The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime

In a seminal contribution, Yi (2003) has shown that vertically specialized trade should be more sensitive to changes in trade costs than regular trade. Yet empirical evidence of this remains remarkably scant. This paper uses data from China's...

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Bibliographic Details
Main Authors: Ma, Alyson C., Van Assche, Ari
Format: Policy Research Working Paper
Language:English
Published: 2012
Subjects:
GDP
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101201135542
http://hdl.handle.net/10986/3973
id okr-10986-3973
recordtype oai_dc
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic ADVANCED COUNTRIES
ADVANCED COUNTRY
ADVANCED ECONOMIES
APPAREL
ASSETS
BARRIER
BENCHMARK
BENCHMARK SPECIFICATION
BILATERAL FLOWS
BILATERAL TRADE
BILATERAL TRADE BARRIERS
BUDGET CONSTRAINTS
BUSINESS CYCLE
BUSINESS CYCLE FLUCTUATIONS
BUSINESS CYCLES
CHANGES IN TRADE
COMMODITY
COMPETITIVE CONDITIONS
COMPETITIVENESS
CONSUMERS
CONTROL VARIABLES
COST STRUCTURE
COUNTRY OF ORIGIN
CURRENCY
CURRENCY UNION
CURRENT ACCOUNT
CURRENT ACCOUNT DEFICITS
CURRENT ACCOUNT SURPLUSES
CUSTOMS
CUSTOMS REGIME
DEPENDENT VARIABLE
DEVELOPING COUNTRIES
DISTORTION
DOMESTIC CONSUMPTION
DOMESTIC INPUTS
DOMESTIC MARKET
DUMMY VARIABLE
DURABLE GOODS
ECONOMIC COOPERATION
ECONOMIC CRISIS
ECONOMIC GEOGRAPHY
ECONOMIC GROWTH
ECONOMIC OUTLOOK
ECONOMIC POLICY
ECONOMIC RESEARCH
ECONOMIC SHOCKS
ELASTICITY
ELASTICITY OF SUBSTITUTION
ELECTRONICS INDUSTRY
ENDOGENOUS VARIABLES
EQUATIONS
EQUILIBRIUM
ERROR TERM
EXPORT DEMAND
EXPORT GOOD
EXPORT PROCESSING
EXPORT PROCESSING ZONES
EXPORT PROMOTION
EXPORT PROMOTION POLICIES
EXPORT VALUE
EXPORTER
EXPORTS
EXTERNAL DEMAND
FINAL GOODS
FIXED COSTS
FIXED EFFECTS
FOREIGN DIRECT INVESTMENT
FOREIGN FIRM
FOREIGN FIRMS
FOREIGN MARKET
FREE ENTRY
GDP
GDP PER CAPITA
GENERAL EQUILIBRIUM
GEOGRAPHIC DISTRIBUTION
GLOBAL ECONOMY
GLOBAL IMBALANCES
GLOBAL TRADE
GLOBALIZATION
GRAVITY MODEL
GRAVITY MODELS
GRAVITY VARIABLES
HOME COUNTRY
IMBALANCE
IMPACT OF TRADE
IMPORT
IMPORT CONTENT
IMPORT GROWTH
IMPORTS
INCOME
INCOME ELASTICITY
INCOMPLETE CONTRACTS
INDIVIDUAL FIRM
INEQUALITY
INFORMATION TECHNOLOGY
INPUT-OUTPUT TABLES
INSTRUMENTAL VARIABLES
INTERMEDIATE GOODS
INTERMEDIATE INPUTS
INTERNATIONAL BUSINESS
INTERNATIONAL COMPETITIVENESS
INTERNATIONAL ECONOMICS
INTERNATIONAL ECONOMY
INTERNATIONAL FINANCIAL STATISTICS
INTERNATIONAL TRADE
INTERNATIONAL TRADE STATISTICS
INTERNATIONAL TRANSPORTATION
INVENTORIES
MARGINAL COST
MARKET ACCESS
MARKET SHARE
MARKET SIZE
MEASURE OF TRADE
MULTINATIONAL BUSINESS
MULTINATIONAL FIRMS
NET EXPORTS
NON-TARIFF BARRIERS
OIL PRICE
OIL PRICES
OIL-EXPORTING COUNTRIES
ORGANIZATIONAL FORM
OUTPUT
OUTSOURCING
POLITICAL ECONOMY
POVERTY REDUCTION
PRICE HIKES
PRICE MOVEMENTS
PRICE OF OIL
PRODUCTION COSTS
PRODUCTIVITY
PROFIT FUNCTIONS
PROTECTIONISM
PROTECTIONIST
RAPID GROWTH
RE-EXPORTS
RECESSION
REDUCTION IN TARIFFS
REGIONAL TRADE
REGIONALISM
ROBUSTNESS CHECK
SLOWDOWN
SOURCING
TARIFF BARRIERS
TECHNOLOGY TRANSFER
TOTAL EXPORTS
TOTAL IMPORTS
TRADE BARRIERS
TRADE COSTS
TRADE DATA
TRADE FLOWS
TRADE INTEGRATION
TRADE INTENSITY
TRADE MODEL
TRADE MORE
TRADE PATTERN
TRADE PATTERNS
TRADE PERFORMANCE
TRADE REGIME
TRADE STRUCTURE
TRADE SURPLUS
TRADING PARTNER
TRADING PARTNERS
TRANSPORT COSTS
TRANSPORTATION COSTS
UNCERTAINTY
