Published/Forthcoming Papers

Demand for Value Added and Value-Added Exchange Rates

American Economic Journal: Macroeconomics, Forthcoming.

with R. Bems

We examine how cross-border input linkages shape the response of demand for value added to international relative price changes. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes. Spillovers via input linkages lower the sensitivity of the value-added REER to price changes by supply chain partners, because they counterbalance demand-side expenditure switching. Input linkages also raise the price elasticity of demand relative to the conventional REER framework, making demand more sensitive to REER changes. Using global input-output data, we demonstrate these conceptual insights are quantitatively important in a case study of European competitiveness.

Previous draft available as NBER Working Paper 21070.  This paper combines material from two papers previously circulated under the titles ``Value-Added Exchange Rates'' (NBER Working Paper No. 18498, October 2012) and ``International Prices and Demand for Value Added with Global Supply Chains'' (July 2014).   See also this research summary on VoxEU.

A Portrait of Trade in Value Added over Four Decades

The Review of Economics and Statistics, Forthcoming.

with G. Noguera

Revised: June 2016

We combine data on trade, production, and input use to document five facts about changes in the value added content of trade from 1970 to 2009. We find that the ratio of value-added to gross exports fell by roughly 10 percentage points worldwide [Fact 1]. Across sectors, the ratio declined nearly 20 percentage points in manufacturing, but rose in non-manufacturing sectors [Fact 2]. Across countries, declines range from 0 to 25 percentage points, with fast growing countries seeing larger declines [Fact 3]. Across bilateral partners, declines are larger for nearby partners [Fact 4] and partners that adopt regional trade agreements [Fact 5]. What driving forces underlie these changes? Using a multi-sector structural gravity model with input-output linkages, we show that changes in trade frictions play a dominant role in explaining all five facts.

July 2014 version is here.  This paper is a heavily revised version of "Fragmentation and Trade in Value Added over Four Decades" (NBER Working Paper 18186). See also this research summary on VoxEU or the Free Exchange column in The Economist magazine.

Trade in Intermediate Inputs and Business Cycle Comovement

American Economic Journal: Macroeconomics, 6 (4), 2014.

Does input trade synchronize business cycles across countries? I incorporate input trade into a dynamic multi-sector model with many countries, calibrate the model to match bilateral input-output data, and estimate trade-comovement regressions in simulated data. With correlated productivity shocks, the model yields high trade-comovement correlations for goods, but near-zero correlations for services and thus low aggregate correlations. With uncorrelated shocks, input trade generates more comovement in gross output than real value added. Goods comovement is higher when (a) the aggregate trade elasticity is low, (b) inputs are more substitutable than final goods, and (c) inputs are substitutable for primary factors.

Revised Draft: October 2013.  First Draft: October 2010.  This paper is a revised version of (NBER Working Paper 18240).

Five Facts about Value-Added Exports and Implications for Macroeconomics and Trade Research

Journal of Economics Perspectives, 28 (2), 2014.

Due to the rise of global supply chains, gross exports do not accurately measure the amount of value added exchanged between countries. I highlight five facts about differences between gross and value-added exports. The differences are large and growing for the world as a whole, and inflate the share of manufacturing in world trade. They are also heterogenous across countries and bilateral partners, and changing unevenly across countries and partners over time. Taking these differences into account enables researchers to obtain better quantitative answers to important macroeconomics and trade questions. I discuss how the facts inform analysis of the transmission of shocks across countries, the mechanics of trade balance adjustments, the impact of frictions, endowments, and comparative advantage on trade, and trade policy.

The Great Trade Collapse

Annual Review of Economics, 5 (1), 2013

with R. Bems and K.M. Yi

We survey recent literature on the causes of the collapse in international trade during the 2008-2009 global recession. We argue that the evidence points to the collapse in aggregate expenditure, concentrated on trade-intensive durable goods, as the main driver of the trade collapse. Inventory adjustment likely amplified the impact of these expenditure changes on trade. In addition, shocks to credit supply constrained export supply, further exacerbating the decline in trade. Most evidence suggests that changes in trade policy did not play a large role. We conclude that one benefit of the trade collapse is that it has stimulated research in neglected areas at the intersection of trade and macroeconomics.

First Draft: August 2012.  Also available as NBER Working Paper 18632.

