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Preferential trade agreements (PTAs) between trading partners are known to have positive impact on the expanding and deepening of global value chain integration due to lower trade and investment barriers. Less is known, however, is if other PTAs of PTA partners have any impact on the value‐added trade linkages of the direct PTA partners concerned. Based on compositive indicators measuring the breadth and depth of PTAs from 2007 to 2018 and using Multiregional Input–Output Table database covering 62 countries and 35 sectors and the Content of Deep Trade Agreements database, this paper estimates the multiplicative form of the constant‐elasticity augmented gravity equation model by a Poisson Pseudo Maximum Likelihood (PPML) estimator. This study shows that indirect impact of the deepening of trade agreements of a country's PTA partner exerts positive, significant impact on value‐added exports of a country. Both backward and forward linkages of a country measured by various decomposition of valued added exports indicate this indirect channel of value chain deepening effect even outweighs the direct impact from the deepening of PTAs between direct trading partners with significant policy implications in formulating PTA strategies. [ABSTRACT FROM AUTHOR]

We examine the likely effect of the African Continental Free Trade Area (AfCFTA) on African investment using data on announced greenfield investment. Departing from existing work on this subject, we add value by providing estimates based on a general equilibrium counterfactual analysis in a structural gravity framework. Results suggest that the stock of announced intra‐African greenfield investment in 2018 would have increased by 0.7 percent from a successful implementation of the AfCFTA in that year relative to the baseline scenario of no agreement, with considerable heterogeneity across source and destination countries. Moreover, the positive effect is found to increase with the depth of the negotiated agreement. Exploring possible transmission channels we find the trade elasticity of announced greenfield investment to be positive, especially for trade in intermediates in African host countries with strong governance indicators. This suggests that, by improving institutional quality and galvanising regional value chains, integration within Africa could also incentivise investment. [ABSTRACT FROM AUTHOR]

This article presents a comprehensive framework for assessing the influence of input variation during the period of stagnant expansion of the global value chain (GVC) by incorporating input elasticity. Each import sector is treated as a complete input demand system with a stochastic preference for input in the framework of Ghosh Inverse, and the input elasticity is employed to quantify the input variation based on the Quadratic Almost Ideal Demand System (QUAIDS) model. New empirical evidence covering three major regional value chains (RVCs) and the time span from 2010 to 2020 reveals that increasing input elasticity leads to additional output for most countries, except those within the North American RVC. Additionally, this article also discusses how external determinants have diverse extents influence to input elasticity, while the substitution effect among homogenous input in the specific input demand system may decide their input's competitiveness. [ABSTRACT FROM AUTHOR]

This study empirically examines the ripple effect of demand shocks on upstream suppliers in regional value chains. Specifically, we investigate how changes in US imports from China alter China's imports of intermediate inputs in machinery industries from Japan, South Korea and Taiwan. The analysis of China's monthly imports from the three supplier economies during 2018–2019 finds that the decrease in China's output exports to the US caused by the Trump tariffs reduced China's input imports from supplier economies. Also, this adverse ripple effect was the most significant in Taiwan, where multinational enterprises use China as an export platform. [ABSTRACT FROM AUTHOR]

Data on the location of foreign direct investment (FDI) projects within and across African nations are combined with firm‐level survey data and information on sectoral input–output relationships to assess what types of FDI are more likely to influence participation in global value chains (GVCs) and to investigate the relationship between FDI and the performance of proximate domestic firms. Firm‐level analysis finds evidence of vertical spillovers from exposure to FDI, mainly in the manufacturing sector: domestic firms located near FDI projects that offer potential supply or demand linkages are more likely to engage in trade through imports or exports. Proximity to FDI projects in the same sector (horizontal linkage) is less likely to affect trade or GVC performance of domestic firms. Both vertical and horizontal FDI linkages are associated with higher labour productivity and other dimensions of performance. [ABSTRACT FROM AUTHOR]

The paper offers a detailed review of African firms' participation to international value chains and provides new quantitative insights on two countries, Cameroon and Ivory Coast, based on a unique dataset, which was obtained by merging firm census and detailed customs transactions over time. "GVC firms" are defined as firms that both export and import, with positive production and labour. The paper characterises GVC firms in the two countries. GVC firms represent about 15% of manufacturing firms; they are more frequent than pure exporters, a sign of the challenges faced by firms in those countries if they want to sell abroad. In line with the literature on firm heterogeneity and trade, firms engaged in GVCs are larger, more productive and live longer than one‐way‐traders or domestic firms. African markets are the main destination of manufacturing GVCs in Ivory Coast, while Cameroon GVC firms rely on OECD (including for agricultural exports). There is limited cross‐penetration between African‐oriented and OECD‐oriented GVC firms over time. The probability of moving into a GVC is higher for exporters than for importers, showing that exporting is a stepping stone for African firms to join a GVC. [ABSTRACT FROM AUTHOR]

