An Elementary Theory of Global Supply Chains

  • Costinot A
  • Vogel J
  • Wang S
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Abstract

This article develops an elementary theory of global supply chains.We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.

Author-supplied keywords

  • global supply chains
  • interdependence of nations
  • vertical specialization

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Authors

  • Arnaud Costinot

  • Jonathan Vogel

  • Sue Wang

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