Global Value Chains and the Transmission of Business Cycle Shocks

Publication | June 2012

In this paper, we investigate empirically two channels through which a country's integration into global value chains (GVCs) may increase the income elasticity of its exports. First, GVCs may simply be concentrated in sectors that are more sensitive to external income fluctuations (a composition effect). Alternatively, some characteristics inherent to GVCs may trigger a faster and more amplified propagation of business cycle shocks (a supply chain effect). Using trade data of the People's Republic of China, we find supporting evidence for the composition effect. However, we find no evidence that trade within GVCs has an intrinsically higher income elasticity than regular trade.

Contents 

  • Abstract
  • Introduction
  • East Asia's Role in GVC's
  • GVC's as Transmission Channels
  • Trade Data from the PRC's Customs Statistics
  • Empirical Strategy
  • Results
  • Conclusions
  • Bibliography