Africa's participation in global value chains (GVCs) is not well documented compared with the developed world. Clearly understanding GVC participation levels is critical to enable evidence‐based policy. This paper uses two sources of data to assess Africa's GVC participation and empirically estimates determinants of GVC participation across the data sets. The analysis relies on databases based on customs‐level data (firm and country) and firm survey data from which measures of GVCs are constructed. We find that aggregate GVC data mask disparities, as Africa's proportion of firms participating in GVCs is comparable to other regions, but Africa's GVC trade is much lower. A common theme in the multi‐country empirical results is the positive relationship between political stability and GVC participation of African countries. For single‐country analyses, the consistent result is that FDI is positively associated with backward GVC participation, both at the firm level and country level of analysis. This highlights how much institutions and the need to attract FDI are relevant in promoting Africa's future engagements in GVCs. The consistency in GVC participation rates across the two data sets at the country level indicates their suitability in GVC studies in Africa and expanding their country coverage can enable policymakers to make informed decisions. [ABSTRACT FROM AUTHOR]

This article takes a first step towards understanding the quantitative evidence on the role of services in African value chains. The available data are largely based on assumptions and modelled estimates, but can nonetheless provide some useful information at an aggregate level. In general, services play an important role in the African regional economy, including through their embodiment in the exports of other sectors through input–output relationships. However, services value chains in the region are mostly composed of domestic value added, and to a lesser extent inputs sourced from global suppliers. There is very little intra‐regional sourcing of services inputs. Simulations using a new quantitative trade model show that intra‐regional sourcing could be increased through a derived demand effect following goods market liberalisation. In the stylized cases examined, increased use of regional services inputs is not at the expense of globally competitive suppliers. As such, it will be important to give a more prominent role to services in discussions of regional integration going forward. [ABSTRACT FROM AUTHOR]

This article proposes a cross‐country examination of the drivers and impacts of episodes of surges in countries' participation in international value chains based on event analysis previously used in the empirical literature in studies on export surges or GDP growth accelerations. Using a large sample of developing countries over the period 1990–2018, and relying on the EORA database, the article offers three main results. First, the 'surges' are not common, with only 11 episodes recorded in sub‐Saharan Africa over the past three decades. Second, strong FDI inflows and governance quality precede the occurrence of these 'surges', while protracted real exchange rate under‐valuations appear to nurture these surges. Third, once they occur, these 'surges' are transformative: they are associated with higher real per capita GDP growth, rapid industrialization, stronger diversification, and sophistication of exports, faster poverty reduction and higher urbanisation rate. [ABSTRACT FROM AUTHOR]

Countries are increasingly incorporating foreign digital services in their exports, creating new and complex interdependencies between economies, which suggests a new channel for the expansion of global value chains (GVCs). To better understand how these new and complex interdependencies are evolving, we apply a novel methodological framework. First, using social network analysis methodology, we calculate several indicators that capture these complex network interdependencies. Second, we include these indicators in the second stage of a two‐step gravity model that explains (in the first step) dyadic trade flows of embodied digital services. Our motivation for this two‐stage approach is to avoid difficulties that traditional gravity models have in incorporating complex network interdependencies. Our empirical results suggest statistically significant effects of such interdependencies in the embodied digital services trade flows. [ABSTRACT FROM AUTHOR]

This paper constructs a regional value chain network based on complex network analysis, and analyses its structural features and dynamic evolution process. The results show that at the macro level, the scales of the domestic trade value‐added (DVA) network and foreign trade value‐added (FVA) network of the 'Belt and Road' (B&R) show an expanding pattern over time. Moreover, the core‐periphery analysis shows that the network exhibits a vivid core‐periphery structure. Then, community analysis reveals that the network has prominent characteristics of regional agglomeration. After 2005, the division of communities tended to be stable, and the representative countries of the DVA network and FVA network communities differed. Finally, at the individual level, as for degree centrality and strength centrality, China, Russia and Thailand are all the cores in the DVA network, while India, an emerging economy, shows increases in the breadth and depth of relations and becomes more important. In the FVA network, Singapore and Russia are more significant. As for PageRank centrality, Russia, Singapore, China and India are all the cores in the DVA network and FVA network, but for betweenness centrality, the core countries that play the 'bridge' role in the DVA network and FVA network are not unified. [ABSTRACT FROM AUTHOR]

The complex global value chains underlying the Regional Comprehensive Economic Partnership (RCEP) raise an important question on the macroeconomic (output, inflation, exchange rate, and interest rate) exposure of ASEAN to output shocks in the non‐ASEAN‐RCEP members, within the context of expanded regional architecture. This paper uses quarterly data from 1995 to 2018 to estimate a global vector autoregressive (GVAR) model, specially constructed for the RCEP. The GVAR model disentangles the effects and spillovers from output shocks originating in the non‐ASEAN‐RCEP through various trade channels – direct and indirect, and total exports and foreign value‐added (FVA). The model also quantifies the impact of global (the price of oil and materials) shocks on ASEAN through trade linkages. The output shocks in the non‐ASEAN‐RCEP have persistent effects on output growth in ASEAN when transmitted through the intermediary FVA channel than the export channel. The FVA channel is also important for propagating global shocks in the form of oil and material prices. The findings confirm that output in ASEAN is also highly exposed to output shocks originating in the non‐ASEAN‐RCEP economies. The FVA trade channel is vital for explaining the spillovers from the regional output shocks and global price shocks. [ABSTRACT FROM AUTHOR]