Proximity and Production Fragmentation

American Economic Review (Papers & Proceedings), 102 (3), 2012

with G. Noguera

Cross-border production chains tend to be local in scope.  This suggests that changes in fragmentation over time should be largest among nearby trading partners, and thus may be serving to localize gross trade.  Using data on gross and value added trade from 1970-2009, we present three results on the role of proximity in explaining fragmentation: (1) value added to export ratios are lower and are falling more rapidly over time within geographic regions than between them;  (2) gross trade travels shorter distances from source to destination than trade in value added, and this gap is growing over time; (3) bilateral value added to export ratios have fallen most among nearby trading partners.

First Draft: December 2011.

Accounting for Intermediates: Production Sharing and Trade in Value Added 

Journal of International Economics, 86 (2), 2012

Awarded Bhagwati Prize for the best paper published in the JIE during 2011-2012.

with G. Noguera

We combine input-output and bilateral trade data to compute the value added content of bilateral trade. The ratio of value added to gross exports (VAX ratio) is a measure of the intensity of production sharing. Across countries, export composition drives VAX ratios, with exporters of Manufactures having lower ratios. Across sectors, the VAX ratio for Manufactures is low relative Services, primarily because Services are used as an intermediate to produce manufacturing exports. Across bilateral partners, VAX ratios vary widely and contain information on both bilateral and triangular production chains. We document specifically that bilateral production linkages, not variation in the composition of exports, drives variation in bilateral VAX ratios. Finally, bilateral imbalances measured in value added differ from gross trade imbalances. Most prominently, the U.S.-China imbalance in 2004 is 30-40% smaller when measured in value added.

First Draft: July 2008. June 2009 version (with data for 2001) is here.  July 2010 version is here.
 See also this research summary on VoxEU.

Trade and Prices with Heterogeneous Firms

Journal of International Economics, 86 (1), 2012

This paper estimates a heterogeneous firms model using sector level data on export participation, trade flows, and unit value prices in a multi-country setting. Examining within-exporter variation in prices across destinations, prices are increasing in the difficulty of entering the destination market in the majority of sectors. This pattern is consistent with models in which product quality is positively correlated with firm size. However, prices decrease in export thresholds in some large sectors, including autos, apparel, and electronics. I discuss the causes and consequences of this cross-sector heterogeneity. From an accounting perspective, selection into exporting explains a small fraction of overall price variation, but accounts for nearly half of variation in bilateral trade. 

First Draft: November 2007.  

August 2008 version is here.  
May 2010 version is here.  Online appendix here.

Vertical Linkages and the Collapse of Global Trade  

American Economic Review (Papers & Proceedings), 101 (3), 2011

with R. Bems and K.M. Yi

A common view is that cross-border vertical linkages played a key role in the 2008-2009 collapse of global trade. This paper presents two accounting results from a global input-output framework that shed light on this channel. We feed in observed changes in final demand and find that trade in final goods fell by twice as much as trade in intermediate goods. Nevertheless, intermediate goods account for more than two-fifths of the trade collapse. We also find that vertical specialization trade fell 13 percent, while value-added trade fell by 10 percent, because declines in demand were largest in highly vertically-specialized sectors.

First Draft: December 2010. Online Appendix here.

Demand Spillovers and the Collapse of Trade in the Global Recession

IMF Economic Review, 58 (2), 2010

with R. Bems and K.M. Yi

This paper uses a global input-output framework to quantify US and EU demand spillovers and the elasticity of world trade to GDP during the global recession of 2008-2009. We find that 20-30% of the decline in the US and EU demand was borne by foreign countries, with NAFTA, Emerging Europe, and Asia hit hardest. Allowing demand to change in all countries simultaneously, our framework delivers an elasticity of world trade to GDP of nearly 3. Thus, demand alone can account for roughly 70% of the trade collapse. Large changes in demand for durables play an important role in driving these results.

First Draft: January 2010.  Working paper version here or IMF Working Paper 10/142.

For a summary of this work, see the IMF World Economic Outlook (Oct. 2010, Chapter 4).  See also an early research summary, published in "The Great Trade Collapse: Causes, Consequences and Prospects," edited by Richard Baldwin, and available on VoxEU.

Working Papers

Global Supply Chains and Trade Policy

with E. Blanchard and C. Bown

Revised: July 2016

How do global supply chain linkages modify countries' incentives to impose import protection? Are these linkages empirically important determinants of trade policy? To address these questions, we introduce supply chain linkages into a workhorse model of tariff setting with political economy. Theory predicts that discretionary final goods tariffs will be decreasing in the domestic content of foreign-produced final goods. Provided foreign political interests are not too strong, final goods tariffs will also be decreasing in the foreign content of domestically-produced final goods. Using theory to guide our empirical strategy, we test these predictions with newly assembled data on bilateral applied tariffs, temporary trade barriers, and value-added contents for 14 major economies over the 1995-2009 period. Our results offer strong support for the predictions of the model and demonstrate that global supply chains already play an important role in shaping trade policy.

