Working Paper

Trade Integration, Global Value Chains, and Capital Accumulation

Abstract: Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, impacting the dynamics of GVC trade: a country becoming more capital abundant concentrates more on the capital-intensive stage of the production.

Keywords: Multistage production; International trade; Capital accumulation;

JEL Classification: F10; F43; E22;

https://doi.org/10.21033/wp-2020-26

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2020-11-13

Number: WP-2020-26

Related Works

• Working Paper Original (2020-11-13) : You are here.
• Working Paper Revision (2020-05-24) : Trade Integration, Global Value Chains, and Capital Accumulation