We explore the relationship between the internationalisation of production through Global Value Chains and child labour at the sector level, using data from 26 low‐ and middle‐income countries. We find that sectors with stronger participation in foreign markets by exporting inputs to firms that will process them and export them to third countries (forward linkages) exhibit less child labour. However, other forms of participation in foreign markets through gross exports or exports of goods that embed foreign value‐added (backward linkages) are not associated with lower levels of child labour. [ABSTRACT FROM AUTHOR]

What is the relationship between female employment and global value chains (GVCs) in developing countries? Motivated by the rise of offshoring into Vietnam, we study Vietnam's small and medium enterprises (SMEs) from 2011 to 2015. The empirical findings suggest a positive association between global value chains and the female share of total workforce, unskilled workforce and production workforce; while GVCs are negatively associated with the female share of skilled workforce and non‐production workforce. Intriguingly, the technology of GVC‐involved firms is negatively associated with the female employment share in the sample, suggesting that female employment remains largely in the low value‐added activities of the globally integrated supply chains in Vietnam. [ABSTRACT FROM AUTHOR]

This study explores the potential for South Africa to become an engine for intra‐regional trade and industrial development in Southern Africa. It focuses on new backward linkages that can be created from South African exports of final products to producers of intermediate inputs in other Southern African countries. We do so by identifying South Africa's lead products, where it has formed its own GVCs, and, in turn, earmarking intermediate inputs used in the production of these lead products. Using Revealed Comparative Advantage and Unit Cost analysis, we identify Southern African countries that could supply the identified imported intermediate inputs more competitively than South Africa's existing partners and kickstart regional integration. We explore issues around the nature of linkages, supplier capabilities and industrial policies in the region, with special reference to the identified product value chains. Focusing on the agricultural sector—a key regional priority with immense potential for industrial growth and large‐scale employment—we also identify existing agricultural lead products in South Africa, and the 'new markets' to which South Africa can export. [ABSTRACT FROM AUTHOR]

The emergence of a mass market for electric vehicles (EVs) offers development opportunities for countries that have abundant resources of cobalt, nickel, lithium, copper, aluminium and manganese. Not surprisingly, developing countries have proposed ambitious plans to expand production of these raw materials. However, an observation from the resource curse literature is that strong institutions are required if they are to mitigate the risk of poorly directed, often excessively procyclical, investment, not least because of the complexity, opacity and price volatility of many raw materials utilised by global EV value chains. This paper examines the outlook for EV demand and associated raw material usage paying attention to the drivers and sensitivities required to assess and track future market transformations. These end use shifts are then placed in the context of the broader supply chain adjustments and trends shaping the demand. For resource exporters, adapting to structural change will require fiscal, regulatory, environmental and institution reforms designed to capture shifting patterns of resource wealth in a way which takes appropriate account of comparative advantages in specific value chains and mitigates adverse environmental and social consequences from their extraction and processing. [ABSTRACT FROM AUTHOR]

This research asks: To what extent has America's reliance on the global supply network aggravated the country's public health and economic crisis; and how did the American government respond to supply chain weaknesses during the early years of the Covid‐19 pandemic? This study first assesses important conceptual considerations that explain the expansion of global value chains and the growth of trade interdependencies among nations. Next, an analytical case study observes (1) America's supply chain vulnerability through three major waves of infection, (2) the difficulty to mend weaknesses in the supply linkages once the novel coronavirus spread globally and (3) American government's failures to both anticipate and respond to supply shortages, especially in the health sector. Trump administration's policies failed to ensure a reliable supply of simple personal protective equipment (PPE) for healthcare professionals and hospitals throughout the first three waves of infection. Moreover, state and federal governments' substantial reliance on large manufacturers who have established procurement relationship with government led to continuous nationwide supply shortages throughout 2020. The federal government's inability to engage small and medium manufacturers in the production of critical supplies of PPE and diagnostic tests deepened and prolonged the devastating impacts of the pandemic. Our case study demonstrates that the American government needs to rethink the country's substantial reliance on the global supply chain, and the specific requirements to boost domestic manufacturing capacity. The revitalisation of America's manufacturing ability and the local supply networks will boost the productive power of the nation, strengthen resiliency, reduce vulnerability in disruptive times and prepare the nation for future crises. [ABSTRACT FROM AUTHOR]

Does greater use of services' inputs in manufacturing increase the global value chain (GVC) activities of the firms? In this study, we analyse the effects of servicification on the GVC activities of manufacturing firms in India. Using panel data of 4608 Indian manufacturing firms from 2001 to 2018, we examine the effects of servicification of manufacturing firms on their decision to participate in GVCs. The study examines the overall service inputs in manufacturing activities and its impact on GVC activities of firms. The results indicate that servicification of manufacturing tends to have a positive impact on GVC activities of firms. We also observe positive impact on Indian small and medium enterprises (SMEs) to participate in the GVC through the servicification of manufacturing. Further, the results also indicate the differential impact of servicification between high‐ and low‐technology industries. [ABSTRACT FROM AUTHOR]

