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Recently published studies stress the importance of trade in intermediate goods. The literature on determinants of trade, however, have largely focused on the sources of comparative advantage in determining aggregate trade flows rather than trade in intermediate goods. The purpose of this paper is to examine the role of institutional quality and trade costs to explain the determinants of trade in intermediates.

The simple model is based on the model of comparative advantage in the gravity framework used by Eaton and Kortum (2002) and Chor (2010) to relate trade flows of intermediate goods to institutional parameters, factor endowments and geography. The empirical tests use a data set containing 172 countries and 17 industries spanning ten years.

The results confirm the theoretical prediction that a country with higher institutional quality has a comparative advantage in institution-intensive goods and trade costs have a negative effect on trade. The author further finds that these effects are stronger in share of trade in intermediate goods vis-à-vis final goods.

To highlight the distinct nature of trade in intermediate goods, the author separates industry trade flows as intermediate input trade and final goods (consumption goods) trade to compare the importance of different sources of comparative advantage among different types of trade flows. Unlike Eaton and Kortum (2002) and Chor (2010) who used cross-sectional data for final goods trade, the ten-year industry-level panel data are used to compare the relative importance of institutions and geography as determinants in trade in intermediate goods compared to final goods trade and capture the macroeconomic time variant factors as well as industry–country pair characteristics. A significant caveat in gravity regression is that an empirical finding may often be driven by omitted variables. Inclusion of a set of country variables such as GDP, production costs and institutional level may still allow omitted variables to bias the estimation. To avoid this problem, the author includes a fixed effect of exporter and importer as well as industry and year, instead of a set of country characteristics.

This paper explores the regionalisation of the European Union’s supply chains and the impact of enlargement by looking at trends in trade in intermediate products between 1995‐2007. The findings show that enlargement has not significantly impacted overall levels of regionalization although it has led to quite major changes in the division of labor within the EU. In addition, the impacts have been very varied depending on the sector involved. There has been a greater consolidation of the EU supply chain in medium‐tech and up‐market goods while in low‐market and high‐tech goods, market share has been ceded to non‐EU sources.

This paper aims to examine the effects of adding non-tradable sector and trade in intermediate goods sector and their impact on the “Backus-Smith” (BS) puzzle and the features of the non-tradable output. Conventional international real business cycle models show that the real exchange rate and the terms of trade are positively correlated to the relative consumption movement between the home and foreign economies when there is a total factor productivity shock, whereas the correlation in the data is negative. The author develops a two-country, dynamic, stochastic and general equilibrium (DSGE) model with staggered price setting in the non-tradable sector and international trade in intermediate goods sector because of product differentiation in a high-asset market frictions situation.

In this paper, DGSE simulation and calibration are performed using Matlab with Dynare.

When the world economy has positive country-specific productivity shock, the benchmark model with non-tradable sector and intermediate goods sector successfully solves the BS puzzle and is able to match several features of the data. The dynamic responses to productivity shock show that integrating product differentiation is necessary to generate a more volatile and counter-cyclical non-tradable output.

The paper investigates the effects of incorporating non-tradable sector and trade in interemediate goods sector to standard two-country DSGE model through simulation and calibration.

Most models attempting to give an account of trade-induced symmetric increase in wage inequality have abandoned the factor price equalization (FPE) framework. The present chapter retains the FPE framework and identifies a plausible route through which trade might increase wage inequality in all trading countries. A two-sector model with one constant returns sector producing basic goods and another increasing returns to scale sector producing fancy goods is developed. A quasi-linear utility function is used to capture the divide between basic and fancy goods. There are two types of productive factors, skilled and unskilled labour, and they differ with respect to their occupational options. Skilled labour can work both in the skill using fancy goods sector and in the unskilled labour using basic good producing sector, whereas unskilled labour is tied down to unskilled job. The model holds possibilities of multiple equilibria and under reasonable parameterization skill premium increases in all countries following trade.