UNIT OF LABOR
UTILITY FUNCTION
VALUE ADDED
VERTICAL SPECIALIZATION
VOLATILITY
WAGES
WORLD ECONOMY
WORLD MARKETS
WORLD TRADE
WORLD TRADE ORGANIZATION
spellingShingle ADVANCED COUNTRIES
ADVANCED COUNTRY
ADVANCED ECONOMIES
APPAREL
ASSETS
BARRIER
BENCHMARK
BENCHMARK SPECIFICATION
BILATERAL FLOWS
BILATERAL TRADE
BILATERAL TRADE BARRIERS
BUDGET CONSTRAINTS
BUSINESS CYCLE
BUSINESS CYCLE FLUCTUATIONS
BUSINESS CYCLES
CHANGES IN TRADE
COMMODITY
COMPETITIVE CONDITIONS
COMPETITIVENESS
CONSUMERS
CONTROL VARIABLES
COST STRUCTURE
COUNTRY OF ORIGIN
CURRENCY
CURRENCY UNION
CURRENT ACCOUNT
CURRENT ACCOUNT DEFICITS
CURRENT ACCOUNT SURPLUSES
CUSTOMS
CUSTOMS REGIME
DEPENDENT VARIABLE
DEVELOPING COUNTRIES
DISTORTION
DOMESTIC CONSUMPTION
DOMESTIC INPUTS
DOMESTIC MARKET
DUMMY VARIABLE
DURABLE GOODS
ECONOMIC COOPERATION
ECONOMIC CRISIS
ECONOMIC GEOGRAPHY
ECONOMIC GROWTH
ECONOMIC OUTLOOK
ECONOMIC POLICY
ECONOMIC RESEARCH
ECONOMIC SHOCKS
ELASTICITY
ELASTICITY OF SUBSTITUTION
ELECTRONICS INDUSTRY
ENDOGENOUS VARIABLES
EQUATIONS
EQUILIBRIUM
ERROR TERM
EXPORT DEMAND
EXPORT GOOD
EXPORT PROCESSING
EXPORT PROCESSING ZONES
EXPORT PROMOTION
EXPORT PROMOTION POLICIES
EXPORT VALUE
EXPORTER
EXPORTS
EXTERNAL DEMAND
FINAL GOODS
FIXED COSTS
FIXED EFFECTS
FOREIGN DIRECT INVESTMENT
FOREIGN FIRM
FOREIGN FIRMS
FOREIGN MARKET
FREE ENTRY
GDP
GDP PER CAPITA
GENERAL EQUILIBRIUM
GEOGRAPHIC DISTRIBUTION
GLOBAL ECONOMY
GLOBAL IMBALANCES
GLOBAL TRADE
GLOBALIZATION
GRAVITY MODEL
GRAVITY MODELS
GRAVITY VARIABLES
HOME COUNTRY
IMBALANCE
IMPACT OF TRADE
IMPORT
IMPORT CONTENT
IMPORT GROWTH
IMPORTS
INCOME
INCOME ELASTICITY
INCOMPLETE CONTRACTS
INDIVIDUAL FIRM
INEQUALITY
INFORMATION TECHNOLOGY
INPUT-OUTPUT TABLES
INSTRUMENTAL VARIABLES
INTERMEDIATE GOODS
INTERMEDIATE INPUTS
INTERNATIONAL BUSINESS
INTERNATIONAL COMPETITIVENESS
INTERNATIONAL ECONOMICS
INTERNATIONAL ECONOMY
INTERNATIONAL FINANCIAL STATISTICS
INTERNATIONAL TRADE
INTERNATIONAL TRADE STATISTICS
INTERNATIONAL TRANSPORTATION
INVENTORIES
MARGINAL COST
MARKET ACCESS
MARKET SHARE
MARKET SIZE
MEASURE OF TRADE
MULTINATIONAL BUSINESS
MULTINATIONAL FIRMS
NET EXPORTS
NON-TARIFF BARRIERS
OIL PRICE
OIL PRICES
OIL-EXPORTING COUNTRIES
ORGANIZATIONAL FORM
OUTPUT
OUTSOURCING
POLITICAL ECONOMY
POVERTY REDUCTION
PRICE HIKES
PRICE MOVEMENTS
PRICE OF OIL
PRODUCTION COSTS
PRODUCTIVITY
PROFIT FUNCTIONS
PROTECTIONISM
PROTECTIONIST
RAPID GROWTH
RE-EXPORTS
RECESSION
REDUCTION IN TARIFFS
REGIONAL TRADE
REGIONALISM
ROBUSTNESS CHECK
SLOWDOWN
SOURCING
TARIFF BARRIERS
TECHNOLOGY TRANSFER
TOTAL EXPORTS
TOTAL IMPORTS
TRADE BARRIERS
TRADE COSTS
TRADE DATA
TRADE FLOWS
TRADE INTEGRATION
TRADE INTENSITY
TRADE MODEL
TRADE MORE
TRADE PATTERN
TRADE PATTERNS
TRADE PERFORMANCE
TRADE REGIME
TRADE STRUCTURE
TRADE SURPLUS
TRADING PARTNER
TRADING PARTNERS
TRANSPORT COSTS
TRANSPORTATION COSTS
UNCERTAINTY
UNIT OF LABOR
UTILITY FUNCTION
VALUE ADDED
VERTICAL SPECIALIZATION
VOLATILITY
WAGES
WORLD ECONOMY
WORLD MARKETS
WORLD TRADE
WORLD TRADE ORGANIZATION
Ma, Alyson C.
Van Assche, Ari
The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime
geographic_facet East Asia and Pacific
East Asia and Pacific
East Asia
Asia
China
relation Policy Research working paper ; no. WPS 5490