The CPTPP, or the Comprehensive and Progressive Agreement for Trans‐Pacific Partnership, is an example of a 'mega‐regional' free trade agreement, whose provisions on the rules of origin and trade facilitation can potentially have large impacts on CPTPP‐wide supply chains. In this paper, we analyse how intensively the CPTPP members participate in the global value chain (GVC), whether they have stronger linkages with members than with non‐members, the position of the members in the global and regional network, and whether the CPTPP members are key upstream and downstream trade partners to each other. We develop formulas of GVC position, and importance of bilateral upstream and downstream partners, based on the gross‐export decomposition framework of Koopman et al. (2014, American Economic Review, 104, 459) and Borin and Mancini (2017). [ABSTRACT FROM AUTHOR]

This paper highlights the role of supply chain linkages for the transmission of COVID‐19‐induced shocks based on the monthly trade of the European Union Member States during the first wave of the COVID‐19 pandemic. Using the framework of the gravity model, we find an overall decline of over 20% in trade among EU countries following the COVID‐19 outbreak. Both supply and demand shocks are shown to contribute to this trade decline associated with COVID‐19 in the origin and destination country proxied by either infection rate or policy stringency index. While import demand shocks have an immediate effect on trade decline, the trade becomes increasingly sensitive to the COVID‐19 situation in the origin country over time. Moreover, the results confirm that forward global value chain (GVC) linkages act as a channel for the transmission of (demand) shocks in supply chain trade. Indeed, an increase in the incidence of COVID‐19 cases in the destination country leads to a larger decrease in domestic exports of intermediate goods in those destination countries with which a country has stronger forward linkages, that is in partners positioned further downstream. We also find the 'China effect', with the transmission of the COVID‐19 shock from the partner country amplified when the share of supply chain trade with China is higher. On the other hand, we fail to find robust evidence for the transmission of COVID‐19‐induced shocks via backward linkages. [ABSTRACT FROM AUTHOR]

We develop a network trade model with country‐sector level input–output linkages with the objective of evaluating the impact of trade shocks. This framework is particularly useful to decompose the direct and the indirect trade effects of both a bilateral and a third country trade shock, evaluated at the country‐sector level. Using the sectoral World Input–Output Database (WIOD) combined with sectoral employment data, we evaluate the impact in terms of value added and employment of different scenarios of Brexit for 56 industries in the 27 Member States of the European Union, as well as the United Kingdom. In this respect, we consider both the results under the current EU–UK Trade agreement, as well as a counterfactual scenario in which WTO tariffs would apply. In contrast to other studies, we find EU‐27 value added and job losses to be substantially higher than hitherto believed as a result of the closely integrated EU network structure. Our approach finds that upstream sectors are particularly vulnerable to indirect trade shocks effects due to their network centrality. [ABSTRACT FROM AUTHOR]

As multilateral trade negotiations have lapsed into stalemate, regional economic integration arrangements like free trade agreements (FTAs) are gaining growing prominence. We propose a theory on how a developing country's GVC linkages with partners are affected by partners' position on the GVCs and the characteristics of the FTAs, and use a large matched data of China's trading partners to validate our hypothesis. We find that there are stronger value chain linkages between China and higher‐income economies, and the degree of mutual value chain dependence rises in line with the partner's development level. The GVC promoting effect of FTA partnership is more pronounced for China's value chain linkages with its higher‐income partners. The results survive various robustness checks and are likely to be informative for other developing countries. [ABSTRACT FROM AUTHOR]

This paper is the first to estimate the impact of a direct measurement of firm‐level upstreamness (i.e. the steps—weighted distance—before the production of a firm meets either domestic or foreign final demand) on productivity and wage costs. To this end, we merged detailed Belgian linked panel data, covering all years from 2002 to 2010, with a unique dataset containing accurate information on the yearly position of each firm in the value chain. We rely on the methodological framework pioneered by Hellerstein et al. (Journal of Labor Economics, 1999, 17, 409) to estimate panel data models at the firm level. Controlling for key worker and firm characteristics, our GMM‐SYS and FE‐IV estimates show that firms positioned more upstream (i.e. further away from the final consumer) create more value. Our results also indicate that the impact of firm‐level upstreamness is stronger on productivity than on wage costs, which implies that profitability is fostered. More precisely, in line with Belgium's strong labour market institutions, our estimates suggest that the productivity gains associated with upstreamness are shared almost equally between wages and profits. [ABSTRACT FROM AUTHOR]

Participation in global value chains (GVCs) has become a central topic in trade and development policy. It has opened new ways to achieve industrial upgrading. However, some theoretical models suggest that not all countries will upgrade through participation in GVCs. Using panel data from the World Input‐Output Database, we examine the effects of backward and forward GVC participation on three dimensions of industrial upgrading (process, product and skill upgrading). We find that backward GVC participation provides more upgrading opportunities for developing countries as it enables a less developed country to import sophisticated inputs. This activates learning through embodied knowledge. In contrast, forward participation has higher level of upgrading effect on developed countries. [ABSTRACT FROM AUTHOR]