This chapter applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a trade bloc. We focus on the MERCOSUR case, using a model with 48 sectors and 5 countries. Motivated by recent policy discussions, we quantify Uruguay's trade and welfare effects from signing a Free Trade Agreement with the United States and leaving MERCOSUR. We find positive welfare effects for Uruguay from bilaterally reducing tariffs with the United States. Most of the gains come from having access to lower-cost intermediate inputs for production. We then consider the policy experiment of bilaterally eliminating tariffs between all members of MERCOSUR and the United States. We find that Uruguay has the largest gains, while Argentina and Brazil do not benefit much. This chapter also illustrates how new models are a promising tool for the analysis of trade.

This paper applies the decomposition method proposed by Wang et al. (2013), together with the multi-national input-output tables from World Input-Output Database (WIOD) to estimate the value-chain transition in East Asian production network. Specifically, we calculate and examine the domestic value-added absorbed abroad, foreign value-added embodied in country’s gross exports, and vertical specialization measures to explore the relative positions of major East Asian countries in the global production chain over the period of 1995-2011. The analyses are at country-aggregate, country-sector, bilateral-aggregate and bilateral-sector levels. Based on our results, we answer the important question of whether Taiwan and South Korea have used China’s production chains as an intermediary to re-export their products to other countries in the world. Furthermore, we answer the question that over the 1995-2011 periods, have Taiwan and South Korea exploited cheap labor from China to add value to their products before re-exported them to the rest of the world?

The purpose of this paper is to provide an early assessment of India’s South-South cooperation for trade and technology (SSTT) with East Africa, focusing on Ethiopia, Rwanda, Kenya, Uganda and Tanzania. It aims to analyse the role of SSTT in providing support to targeted sectors.

The paper examines SSTT, focusing on India and East Africa over a specific period (2000–2016) of its emergence, and extends the public sponsorship literature in international business (IB) to better understand the relationship between SSTT and value addition – applying to a particular case study of SSTT interventions in spices.

The paper highlights SSTT as a pathway to support value addition in global value chains (GVCs). Trade between India and East African countries has grown, with three developments over the period of analysis in particular: shifting trade patterns, growing share of intermediate goods trade and differences in GVC insertion. However, East African exports are largely of lower value. Capacity building to support processing capability and thriving markets can encourage greater value addition. Preliminary findings suggest early gains at the margins, as SSTT interventions have been focusing on capacity boosting with buffering and bridging mechanisms for increased volume of trade. Moving up the value chain however requires that specific value-enhancing activities continue to be targeted, building on regional capacities. Our high-level case study for spices suggests that activities are starting to have a positive effect; however, more focus is needed to specifically target value creation before export and in particular higher levels of processing.

While findings are preliminary, policy implications emerge to guide SSTT interventions. There is capacity for building higher value-added supply chains as is evident among East African countries that trade with each other – future SSTT programmes could tap into this and help build capacity in these higher-value value chains. Future SSTT programmes can take a comprehensive approach by aiming at interventions at key points of the value chain, and especially at points that facilitate higher value addition than initial processing. An example is that Ethiopia and Rwanda are likely to benefit from an expanded spice industry, but the next phase should be towards building processing for value-addition components of the value chain, such as through trade policies, incentivising exporters to add value to items before export. From a development perspective, more analysis needs to be done on the value chain itself – for instance, trade facilitation measures to help processers engage in value chains and to access investments for increasing value add activities. (iv), Future research should examine more closely the development impacts of SSTT, namely, the connection between increased trade, local job creation and sustained innovation, as it is these tangible benefits that will help countries in the Global South realise the benefits of increased trade.

The paper underlines how the SSTT approach can contribute to the critical IB and GVCs literature using a theoretical grounded approach from public sponsorship theory, and with a unique lens of development cooperation between countries in the global south and its emerging impact on development outcomes in these countries.

The purpose of this paper is to calculate regional contents in the exports of the major regional blocs to the world, Trans-Pacific Strategic Economic Partnership (TPP), and Regional Comprehensive Economic Partnership (RCEP), respectively, to find the backward trade linkages between them instead of normal forward linkages.

To calculate “a region” content in intermediate and value-added exports, this paper uses OECD’s inter-country input-output table (ICIOT), and tries to decompose the contents of trade. Using the information of ICIOT, Koopman et al. (2014) and Wang et al. (2013) decompose gross exports of a country’s exports.

