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A Coasian Model of International Production Chains

Thibault Fally, Russell Hillberry

NBER Working Paper No. 21520
Issued in September 2015, Revised in November 2017
NBER Program(s):International Trade and Investment

International supply chains require coordination of numerous activities across multiple countries and firms. We adapt a model of supply chains and apply it to an international trade setting. In each chain, the measure of tasks completed within a firm is determined by transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply-chain length and gross-output-to-value-added ratios, and determine countries' comparative advantage along and across supply chains. We calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.

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Document Object Identifier (DOI): 10.3386/w21520

Published: Thibault Fally & Russell Hillberry, 2018. "A Coasian model of international production chains," Journal of International Economics, .

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