This paper studies the impact of 'border effects' and the implementation of Free Trade Agreements (FTAs) on international trade in manufacturing goods. We take advantage of the time dimension in a panel setting to capture the rise of trade in final goods and intermediate inputs that are a distinguishing feature of Global Value Chains (GVCs). Our results suggest that reduced border effects account for the bulk of the increase in international manufacturing trade. The cost of a national border is estimated to have fallen by around 4.3% per year for trade in final goods and 2.8% for trade in intermediate inputs. Moreover, we show that it is important to control for different border effects for final goods and intermediate inputs when estimating the trade impact of FTAs in gravity equations. With this enhancement, our results suggest that FTAs increase trade in final goods by 52% after ten years, with no statistically significant difference for trade in intermediate inputs. We also find evidence that FTAs that more comprehensive FTAs like the European Union have a greater trade effect than the average FTA. [ABSTRACT FROM AUTHOR]

The rise of global sourcing implies a heterogeneous relationship between buyers and suppliers regarding the liberalisation scenarios in emerging countries. This paper analyses the effect of regional trade agreements (RTAs) on participation in the Global Value Chains of Latin American countries between 1995 and 2015. We combine the framework of gravity equations with the trade in value‐added, applying a Pseudo Poisson Maximum Likelihood (PPML) estimator with panel data and fixed effects to deal with endogeneity and heteroscedasticity. Heterogeneous estimations show that the deepest RTAs reinforce the position of lower technology‐industry suppliers, driven by an extra‐regional strategy of Latin American trade policy. The geography of value chains has little effect on industrial upgrading in the region, reducing the development potential. The study concludes that the region's trade policy could reduce the dependent relationship between distant partners and pay more attention to creating shorter value chains as a strategy to generate local capacities to gain competitiveness in value chains. [ABSTRACT FROM AUTHOR]

This paper tries to examine how the COVID‐19 shock affects different countries through their regional integration and their exposure to Global Value Chains (GVCs). Using input–output tables from the EORA dataset, our contribution is threefold. First, we conceptually revise the approache to analyse input–output relationships and underline the difference between the bilateral flow of value added and trade and distinguish between the producers and consumers of value‐added. Second, we distinguish between the supply and demand channels through which these countries can be affected by the disruptions in GVCs. Third, we apply this empirical exercise on an understudied region, namely the Mediterranean region that is characterised by its involvement in several trade agreements that might boost their integration into GVCs. Our main findings show that, first, most of the countries have relatively larger backward GVC linkages than forward ones. Second, in the Northern shore of the Mediterranean, Italy and France are net suppliers of value added since they produce more value‐added absorbed abroad than the foreign value‐added they consume. Third, our results highlight also the limited integration between Southern shore partners, whose integration is almost completely driven by linkages with Southern European developed countries. [ABSTRACT FROM AUTHOR]

Many months after COVID‐19 vaccines were first authorised for public use, still limited supplies could only partially reduce the devastating loss of life and economic costs caused by the pandemic. Could additional vaccine doses have been manufactured more quickly some other way? Would alternative policy choices have made a difference? This paper provides a simple analytical framework through which to view the contours of the vaccine value chain. It then creates a new database that maps the COVID‐19 vaccines of Pfizer/BioNTech, Moderna, AstraZeneca/Oxford, Johnson & Johnson, Novavax and CureVac to the product‐ and location‐specific manufacturing supply chains that emerged in 2020 and 2021. It describes the choppy process through which dozens of other companies at nearly 100 geographically distributed facilities came together to scale up global manufacturing. The paper catalogues major pandemic policy initiatives – such as the United States' Operation Warp Speed – that are likely to have affected the timing and formation of those vaccine supply chains. Given the data, a final section identifies further questions for researchers and policymakers. [ABSTRACT FROM AUTHOR]

The organisation of value chains within and between firms and even countries is an important reason for domestic as well as international travel. Hence, value chains create interdependencies which have to do with economic but also personal interactions between firms and places. The latter means value chains are a springboard for shocks—positive or negative—to travel and other related outcomes. This paper sheds light on how input–output relations in China as one human‐interaction‐intensive activity can help explain spreading patterns of COVID‐19 in the first few months of 2020 in China. We document that COVID‐19 at that time spread more intensively where input–output relations were stronger between cities in China, and this contributed to inducing direct and mediated, indirect effects on the stock market. [ABSTRACT FROM AUTHOR]

This paper studies the trade effects of COVID‐19 using monthly disaggregated trade data for 28 countries and multiple trading partners from the beginning of the pandemic to June 2020. Regression results based on a sector‐level gravity model show that the negative trade effects induced by COVID‐19 shocks varied widely across sectors. Sectors more amenable to remote work contracted less throughout the pandemic. Importantly, participation in global value chains increased traders' vulnerability to shocks suffered by trading partners, but it also reduced their vulnerability to domestic shocks. [ABSTRACT FROM AUTHOR]

