Publication: Inflation Dynamics and Global Value Chains
Loading...
Files in English
801 downloads
Published
2019-12
ISSN
Date
2019-12-19
Author(s)
Editor(s)
Abstract
The global economy has witnessed a decline in inflation and an increase in inflation synchronization since the early 1980s. This paper investigates the relationship between inflation synchronization and trade integration, and documents the strong link between inflation co-movement and Global Value Chain (GVC) participation. Using 35 years and both gross and value-added trade flows, evidence shows that an increase in production linkages, as proxied by trade in intermediate inputs, is strongly associated with higher inflation correlation. Moreover, backward GVC participation is associated with an increase in bilateral inflation co-movement while forward participation is linked with a higher correlation between domestic and worldwide inflation. The paper also finds evidence of the effect of trade integration in decreasing inflation levels.
Link to Data Set
Citation
“de Soyres, Francois; Franco, Sebastian. 2019. Inflation Dynamics and Global Value Chains. Policy Research Working Paper;No. 9090. © World Bank. http://hdl.handle.net/10986/33059 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Stanley Fischer Memorial Lecture: Geopolitics and Development—The World Bank ABCDE Conference(Washington, DC: World Bank, 2025-10-01)This paper provides a sweeping historical overview of how geopolitics has shaped economic development and global institutions, culminating in a forward-looking analysis of challenges facing the world in 2025. The paper argues that understanding economic history and the political economy is essential for effective policy making, as geopolitics—encompassing power politics, geography, security, and ecology—fundamentally influences development economics. It traces the dynamic interplay between geopolitics and development across major historical periods: from the European Age of Discovery and the rise of nation-states, through the world wars and the Bretton Woods era, to the Cold War and the age of globalization. It highlights how crises and conflicts have repeatedly transformed global economic systems, spurring new ideas and institutions. Looking ahead, the paper identifies key trends for 2025—fragmented global governance amid ongoing globalization (migration, climate change, and debt), shifting security contexts with territorial disputes and nuclear risks, and the intersection of energy, climate, demographics, and migration with development—as it predicts increased economic nationalism and regionalization in finance and trade. The paper concludes by emphasizing the adaptive role of multilateral institutions like the World Bank and the International Monetary Fund, advocating for a holistic approach to development economics that integrates political and economic institutions, governance, and both macro and micro markets.Publication Gender Gaps in the Performance of Small Firms: Evidence from Urban Peru(Washington, DC: World Bank, 2025-09-23)This paper estimates the gender gap in the performance of firms in Peru using representative data on both formal and informal firms. On average, informal female-led firms have lower sales, labor productivity, and profits compared to their male-led counterparts, with differences more pronounced when controlling for observable determinants of firm performance. However, gender gaps are only significant at the bottom of the performance distribution of informal firms, and these gaps disappear at the top of the distribution of informal firms and for formal firms. Possible explanations for the performance gaps at the bottom of the distribution include the higher likelihood of small, female-led firms being home-based, which is linked to lower profits, and their concentration in less profitable sectors. The paper provides suggestive evidence that household responsibilities play a key role in explaining the gender gap in firm performance among informal firms. Therefore, policies that promote access to care services or foster a more equal distribution of household activities may reduce gender productivity gaps and allow for a more efficient allocation of resources.
Journal
Journal Volume
Journal Issue
Related items
Showing items related by metadata.
