Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109502
Authors: 
Ma, Alyson C.
Van Assche, Ari
Year of Publication: 
2014
Series/Report no.: 
ADB Economics Working Paper Series 390
Abstract: 
The core idea behind the paper is that trade policy matters for the organization of global value chains, a notion largely neglected by economists but which has important implications for our understanding of trade and the international transmission of trade policy shocks. We develop a theoretical model in which a firm's ability to spatially separate manufacturing from headquarter services gives them the flexibility to circumvent economy-specific tariff changes by switching their assembly location abroad. We show that tariff shirking increases the elasticity of bilateral trade to economy-specific tariff hikes due to an extra extensive margin effect. Furthermore, we show that tariff shirking affects the vulnerability of headquarter services and manufacturing to trade policy shocks in opposite ways. While tariff shirking dampens the vulnerability of headquarter services to trade policy shocks, it amplifies the vulnerability of manufacturing to trade policy shocks. Using firm-level and province-level export data from the People's Republic of China, we provide evidence in line with the theoretical model.
Subjects: 
vertical specialization
extensive margin
antidumping
tariff shirking
People's Republic of China
JEL: 
F12
F13
F14
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/igo
Document Type: 
Working Paper

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