This paper aims at estimating the economic vulnerability of developing countries to disruptions in global value chains (GVCs) due to the COVID‐19 pandemic. It uses trade in value‐added data for a sample of 12 developing countries in sub‐Saharan Africa, Asia and Latin America to assess their dependence on demand and supply from the three main hubs China, Europe and North America. Using first estimates on COVID‐19‐induced changes in final demand and production, we obtain an early projection of the GDP effect during the lockdowns that runs through trade in GVCs. Our estimates reveal that adverse demand‐side effects reduce GDP up to 5.4 per cent, and that collapsing foreign supply puts an even larger share of countries' GDP at risk. Overall, we confirm conjecture that the countries most affected are those highly integrated in GVCs (South‐East Asian countries). We argue, however, that these countries also benefit from a well‐diversified portfolio of foreign suppliers and demand destinations, possibly leading to a cushioning of economic downswing because COVID‐19 stroke major hubs at different times. [ABSTRACT FROM AUTHOR]

This study examines the heterogeneous spillover effects of an export control policy from an upstream sector to its related downstream sectors. In 2010, China implemented tough policies on rare earth production and export that created a significant price premium for rare earth in foreign markets, thus offering downstream sectors in China cost advantages over their foreign competitors. This study exploits China's policy as an exogenous shock and performs a detailed examination of Chinese customs data. The results show that the export control policy has increased the export price of rare earth downstream products from China, whereas the effects on export quantity and value have been heterogeneous across sectors: they are significant for sectors in which the rare earth cost share is high, and the elasticity of substitution is low. [ABSTRACT FROM AUTHOR]

The US–China trade war has been a key aspect of empirical review in recent times. Using the OECD Inter‐Country Input–Output Model, this study proposes an improved incomplete tariff pass‐through measurement method of cumulative tariff costs incurred across GVCs. Such an approach provides a more accurate picture of the impact of the US–China trade war on not only themselves but also third‐party countries. Our study found that five rounds of tit‐for‐tat tariff escalation has resulted in an indirect tariff burden of around 23 billion US dollars (USD) in total, of which 67% was caused by the US's tariffs on Chinese imports. Moreover, perhaps unsurprisingly, the United States and China have suffered most economically, and in addition to direct tariff costs, they have to bear the indirect tariff burden of approximately 10 and 6.5 billion USD, respectively. This was followed by the EU, Canada and Mexico, which incurred indirect tariff costs of around 700 million to 1.7 billion USD. In addition, the burden on third‐party countries is expected to rise by 30%–70%, if we consider the hypothesis of complete tariff pass‐through. [ABSTRACT FROM AUTHOR]

In the age of globalisation, international trade and foreign direct investment (FDI) have become integral elements of cross‐country production sharing. In this paper, we empirically assess the impact of FDI, as well as capital dynamics and structure on the formation of global value chains (GVC) at country and sectoral levels based on a sample of European countries over the period 2000–2014. We find a strong impact of FDI and capital accumulation on GVC participation: inward FDI is especially conducive to the formation of backward GVC linkages, while outward FDI facilitates forward GVC participation, especially in high‐tech manufacturing sectors. A particularly robust positive impact of FDI and capital accumulation on GVC integration is identified in the textile and clothing industry. While capital accumulation in general intensifies cross‐border production sharing for most sectors, ICT capital is especially instrumental for backward GVC integration of electrical equipment, transport equipment and chemicals sectors. [ABSTRACT FROM AUTHOR]

Global value chains (GVCs) are a major feature of globalisation, with a strong impact on the patterns of international trade. In this paper, we study the link between GVCs and cross‐border mergers and acquisitions (M&As), testing the two symmetric hypotheses that a higher degree of participation in GVCs increases the probability that a firm acquires: (i) the producers of their imported inputs or (ii) the users of their exported products. Our analysis is based on a unique data set covering 12 supplier and user sectors, for over 22 investor countries and 47 target countries between 1995 and 2010. Estimating an augmented gravity equation model of cross‐border M&As, inflated with a large number of bilateral sector and country‐fixed effects, we find strong evidence of a positive and statistically significant impact of GVC participation on the total value of cross‐border M&As, although the economic impact is substantial only in the case of few sectors. [ABSTRACT FROM AUTHOR]

Exporting higher quality and complex products is deemed pathway to economic growth and development. However, producing such products is knowledge‐intensive and requires quality intermediate inputs and advanced technologies. Integration into global trade networks is increasingly argued to be among the pathways to obtain such inputs and technologies, although not all countries may benefit equally from such integration. This paper builds on these arguments and investigates how participation in the global value chain (GVC) affects the quality of exported products. Using a highly disaggregated product‐level export data from 122 countries, we find that participation in (backward and forward) GVC impacts positively on the quality of exported products and brings the quality level closer to the quality frontier. While this result persists in the sub‐sample comprising developed countries, developing countries only benefit from backward GVC participation. Overall, the results indicate that GVC participation matters to export upgrading but points to a potential heterogeneity on the channel of impact across countries at different levels of development. [ABSTRACT FROM AUTHOR]

