Front Matter Page
© 2019 International Monetary Fund WP/19/XX
IMF Working Paper
Strategy, Policy, and Review Department
The Inflexible Structure of Global Supply Chains
Prepared by Tamim Bayoumi, Jelle Barkema and Diego A. Cerdeiro
Authorized for distribution by Tamim Bayoumi
September 2019
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
The rise of global supply chains has had profound effects on individual economies and the global trading system, thereby complicating standard macroeconomic analyses. For many of the new and challenging questions brought about by this phenomenon, such as its impact on the global business cycle and measurements of competitiveness, the answer largely depends on one specific aspect of global value chains: how easily they can reconfigure in response to changes in prices. We propose a parsimonious, generalized specification to test the degree of global-supply-chain flexibility. Our estimates show that, in the short run, the production structure is highly inflexible, and that this rigidity has, if anything, risen over time as supply chains have deepened over time. This finding is robust to alternative price measures, including those that account for the U.S. dollar’s outsized role in trade through invoicing. While in the long run all estimated elasticities rise, supply chains remain somewhat inflexible. Our results have implications for analyses of crosscountry business-cycle dynamics, the propagation of sectoral shocks, and the measurement of international competitiveness.
JEL Classification Numbers: F15, F17, F62.
Keywords: Global supply chains, value-added trade, production and final-demand elasticities.
Authors’ E-Mail Addresses: tbayoumi@imf.org, ibarkema@imf.org, dcerdeiro@imf.org