description In a seminal contribution, Yi (2003) has shown that vertically specialized trade should be more sensitive to changes in trade costs than regular trade. Yet empirical evidence of this remains remarkably scant. This paper uses data from China's processing trade regime to analyze the role of trade costs on trade within global production networks (GPNs). Under this regime, firms are granted duty exemptions on imported inputs as long as they are used solely for export purposes. As a result, the data provide information on trade between three sequential nodes of a global supply chain: the location of input production, the location of processing (in China) and the location of further consumption. This makes it possible to examine the role of both trade costs related to the import of inputs (upstream trade costs) and trade costs related to the export of final goods (downstream trade costs) on intra-GPN trade. The authors show that intra-GPN trade differs from regular trade in that it not only depends on downstream trade costs, but also on upstream trade costs and the interaction of both. Moreover, intra-GPN trade is more sensitive to oil price movements and business cycle movements than regular trade. Finally, the paper analyzes three channels through which intra-GPN trade have amplified the trade collapse during the recent Global Recession.
format Publications & Research :: Policy Research Working Paper
author Ma, Alyson C.
Van Assche, Ari
author_facet Ma, Alyson C.
Van Assche, Ari
author_sort Ma, Alyson C.
title The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime
title_short The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime
title_full The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime
title_fullStr The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime
title_full_unstemmed The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime
title_sort role of trade costs in global production networks : evidence from china’s processing trade regime
publishDate 2012
url http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101201135542
http://hdl.handle.net/10986/3973
_version_ 1764389287403454464
spelling okr-10986-39732021-04-23T14:02:14Z The Role of Trade Costs in Global Production Networks : Evidence from China’s Processing Trade Regime Ma, Alyson C. Van Assche, Ari ADVANCED COUNTRIES ADVANCED COUNTRY ADVANCED ECONOMIES APPAREL ASSETS BARRIER BENCHMARK BENCHMARK SPECIFICATION BILATERAL FLOWS BILATERAL TRADE BILATERAL TRADE BARRIERS BUDGET CONSTRAINTS BUSINESS CYCLE BUSINESS CYCLE FLUCTUATIONS BUSINESS CYCLES CHANGES IN TRADE COMMODITY COMPETITIVE CONDITIONS COMPETITIVENESS CONSUMERS CONTROL VARIABLES COST STRUCTURE COUNTRY OF ORIGIN CURRENCY CURRENCY UNION CURRENT ACCOUNT CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT SURPLUSES CUSTOMS CUSTOMS REGIME DEPENDENT VARIABLE DEVELOPING COUNTRIES DISTORTION DOMESTIC CONSUMPTION DOMESTIC INPUTS DOMESTIC MARKET DUMMY VARIABLE DURABLE GOODS ECONOMIC COOPERATION ECONOMIC CRISIS ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC OUTLOOK ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC SHOCKS ELASTICITY ELASTICITY OF SUBSTITUTION ELECTRONICS INDUSTRY ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM ERROR TERM EXPORT DEMAND EXPORT GOOD EXPORT PROCESSING EXPORT PROCESSING ZONES EXPORT PROMOTION EXPORT PROMOTION POLICIES EXPORT VALUE EXPORTER EXPORTS EXTERNAL DEMAND FINAL GOODS FIXED COSTS FIXED EFFECTS FOREIGN DIRECT INVESTMENT FOREIGN FIRM FOREIGN FIRMS FOREIGN MARKET