This research constructs a simple dynamic model to illustrate the micro‐mechanism of industrial upgrading along the global value chains. Our model predicts that as firms move up from downstream to upstream stages, (a) there is higher profitability if and only if the following three conditions are satisfied. First, the increasing rate of sunk cost (including R&D expenditure) over sequential stages of production cannot be sufficiently large (endogenous sunk cost effect). Second, the decreasing rate of change of intermediate input demand with respect to the price set by firms at a production stage cannot be sufficiently high (intermediate input price effect). Third, the decreasing rate of change of intermediate input demand with respect to the pricing dynamics over the sequential stages of production cannot be sufficiently large (sequential pricing uncertainty effect); (b) total cost is lower if and only if the decreasing rate of change of input demand with respect to the price is sufficiently large; (c) output is higher if and only if and the decreasing rate of change of input demand with respect to the price is not sufficiently large; and (d) the price decreases. We show that the empirical patterns revealed in China are consistent with our model's predictions. [ABSTRACT FROM AUTHOR]

The post‐1945 global trading system was designed around the principle of non‐discrimination. During the 1947–94 GATT era, regionalism and multilateralism were often viewed as antagonistic approaches to international trade, and preferential treatment within regional blocs was to be deterred. Since 1995, although regional trade agreements are monitored by the WTO Secretariat and presented as a threat to the system, regionalism poses little threat to the multilateral trading system. This paper argues that major twenty‐first century RTAs go beyond preferential tariff treatment to focus on deeper integration issues. Such issues are addressed outside the WTO because, despite new features of the international trade map since 1995 such as Internet use and global value chains, extension of WTO rules has proved difficult due to the requirement for consensus. The paper analyses the rise of megaregional agreements such as CPTPP and RCEP, the shift in EU policy from protecting domestic producers to facilitating imports from best global suppliers and the use of WTO plurilateral agreements within the context of providing rules fit for purpose in the modern global trading system. [ABSTRACT FROM AUTHOR]

Rodrik (2018) hypothesises that technology used in global value chains (GVCs) is biased against the use of unskilled workers. To test this hypothesis, we introduce a GVC production function in which final output is produced by means of factor inputs from all countries that participate in the GVC. In contrast, previous studies only consider one stage of production using inputs from a single country. We derive substitution elasticities and labour demand bias in a system of translog GVC cost equations. We find that technical change in GVCs was strongly biased against the use of low‐educated workers, neutral for middle‐educated workers and in favour of high‐educated workers. We show that the biases moderate the potential of GVCs to increase demand for low‐educated workers in low‐income countries. [ABSTRACT FROM AUTHOR]

This paper studies the factors of comparative advantage within global value chains relying on a framework where comparative advantage is measured through the interaction of country and industry characteristics. We find that good institutions give a comparative advantage in the later stages of the production process, whereas good transport infrastructure gives an advantage in the early stages of production. We explain these results by pointing at whether trade costs are additive or multiplicative. [ABSTRACT FROM AUTHOR]

We draw on trade theory to empirically explore the effects of value chain integration on producer price dynamics. Using the EU as an example of an integrated area, we construct measures of backward and forward linkages with intra‐ and extra‐EU trading partners at the country‐sector level. We find that especially upstream integration and EU accession dampen inflation. The results for downstream integration indicate a price‐increasing relationship. We propose novel EU integration indicators and offer insights to both theory and applied research. We also add to the policy debate on the price effects of (dis‐)integration of EU countries. [ABSTRACT FROM AUTHOR]

This paper quantifies the impact of international transport time on bilateral trade flows in goods using previously unexploited information drawn from a large data set on international parcel delivery times. In line with previous work, we find that an extra day spent in international transit reduces bilateral trade by just under 1% at the sample median. In addition, and for the first time in the literature, we examine the impact of time‐related uncertainty, which requires traders to hold costly inventories or build costly redundancies into supply chains. We find that a one day increase in international transport time uncertainty reduces bilateral trade flows by just over 1%. Splitting the sample into developing and developed countries shows that international transit time matters primarily for south–south trade, whereas uncertainty is relatively more important for north–north trade. Using new data on trade in intermediate versus final goods, we also find some evidence that time and uncertainty both matter more for movements of intermediates of the type that takes place within global value chains. [ABSTRACT FROM AUTHOR]

In this paper, I present a framework for GVC‐oriented industrial policy that merges the so‐called GVC perspective and the so‐called developmentalist perspective—the latter of which is a perspective that industrial policy is most often analysed through, but has been somewhat neglected by the GVC perspective. I argue that the GVC perspective too quickly dismisses the relevance of industrial policy in the East Asian development experience, particularly those in South Korea and Taiwan between roughly 1960 and 1990. By drawing on the industrialisation experiences of these two countries, my framework for industrial policy suggests that the GVC perspective's ideas for industrial policy would be strengthened by more clearly acknowledging the continued importance of three observations by the developmentalist perspective: (a) the need for governments in developing countries to bargain with foreign investors for the purpose of domestic industrialisation; (b) policy design should not only focus on increasing exports, but also focus on replacing some imports with domestic production; and (c) linking up to the value chains of transnational corporations based in high‐income countries can bring about some benefits, but ultimately, successful industrialisation necessitates a degree of competing with transnational corporations. State‐owned enterprises have historically played an important role in this respect. [ABSTRACT FROM AUTHOR]

