Global Supply Chains: Towards A Computable General Equilibrium Analysis

Abstract

Economists have analysed GSCs using pure theory, econometrics and input–output calculations. We now need a new type of CGE model to show how GSC trade affects welfare and its distribution between and within nations. The new model must recognise: fragmentation of production; scale economies; intermediate inputs that cross national borders multiple times embodied in products at different stages of completion; and decision‐making by global agents. We describe a prototype that incorporates these features and gives interpretable results not attainable with a standard CGE model. We discuss steps to move from the prototype to a policy‐relevant model.

GTAP-VA: An Integrated Tool for Global Value Chain Analysis

“…Consequently, after each simulation, the impact can be assessed not only in terms of gross trade, but also in terms of value-added flows. However, even if gross trade decomposition provides a deeper understanding of the results produced by the existing models, it is worth emphasizing that proper modeling of global supply chains requires a new generation of CGE models that is able to incorporate the fragmentation of production processes, scale economies and global decisionmaking (Athukorala et al, 2017).…”

Trade Liberalization in APEC and Global Value Chain Participation: What Can Value Added Indicators Tell?

“…The so-called supply chain models identify industry-to-industry trade flows (Walmsley & Minor, 2017;Antimiani et al, 2018) and have been used to analyze the effects of the US-China Trade conflict on the Euro Area (Fusacchia, I., 2020) or the reversal of NAFTA (Walmsley & Minor, 2017). Athukorala et al (2018) incorporated the aspects of the fragmented production process differentiating various states of production, economies of scale, and decision-making with global rather than national perspectives in a prototype model. METRO has been used to assess the future of GVCs considering various future scenarios based on various non-VA indicators (de Backer & Flaig, 2017) and to explore changes in GVC participation resulting from changes in agricultural policies -both trade and domestic support policies (Greenville et al, 2019a).…”

“…Noteworthily, we are not able and do not attempt to make any statement concerning how changes in the policy environment may influence the nature of the trading relationships within GVCs. Such a statement would require a model that depicts multinationals/a "global" decision-maker, fragmentation of production processes, and economies of scale within each process (Athukorala et al, 2018). However, the model used in this paper allows to decompose the various adjustment paths and thus evaluate changes in GVC indicators as is the focus of this study.…”

“…This study is unable and does not attempt to make any statement concerning changes in the nature of the trading relationships within GVCs following a policy event. This type of analysis would require a model that depicts multinationals, fragmentation of production processes, and economies of scale within each process as, e.g., presented as a prototype in Athukorala et al (2018). The integration of these features in a global or regional model with multiple sectors will pose a major task concerning data requirements and computation.…”