Rotterdam Brown Bag Seminars General Economics

Nam Le (Erasmus University Rotterdam)
Wednesday, 21 March 2018

Abstract: International trade of our generation has been defined by the increasing fragmentation of global value chains. As a result, any major shock in one country could potentially create a transnational disruption. A recent body of the literature has devoted to exploring the propagation of shocks along the domestic input-output linkages. Our paper offers the first extensive study of a transnational propagation on a global scale. By leveraging the exogenous nature of the US import tariff reduction against Vietnamese products following the 2001 bilateral trade agreement and by taking guidance from a multi-country multi-sector model, we provide  evidence that (i) the US producers substituted non-Vietnamese products with the lower-priced Vietnamese ones, (ii) Vietnamese producers diverted exports away from non-US markets, (iii) Vietnamese producers imported more foreign intermediate inputs to support a higher US demand, and (iv) the US producers gained market shares in foreign markets by using lower-priced Vietnamese inputs. These effects were concentrated in the trade links between Vietnam, the US and their largest trading partners. We find no evidence for a propagation further than the trade links directly connected to Vietnam and the US. One key feature of our paper is the ability to contrast cross-border and domestic transmission of shock, offering a unique perspective on the role of production networks in shock propagation. (Joint work with Maarten Bosker and Bastian Westbrock)