This paper considers the indirect impact the recent tariff increases between the United States and China can have on third countries through links in global supply chains. We combine data from input–output relationships, imports and tariffs, to calculate the impact of the tariff increases by both the United States and China on cumulative tariffs paid by third countries. We show that the tariff hikes increase cumulative tariffs for other countries and thus hurt trade partners further downstream in global supply chains. We also show that this is particularly important for tariff increases on Chinese imports in the United States. These are likely to be used as intermediates in production in the United States, which are then re‐exported to third countries. The most heavily hit third countries are the closest trade partners, namely the EU, Canada and Mexico. We estimate that the tariffs impose an additional burden of around 500 million to 1 billion US dollars on these countries. China's tariffs on US imports have less of an effect. [ABSTRACT FROM AUTHOR]

This paper documents the evolution of markups in a small open economy, Slovenia, using a comprehensive data set covering the full population of firms. It makes three novel contributions to the literature. First, in contrast to other work for Europe, we find that markups have increased from 1.05 to 1.19 between 1994 and 2015. Second, while other research so far found exporters typically to have higher markups, we find the opposite in Slovenia. Though the rise in markups occurs both with exporters and non‐exporters, there is a consistent diverging trend in markups in favour of non‐exporters since 1999. This can be attributed to increased competitive pressure faced by exporters following the comprehensive trade liberalisation after 1999 and their increased participation in global value chains. Third, we decompose aggregate markups and show that the increase in markups, for both exporters and non‐exporters, is mainly driven by the within component rather than the reallocation effect. This suggests that all firms were increasing their markups, rather than high‐markup firms increasing their market share over time. [ABSTRACT FROM AUTHOR]

This paper presents the first detailed and holistic description of the European production network (EPN) and provides different rankings of the most "systemically important" industries involved in Brexit. Employing techniques of complex networks analysis and input–output traditional tools, the study identifies those industries that are key in the complex structure of the UK‐EU trade relationships. The method developed would help policymakers to better understand which tariff would have a more distortive impact, which export sector should be pushed, which imports should be safeguarded. Such information may have foremost importance in the negotiations between the UK and EU. Our findings suggest that Brexit would be not just a problem for the UK, as it is often portrayed, but any form of Brexit could propagate affecting the global production system. [ABSTRACT FROM AUTHOR]

This paper investigates the effect of participation in global value chains (GVCs) on firms' efficiency and explores heterogeneity in this impact across different firms, according to GVC governance, positioning in the chain and time length of participation. Our analysis takes advantage of survey data providing information on involvement in GVCs for a large set of Italian industrial SMEs between 2008 and 2012. We employ Data Envelopment Analysis (DEA) to retrieve a measure of firms' technical efficiency (i.e., DEA efficiency scores) and estimate the impact of involvement in GVCs on firms' efficiency through propensity‐score matching techniques and truncated regression. Our results show that participation in GVCs induces significant efficiency premia, especially for suppliers, with stronger effects in the case of relational modes of participation. [ABSTRACT FROM AUTHOR]

The present paper deals with how the insertion in international trade and global value chains (GVCs) of countries affects their capacity of attracting foreign mergers and acquisitions (M&As). To this end, we combine data for bilateral M&As and trade in value added for the period 2001–15 and estimate an augmented gravity equation. Results indicate that trade openness per se does not favour M&As. Nevertheless, bilateral free trade agreements, heterogeneity of destinations (sources) for exports (imports) of intermediate and final goods, and position and participation in global value chains are relevant for explaining bilateral M&As. Moreover, their role is significantly different depending on the level of development of the home and host countries. [ABSTRACT FROM AUTHOR]

This paper develops a model to study how suppliers' financial constraint interact with suppliers' position in a global value chain. I embed financial frictions into the property‐rights model of the global value chain, as in Antràs and Chor (Econometrica, 2013, 81, 2127), to derive the optimal allocation of ownership rights along the global value chain. The model predicts that multinational firms are more likely to integrate downstream intermediate input suppliers in countries with weak financial institutions when the production process is sequential complements. Using US intrafirm trade data for the years 2000–10, together with a triple‐interaction term between "downstreamness" of an industry, demand elasticity of an industry and financial development of a country, I provide empirical evidence that supports the key prediction of the model. [ABSTRACT FROM AUTHOR]

Better understanding of the effect of the global value chain (GVC) on wages is a key issue for determining welfare gains from engagement in international integration. We study whether and how China's engagement in the GVC enhances firms' wage by using firm‐level and customs transaction‐level data covering the period 2000–06 with the methods of propensity score matching (PSM), difference in differences (DID) and generalised propensity score (GPS). The empirical results show that first, GVC engagement can improve firms' wage. Second, the improvement effect is more prominent in capital‐intensive and foreign‐invested enterprises. Third, the degree of embedment in the GVC shows a U‐shaped relationship with wages (the marginal improvement changes from decreasing to increasing). Finally, by analysing the mechanism, we find that participation in the GVC ultimately improves the overall wage level of enterprises through the productivity effect and the reallocation effect of labour demand. [ABSTRACT FROM AUTHOR]