Previous draft available as NBER Working Paper 21883.

Technology, Trade Costs, and the Pattern of Trade with Multistage Production

with A. Moxnes

Revised: November 2016.

We build a quantitative model of trade with multistage manufacturing production 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 production chains and trade flows. As the level of trade costs falls, we show that the elasticity of bilateral trade to trade costs increases, because the endogenous reorganization of production chains (increased export platform production) raises the sensitivity of input trade to trade costs. Surprisingly however, for modest declines in trade costs, the general equilibrium elasticity of world trade is not magnified relative to a benchmark “single-stage” Ricardian model with input-output linkages.

First Draft: November 2012.  March 2013 version here.

Permanent Working Papers

Factor Trade Forensics with Traded Intermediate Goods

August 2008

Recent work studying the factor content of trade raises measured factor content by allowing differences in productivity and/or techniques of production across countries.   Reimer (2006) and Trefler and Zhu (2010) criticize this work for its treatment of intermediate goods.  Using a definition of factor content that allow for traded intermediates, I decompose the separate influence of production techniques and traded intermediate goods in shaping factor trade.  I document that trade in intermediate goods lowers measured factor contents, but substantial factor trade remains and is directionally consistent with factor abundance theory.

Transport Costs and Trade in the Interwar Period

First Draft: November 2006 (Draft available upon request.)

Estevadeordal, Frantz, and Taylor (2003) argue that increased transport costs account for a large share of the decline in trade during the interwar period. Using alternative data and narrative evidence, I argue this emphasis is misplaced and that trade would have been even lower if not for a decline in transport costs during these years.

Conference Discussions

"On the Geography of Global Supply Chains" by P. Antras and A. de Gortari. Dallas Fed & Houston Conference on International Economics, October 2016.

"From Final Goods to Inputs: the Protectionist Effect of Rules of Origin" by P. Conconi, M. Garcia-Santana, L. Puccio, and R. Venturini.  NBER ITI Summer Institute, July 2016.

The Trade and Demand Nexus: Do Global Value Chains Matter?” by A. Al-Haschimi, F. Skudelny, E. Vaccarino, and J. Wörz. European Central Bank CompNet Conference, June 2015.

"Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the Tohoku Earthquake" by C. Boehm, A. Flaaen, and N. P. Nayar.  IMF Annual Research Conference, November 2012.  Link to webcast.

"Exports, Export Destinations, and Skills" by I. Brambilla, D. Lederman, and G. Porto.  AEA Annual Meetings, January 2012.

"Quality Uncertainty and Intermediation in International Trade" by K. Dasgupta and J. Mondria.  AEA Annual Meetings, January 2012.

"The Value Added Structure of Gross Exports" by R. Koopman, Z. Wang, and S-J Wei.  AEA Annual Meetings, January 2012.

"On the Fragmentation of Production in the US" by T. Fally.  Philadelphia Federal Reserve Trade Workshop, November 2011.

"How Large are the Gains from Economic Integration? Theory and Evidence from U.S. Agriculture" by A. Costinot and D. Donaldson.  NBER ITI Summer Institute, August 2011.

"Product Differentiation and the Impact of International Trade" by A. Gervais and J. Thurk.  Notre Dame Kellogg Institute Conference, April 2011.

"Trade Adjustment and Productivity in Large Crises" by G. Gopinath and B. Neiman.  AEA Annual Meetings, January 2011.

"The Great Trade Collapse of 2008-09: An Inventory Adjustment?" by G. Alessandria, J. Kaboski, and V. Midrigan.  NBER/ITM Summer Institute, July 2010.

"The Elasticity of Trade: Estimates and Evidence" by I. Simonovska and M. Waugh.  AEA Annual Meetings, January 2010.

"Machines and Machinists: The effect of imported capital on wage inequality" by M. Csillag and M. Koren.  FREIT/EIIT Conference, November 2009.

"Quality Competition versus Price Competition Goods: An Empirical Classification" by R. Baldwin and T. Ito.  SNB/CEPR Conference on Product Heterogeneity and Quality in International Trade, Zurich, August 2009.