SMU SOE Seminar (Mar 6, 2019): Input-Output Structure and Trade Elasticity

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TOPIC:

INPUT-OUTPUT STRUCTURE AND TRADE ELASTICITY

ABSTRACT This paper studies how disaggregated input-output interactions shape trade and welfare responses to changes in trade costs. I consider a model with a large number of products linked through a general "snakes and spiders" network. The central feature of the model which also makes it highly intractable is endogenous formation of comparative advantage. To overcome this complexity challenge, I obtain a perturbation solution in terms of intuitive summary statistics. I find that, in contrast to the composite intermediate good structure often employed in the literature, imperfect supplier diversification transforms fundamental comparative advantage in two ways. First, as exogenous productivity differences accumulate along supply chains, endogenous variation in relative costs is increasing in the level of trade frictions. Second, the comparative advantage of upstream and downstream industries becomes positively correlated. The first effect generates larger welfare gains from trade and also raises the average product-level import share. The second effect, however, is trade-reducing: the tendency of comparative-advantage industries to source disproportionately from each other increases aggregate home bias. Such comparative advantage spillovers are relatively strong for moderate trade costs, dominating the average import share effect, but decay fast closer to autarky. As a result, the elasticity of trade is generally non-monotone in the level of trade costs. Click here to view the CV.
		PRESENTER Mark Razhev University of Melbourne
		RESEARCH FIELDS International Trade Theory
		DATE: 6 March 2019 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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