FREE ENTRY GDP GDP PER CAPITA GENERAL EQUILIBRIUM GEOGRAPHIC DISTRIBUTION GLOBAL ECONOMY GLOBAL IMBALANCES GLOBAL TRADE GLOBALIZATION GRAVITY MODEL GRAVITY MODELS GRAVITY VARIABLES HOME COUNTRY IMBALANCE IMPACT OF TRADE IMPORT IMPORT CONTENT IMPORT GROWTH IMPORTS INCOME INCOME ELASTICITY INCOMPLETE CONTRACTS INDIVIDUAL FIRM INEQUALITY INFORMATION TECHNOLOGY INPUT-OUTPUT TABLES INSTRUMENTAL VARIABLES INTERMEDIATE GOODS INTERMEDIATE INPUTS INTERNATIONAL BUSINESS INTERNATIONAL COMPETITIVENESS INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMY INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL TRADE INTERNATIONAL TRADE STATISTICS INTERNATIONAL TRANSPORTATION INVENTORIES MARGINAL COST MARKET ACCESS MARKET SHARE MARKET SIZE MEASURE OF TRADE MULTINATIONAL BUSINESS MULTINATIONAL FIRMS NET EXPORTS NON-TARIFF BARRIERS OIL PRICE OIL PRICES OIL-EXPORTING COUNTRIES ORGANIZATIONAL FORM OUTPUT OUTSOURCING POLITICAL ECONOMY POVERTY REDUCTION PRICE HIKES PRICE MOVEMENTS PRICE OF OIL PRODUCTION COSTS PRODUCTIVITY PROFIT FUNCTIONS PROTECTIONISM PROTECTIONIST RAPID GROWTH RE-EXPORTS RECESSION REDUCTION IN TARIFFS REGIONAL TRADE REGIONALISM ROBUSTNESS CHECK SLOWDOWN SOURCING TARIFF BARRIERS TECHNOLOGY TRANSFER TOTAL EXPORTS TOTAL IMPORTS TRADE BARRIERS TRADE COSTS TRADE DATA TRADE FLOWS TRADE INTEGRATION TRADE INTENSITY TRADE MODEL TRADE MORE TRADE PATTERN TRADE PATTERNS TRADE PERFORMANCE TRADE REGIME TRADE STRUCTURE TRADE SURPLUS TRADING PARTNER TRADING PARTNERS TRANSPORT COSTS TRANSPORTATION COSTS UNCERTAINTY UNIT OF LABOR UTILITY FUNCTION VALUE ADDED VERTICAL SPECIALIZATION VOLATILITY WAGES WORLD ECONOMY WORLD MARKETS WORLD TRADE WORLD TRADE ORGANIZATION In a seminal contribution, Yi (2003) has shown that vertically specialized trade should be more sensitive to changes in trade costs than regular trade. Yet empirical evidence of this remains remarkably scant. This paper uses data from China's processing trade regime to analyze the role of trade costs on trade within global production networks (GPNs). Under this regime, firms are granted duty exemptions on imported inputs as long as they are used solely for export purposes. As a result, the data provide information on trade between three sequential nodes of a global supply chain: the location of input production, the location of processing (in China) and the location of further consumption. This makes it possible to examine the role of both trade costs related to the import of inputs (upstream trade costs) and trade costs related to the export of final goods (downstream trade costs) on intra-GPN trade. The authors show that intra-GPN trade differs from regular trade in that it not only depends on downstream trade costs, but also on upstream trade costs and the interaction of both. Moreover, intra-GPN trade is more sensitive to oil price movements and business cycle movements than regular trade. Finally, the paper analyzes three channels through which intra-GPN trade have amplified the trade collapse during the recent Global Recession. 2012-03-19T18:43:07Z 2012-03-19T18:43:07Z 2010-12-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101201135542 http://hdl.handle.net/10986/3973 English Policy Research working paper ; no. WPS 5490 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper East Asia and Pacific East Asia and Pacific East Asia Asia China