Preferential Trade Agreements and Global Sourcing

46 Pages·2016·0.35 MB·English

Preferential Trade Agreements and Global Sourcing
Grant Bickwit
Emanuel Ornelas
Sao Paulo School of Economics-FGV & London School of Economics
John L. Turner
University of Georgia
March 2016
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General sense that the 2 trends are linked (e.g. Baldwin, 2011, 2016;
Johnson & Noguera, 2014; WTO, 2011)
The world
Expansion of global sourcing
Proliferation of PTAs
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The world
Expansion of global sourcing
Proliferation of PTAs
General sense that the 2 trends are linked (e.g. Baldwin, 2011, 2016;
Johnson & Noguera, 2014; WTO, 2011)
Bickwit-Ornelas-Turner PTAs&()GlobalSourcing GVC2016Conference 2/31
The questions
1 How do PTAs a⁄ect the e¢ ciency of global sourcing?
2 How does global sourcing a⁄ect the welfare consequences of PTAs?
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Our approach
Incomplete contracts
Trade of customized inputs
Relationship-speci(cid:133)c investments
Partial equilibrium
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Literature
GVCs and PTAs (Baldwin, 2011; Johnson & Noguera, 2014)
Welfare impacts of PTAs (Freund & Ornelas, 2010; Maggi, 2014)
Trade of intermediates in the context of incomplete contracts (Antras
& Helpman, 2004; Ornelas & Turner, 2012; Antras & Staiger, 2012;
Antras, 2016)
The investment/innovation consequences of trade liberalization
(Lileeva & Tre(cid:135)er, 2010; Bustos, 2011)
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A buyer B obtains revenue V(Q) from purchasing and processing Q
units of intermediate inputs; V0(Q) > 0, V00(Q) < 0
When sourcing, B can purchase:
Standardized inputs, g, from ROW at unit cost (adjusted for quality
and compatibility) p +t
w
g is produced by a competitive fringe; t is the per-unit MFN tari⁄on
intermediate goods
Customized inputs, q, from a specialized supplier S, located in either
Foreign or ROW, at a negotiated price in addition to the unit tari⁄
Basic model
3 countries
Home has a mass of producers, or buyers (B), which assemble (cid:133)nal
goods from outsourced inputs
Inputs are available from suppliers located in either Foreign or ROW;
the mass of suppliers in either location is large relative to the mass of B
in Home
Bickwit-Ornelas-Turner PTAs&()GlobalSourcing GVC2016Conference 6/31
When sourcing, B can purchase:
Standardized inputs, g, from ROW at unit cost (adjusted for quality
and compatibility) p +t
w
g is produced by a competitive fringe; t is the per-unit MFN tari⁄on
intermediate goods
Customized inputs, q, from a specialized supplier S, located in either
Foreign or ROW, at a negotiated price in addition to the unit tari⁄
Basic model
3 countries
Home has a mass of producers, or buyers (B), which assemble (cid:133)nal
goods from outsourced inputs
Inputs are available from suppliers located in either Foreign or ROW;
the mass of suppliers in either location is large relative to the mass of B
in Home
A buyer B obtains revenue V(Q) from purchasing and processing Q
units of intermediate inputs; V0(Q) > 0, V00(Q) < 0
Bickwit-Ornelas-Turner PTAs&()GlobalSourcing GVC2016Conference 6/31
Basic model
3 countries
Home has a mass of producers, or buyers (B), which assemble (cid:133)nal
goods from outsourced inputs
Inputs are available from suppliers located in either Foreign or ROW;
the mass of suppliers in either location is large relative to the mass of B
in Home
A buyer B obtains revenue V(Q) from purchasing and processing Q
units of intermediate inputs; V0(Q) > 0, V00(Q) < 0
When sourcing, B can purchase:
Standardized inputs, g, from ROW at unit cost (adjusted for quality
and compatibility) p +t
w
g is produced by a competitive fringe; t is the per-unit MFN tari⁄on
intermediate goods
Customized inputs, q, from a specialized supplier S, located in either
Foreign or ROW, at a negotiated price in addition to the unit tari⁄
Bickwit-Ornelas-Turner PTAs&()GlobalSourcing GVC2016Conference 6/31
Investment:
Costs
I(i) =i2
Observed by both B and S, but not veri(cid:133)able in a court of law
Assume that 2c > b2
Supply
Basic model
Each supplier S is identi(cid:133)ed by parameter ω :
c
C(q,i,ω) = (A+ω bi)q+ q2
(cid:0) 2
MC increases with q: C =A+ω bi+cq
q
(cid:0)
ω shifts MC up: higher ω, lower productivity; ω [0,ω¯], ω G(ω)
2 (cid:24)
b denotes the e⁄ectiveness of investment in reducing production costs
(and MC)
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