Liu, 02 October 2018

Real exchange rate devaluations are typically seen as a viable development strategy, but the effectiveness of the approach may vary over time and across countries. This column explores this issue by focusing on the microeconomics of firm-level responses to exchange rate fluctuations. Results show varying patterns of responses to fluctuations by region and by import/export orientation. These results highlight the crucial role of a firm’s integration in global value chains.

Ronald Davies, Zuzanna Studnicka, 26 September 2018

Stock market returns provide a useful way of measuring investor expectations. The column uses stock return data following the Brexit referendum to show a persistent negative shift in sentiment towards multinationals with at-risk global value chains. In particular, even compared to others in the same industry, firms with a UK or EU focus underperform. This suggests the potential for targeted support policies.

Hylke Vandenbussche, William Connell, Wouter Simons, 24 August 2018

While talks of a preferential agreement between the US and EU were put aside when President Trump came in office, the presidents of the two trading partners have recently expressed a new desire to aim for zero tariffs and non-tariff measures between them. This column estimates the gains from such a deal, taking into account global value chains and input-output linkages in production. It finds that free trade would substantially benefit both the EU and the US, and these gains would result from the reduction in non-tariff barriers rather than tariffs. 

Woori Lee, 30 June 2018

Participation in global value chains is a key element of the industrialisation strategies of developing nations. To date, most research has focused on goods and the manufacturing sector. This column explores the role of services in global value chains. Trade agreements that liberalise services are found to foster global value chain trade, especially for developing country exporters and those that allow service exports without local presence.

Dan Andrews, Peter Gal, William Witheridge, 11 May 2018

Low inflation at the same time as rising global competition has led to a debate on the importance of globalisation for domestic inflation. This column suggests that greater participation in global value chains has placed downward pressure on inflation. The current higher level of global value chain integration may also dampen inflation by accentuating the impact of global economic slack on domestic inflation. There is a risk that stalling globalisation since the crisis, coupled with stronger aggregate demand and declining market contestability, could lead to inflationary pressures in the medium term.

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