Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46425
Authors: 
Costinot, Arnaud
Vogel, Jonathan E.
Wang, Su
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Trade Policy 3402
Abstract: 
This paper 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. Because of the sequential nature of production, absolute productivity differences are a source of comparative advantage among nations. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.
JEL: 
F10
Document Type: 
Working Paper

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