Global Value Chains and the Crisis: Reshaping International Trade Elasticity?
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in other productive sectors, and also larger in smaller countries. At the extreme, the value of imported inputs may be more than industry’s value-added, as is the case of manufacture in Malaysia. The four building blocks identified above—the fragmentation of global manufacturing, its magnifying effect on trade, the interindustry linkages as transmission effect, and the external vulnerability of export-oriented countries—are, in particular, central for explaining the specificities of the 2008–09 great trade collapse, in which trade in some industries fell by more than 30 percent in two consecutive quarters (see table 3.1). When industrial production is spread across various countries, and all segments of the chain are critical to the other ones (supplied constrained networks), a shock affecting one segment of the chain will reverberate through the entire network. In contrast to the traditional macroeconomic transmission of shocks, impacts are moving forward from supplier to clients, and not backward as in the traditional demand-driven Leontief model (from client to suppliers). The intensity of the supply shock will vary according to the affected industry; if the origin of the shock is a systemic credit crunch, it will disproportionately affect the international segments of the global supply chains, through increased risk aversion and shrinking trade finance (Escaith and Gonguet 2009). The following subsections analyze in more detail the implications of GVCs on world trade elasticity, first by looking at the long-term perspective through the possible changes in structural relationships and, second, by investigating their contribution to the increased short-term volatility observed during the recent economic crisis. Long-term perspective
The following equations formalize the empirical observations obtained from the U.S.-Asian compact from a demand-oriented input-output perspective.12 In the absence of structural changes affecting production function (that is, when technical coefficients, as described by an input-output matrix, are constant), the relationship linking demand for intermediate inputs with an external shock can be described by the following linear relationship: ΔmIC = u' · M°· (I – A)-1 · ΔD ,
(3.4)
where, in the case of a single country with s sectors, Δm is the variation in total imported inputs (scalar); u' is the summation vector (1 × s); M° is the diagonal matrix of intermediate import coefficients (s × s); (I – A)-1 is the Leontief inverse, where A is the matrix of fixed technical coefficients (s × s); and ΔD is the initial shock on final demand (s × 1).14 Similarly, changes in total production caused by the demand shock (including the intermediate inputs required to produce the final goods) are obtained from 13
IC