Publication Trade, Global Value Chains and GDP Co-Movement(World Bank, Washington, DC, 2019-12)This paper provides up-to-date characterization of the association between trade and GDP comovement -- also called the trade comovement slope -- for 150 countries from 1962 to 2011. The paper shows that trade is significantly linked to more GDP correlation, either directly through bilateral trade, or indirectly when two countries trade with similar partners. This trade network effect is strong for countries in all income groups and provides an additional channel through which GDP fluctuations propagate through trade linkages. It also shows that countries of all income groups become more synchronized with high income countries when the content of their trade is more tilted towards inputs as opposed to final goods. Related to this point, the paper also uncovers a strong link between the stickiness of trade relationships and the extent to which countries experience synchronized GDP comovement. The results are robust to a wide range of different measures, to the inclusion of many fixed effects, changes in the sectoral composition of GDP, financial controls capturing crosscountry investments as well as bilateral financial claims.Publication An Empirical Investigation of Trade Diversion and Global Value Chains(World Bank, Washington, DC, 2019-12)This paper uses data on directional trade flows and Regional Trade Agreements (RTA) to i) estimate the effects of RTA on trade flows and ii) assess the importance of Global Value Chains for these effects. Based on a Difference-in- Difference identification strategy, we find that RTAs are associated with: (1) an increase in trade within the region, (2) a decrease in inflows to the region, and (3) an increase in outflows from the region. The first two findings can be understood as trade creation and trade diversion due to a shift in demand associated with the lower trade barriers within the region and Rules of Origin as an implicit trade barrier for imports from the rest of the world. Global Value Chains are most relevant to understand the third finding on the increase in outflows from the region. The key determinant of the increase in outflows is the importance of the Regional Value Chains for imports of intermediates by members of the region.Publication Global Value Chains in the Electronics Industry : Was the Crisis a Window of Opportunity for Developing Countries?(2010-09-01)This paper presents evidence of the importance of electronics global value chains (GVCs) in the global economy, and discusses the effects of the recent economic crisis on the industry. The analysis focuses on how information is exchanged and introduces the concept of "value chain modularity." The authors identify three key firm level actors -- lead firms, contract manufacturers, and platform leaders -- and discuss their development, or "co-evolution" in the context of global integration. Company, cluster, and country case studies are then presented to illustrate how supplier capabilities in various places have developed in the context of electronics global value chains. The findings identify some of the persistent limits to upgrading experienced by even the most successful firms in the developing world. Four models used by developing country firms to overcome these limitations are presented: (1) global expansion though acquisition of declining brands (emerging multinationals); (2) separation of branded product divisions from contract manufacturing (original design manufacturing (ODM) spinoffs); (3) successful mixing of contract manufacturing and branded products (platform brands) for contractors with customers not in the electronic hardware business; and (4) the founding of factory-less product firms that rely on global value chains for a range of inputs, including production (emerging factory-less start-ups).Publication Integration in Global Value Chains — The Role of Service Inputs(World Bank, Washington, DC, 2021-10)This paper investigates the relationship between the use of service inputs and integration in global value chains. Using macro and detailed firm-level data (for 1990–2017), the study documents the extent of India’s integration into global value chains. Older, larger, and more productive firms and firms with a higher leverage ratio are more likely to be deeply integrated into global value chains. Firms in the information technology services and electronics industry are more deeply integrated into global value chains, compared with textiles. Services are the engine for many global value chain industries as they help coordinate the different stages of production across geographical locations. The findings suggest that both the intensity of service usage as well as the composition or type of service used are important. Firms using service inputs, particularly complex services and information technology and information technology–enabling services intensively are typically more deeply integrated into global value chains.Publication Joining, Upgrading and Being Competitive in Global Value Chains: A Strategic Framework(World Bank, Washington, D.C., 2013-04)In recent years, global value chains have played an increasing role in business strategies, profoundly affecting international trade and development paradigms. Global value chains now represent a major source of socio-upgrading opportunities and a new path for development. Trade, competitiveness and development policies should be reshaped accordingly to seize these opportunities and avoid the risks associated with greater participation in global value chains. This paper provides a framework and analytical tools for measuring and improving a country's performance with respect to participation in global value chains. With a clear operational focus, it provides guidance for countries willing to join, maintain participation, and/or move up global value chains. With the ultimate objective to increase the value (the development content) for trade, it also offers strategies to maximize the benefits and minimize the risks of developing countries' participation in global value chains.
Users also downloaded
Showing related downloaded files
Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.Publication The Container Port Performance Index 2023(Washington, DC: World Bank, 2024-07-18)The Container Port Performance Index (CPPI) measures the time container ships spend in port, making it an important point of reference for stakeholders in the global economy. These stakeholders include port authorities and operators, national governments, supranational organizations, development agencies, and other public and private players in trade and logistics. The index highlights where vessel time in container ports could be improved. Streamlining these processes would benefit all parties involved, including shipping lines, national governments, and consumers. This fourth edition of the CPPI relies on data from 405 container ports with at least 24 container ship port calls in the calendar year 2023. As in earlier editions of the CPPI, the ranking employs two different methodological approaches: an administrative (technical) approach and a statistical approach (using matrix factorization). Combining these two approaches ensures that the overall ranking of container ports reflects actual port performance as closely as possible while also being statistically robust. The CPPI methodology assesses the sequential steps of a container ship port call. ‘Total port hours’ refers to the total time elapsed from the moment a ship arrives at the port until the vessel leaves the berth after completing its cargo operations. The CPPI uses time as an indicator because time is very important to shipping lines, ports, and the entire logistics chain. However, time, as captured by the CPPI, is not the only way to measure port efficiency, so it does not tell the entire story of a port’s performance. Factors that can influence the time vessels spend in ports can be location-specific and under the port’s control (endogenous) or external and beyond the control of the port (exogenous). The CPPI measures time spent in container ports, strictly based on quantitative data only, which do not reveal the underlying factors or root causes of extended port times. A detailed port-specific diagnostic would be required to assess the contribution of underlying factors to the time a vessel spends in port. A very low ranking or a significant change in ranking may warrant special attention, for which the World Bank generally recommends a detailed diagnostic.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.