TPP is a loosely tied bloc featured by openness to the Asia-Pacific region. Trade linkages between members are stronger in RCEP than those in TPP, particularly in the trade of intermediate goods. Trades in RCEP are closely connected to exports to TPP, but the opposite direction is not clear.

First of all, the recent base year of the data on value added in trade is 2011, which can be regarded as a little bit out of date. Therefore, it should be cautious in interpreting the results in that it may not reflect the characteristics of current trade. Second, this paper uses ICOIT instead of world input-output table.

A large portion of trades in RCEP and TPP is triggered by a global production network (fragmentation, vertical specialization), different from traditional trade focusing on inter-industry trade or competition between countries. Thus, the formation of TPP or RCEP is predicted to stimulate trade of the other instead of discriminating nonmember countries.

In particular, the authors have special concern in the backward linkages between RCEP and TPP, the distinct characteristics of the two regional blocs and, finally, major countries’ preferences of the one over the other and industrial conflicts toward TPP or RCEP even in an economy.

Although this paper uses the approach by Baldwin and Lopez-Gonzalez, this paper is the first research on the analysis of the export contents in major trading blocs in the Asia-Pacific region.

The concept of the “global production network” (GPN) has emerged as a framework for analyzing the intricate connections between a dominant or pivotal firm and its suppliers across various countries. ¹ The expansion of GPNs signifies that trade encompasses not only the final products but also the parts and components (P&C) involved in their production. The reduction of tariff barriers and advancements in transportation and communication technology have facilitated the fragmentation of production processes across different countries. This has led to a significant transformation in the nature and structure of global trade. This chapter aims to synthesize and present this literature. By identifying the key drivers, determinants, and consequences of fragmentation trade through a literature-based approach, this study aids in assessing the opportunities and challenges those lagging countries, like India, encounter in terms of increased participation in GPNs.

Applying a computable general equilibrium model to assess the impact of tariffs between the US and China, Taiwan stands to gain from trade diversion of the trade war between the two largest world economies in the short term.

Initially, Taiwan suffered a minor loss from the sector-specific tariff on steel and aluminum imposed by the US. However, its loss is mitigated after counting counter measures from foreign countries. The cumulated US tariffs and China's retaliations led to trade diversion effect. Taiwan's initial loss from the steel and aluminum tariffs was over compensated by a series of trade war between the US and China.

Under the scenario of the cumulated tariffs of $250 billion of US imports and China's retaliations of $110 billion on US goods, the social welfare, exports, import and trade balance in Taiwan increased. Its terms of trade improved as well. Real wage increases slightly more for unskilled labor than for skilled labor. The short-term effect of the trade war has positive effect on all macro indicators of Taiwan's economy.

On sectoral shift, Taiwan's export will gain the most in precision engineering products ($2,941.6 million), followed by electronics ($310.7 million) and agricultural products ($31.3 million). The negative effects are in sectors such as business services ($58.323 million), other services ($46.9 million), transportation service ($36.6 million), trade service ($25.3 million), and finance service ($24.5 million). Taiwan's total imports will increase by 0.59%, whereas its total export will increase by 0.33%. However, total trade balance still increases by $451.1 million.

The study also finds that Taiwan has a high degree of overlapping export commodities with China in the US market, much higher than most major trading partners for the US, yet its market share for those products in the US is ranged from 1% to 5% only. Moreover, more than 60% of Taiwan's export to the US is in intermediate goods which have less product differentiation than those in final consumption goods. These two factors will provide an opportunity for Taiwan to exploit the US market.

Though the short-term effect of trade war is positive, Taiwan needs to have a long-range planning amid the external shocks. Policy implications for Taiwan are to map out a cosmopolitan view of its geo-strategy by diversifying outward foreign direct investment and trade destinations. It needs to reduce the “systemic risk” of relying on single market in China which is vulnerable to the uncertainty in the US–China relations. If the trade war lasts too long, Taiwan would need to reevaluate its triangular trade-investment nexus with China and the US as well as its role in the global supply chain.