Modelling global value chains: From trade costs to policy impacts

I use an approach from the family of 'new quantitative trade models' to explore the links between trade costs and integration in Global Value Chains (GVCs). The model conceptualises GVC trade through a multi-country, multi-sector Ricardian model that nests the standard structural gravity model. It provides a general framework in which to assess the impacts of changes in iceberg trade costs on GVC trade, understood as the sum of backward linkages and pure double counting, in line with recent work on trade in value added. As an example, I use the model to show that observed changes in trade facilitation performance between 2015 and 2019 have strong explanatory power for observed changes in GVC trade during the same period: the model accounts for over one-third of the observed change, albeit with substantial variation across countries and sectors.