Trade and economic development in global value chains : insights from input-output analysis and customs transaction level data

The thesis explores how the fragmentation of production and the subsequent emergence of Global Value Chains (GVCs) have changed countries’ and firms’ chances to benefit from international trade and attain economic development. In the first Chapter we use inter-country input-output (ICIO) tables from the OECD and WTO to revisit the role of trade specialisation taking a value added, rather than gross export, approach that allows to identify countries’ domestic contribution to trade specialisation and export performance. I explore these issues implementing the generalised method of moments (GMM) to estimate an autoregressive model. In doing this, we contribute to the literature on trade in value added, as well as on structural change and the role of manufacturing for economic growth. We find that natural resources are not, unsurprisingly, a beneficial specialisation pattern. Specialisation in manufacturing has a different effect depending on the technology level; lowtech manufacturing seems to exert a negative effect on countries trade performance. In contrast, high-tech manufacturing and knowledge intensive business services (KIBS) do not have strong negative effects in the long run, while we detect a positive effect during the years of the crisis. The second paper explores a related issue, focusing in particular on the relationship between domestic backward linkages and export in value added. Taking stock on the findings of the first paper, with natural resources as a detrimental specialisation pattern, we assess whether backward linkages emanating from this sector can spur export in other sectors, namely hightech manufacturing and KIBS. We use the same data as the first Chapter and also implement a system GMM, finding that a large intermediate domestic demand from the natural resource sector has a positive effect on the export of domestic value added of both KIBS and high-tech manufacturing. These results are strong and significant both for the mining and the agriculture sectors. One of the main policy implications of these results is that countries with a large endowment in natural resources can foster domestic backward linkages to pursue export diversification. Finally, the third Chapter studies the linkages in GVCs at the buyer-supplier level exploring how buyer supplier relationships can affect exporters capabilities in Colombia. We combine three datasets: one with information on buyer-suppliers matches, from the Colombian Customs, a second dataset with the financial statement of the exporters and a third one the complexity of the traded products computed by the Atlas of Complexity compiled by Harvard University. We then construct measures of market power and buyer-supplier dependence to study how these are related to the complexity of each relationship and the capabilities of the Colombian exporters. In line with the growing literature on trade and firm heterogeneity, we find that complex buyers tend to engage with complex suppliers, trading a larger number of products than less complex buyer-supplier pairs. Moreover, we find that the buyer’s market power and the buyer-supplier mutual dependence are associated with a higher complexity of the products traded, suggesting that large buyers in intense relationship tend to favour suppliers’ efforts for product upgrading. These results lend support to the well-established literature on GVCs, confirming that power relationships are related to exporters’ performance, especially in terms of sophistication. We contribute to this literature by offering a quantitative approach that relies on administrative data, rather than surveys and distinguishes different kinds of power, based on its source; within this framework we show that different kinds of power are associated with different export outcomes.