Publication: A Coasian Model of International Production Chains
Loading...
Published
2015-10
ISSN
Date
2015-11-05
Author(s)
Editor(s)
Abstract
International supply chains require the coordination of numerous activities across multiple countries and firms. This paper develops a theoretical model of supply chains in which the measure of tasks completed within a firm is determined by parameters that define transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply chain length as well as cross-country variation in gross-output-to-value-added ratios. The structural parameters are linked to comparative advantage along and across supply chains. The paper provides an analytical treatment of trade and welfare responses to trade cost change in a simple two-country model. To explore the models implications in a richer setting, the model is calibrated to match key observables in East Asia, and the calibrated model is used to evaluate implications of changes in model parameters for trade, welfare, the length of supply chains, and countries relative position within them.
Link to Data Set
Citation
“Fally, Thibault; Hillberry, Russell. 2015. A Coasian Model of International Production Chains. Policy Research Working Paper;No. 7434. © World Bank. http://hdl.handle.net/10986/22856 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
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 South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication The Evolution of Local Participatory Democracy in Nepal(Washington, DC: World Bank, 2025-11-05)Nepal is, according to its constitution, among the world’s most decentralized countries, with a long and complex tradition of local-level public participation. This paper traces the evolution of Nepal’s modern participatory institutions, examining the extent to which they are “induced” by external interventions versus being “organically” rooted in indigenous practices. The paper identifies three broad phases: an initial focus on participation in project implementation; a subsequent phase that expanded citizen engagement; and a third phase of citizen empowerment, culminating in the 2015 federal constitution, which granted unprecedented local autonomy. The analysis yields five key findings. First, over the past 50 years, successive reforms have progressively expanded opportunities for citizens to influence local decision-making. Second, these reforms have integrated traditional participatory mechanisms into formal institutions of local government. Third, although central-level initiatives exist, most participatory platforms continue to operate at the local level. Fourth, the federal constitution has created a new landscape of local democracy, embedding autonomy and accountability. Fifth, although they are still valued in many ethnic and territorial communities, traditional participatory practices are gradually disappearing. The paper concludes by offering policy recommendations to help donor agencies and governments strengthen Nepal’s democratic trajectory. It argues that effective interventions should build on Nepal’s deep participatory traditions while recognizing the constitutional reality of far-reaching local autonomy.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication Closing the Gender Gap in Entrepreneurship: Overcoming Challenges in Law and Practice for Female Entrepreneurs(Washington, DC: World Bank, 2026-01-07)Despite significant strides toward gender equality, women around the world continue to encounter systemic obstacles that hinder their entrepreneurial success. This paper systematically reviews the literature on the barriers female entrepreneurs face and the solutions proposed to overcome these challenges. It discusses institutional factors, financial factors, human capital factors, and social and cultural factors. The literature overview is complemented by a series of stylized facts that illustrate how overcoming some of these existing barriers is correlated with improved women’s entrepreneurship and female labor force participation, drawing on the World Bank’s Women, Business and the Law database as well as the World Bank’s Enterprise Surveys. The findings underscore the need for creating an enabling environment where women can thrive as entrepreneurs.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Liberalizing Trade in Services : A Survey(World Bank, Washington, DC, 2006-10)Since the mid 1980s a substantial amount of research has been undertaken on trade in services. Much of this is inspired by the World Trade Organization or regional trade agreements, especially the European Union, but an increasing number of papers focus on the impacts of services sector liberalization. This paper surveys the literature, focusing on contributions that investigate the determinants of international trade and investment in services, the potential gains from greater trade (and liberalization), and efforts to cooperate to achieve such liberalization through trade agreements. It concludes that there is increasing evidence that services liberalization is an important source of potential welfare gains, but relatively little research has been done that can inform the design of international cooperation-both trade agreements and development assistance-so as to more effectively promote development objectives.Publication CGE Modeling of Market Access in Services(World Bank, Washington, DC, 2012-06)This paper examines how the applied multi-sector computable general equilibrium (CGE) literature has moved into quantication of the impacts of greater market access for services. This includes discussion of multi-sector linkages to the service sector, as well both measuring barriers to trade and investment (generally with a mix of firm surveys, price comparisons, and econometrics), and how changes in these barriers, however measured, have been implemented in the CGE literature. Three challenges are highlighted. The first is identification of how trade in services takes place and how market access is therefore affected by policy. The second is to find data sufficiently robust for modeling purposes. The third, linked to the data problem, is to quantify the barriers to be examined. Significant progress has been made in modeling foreign direct investment and linking this to productivity, which turns out to be important. The paper also provides an example of modeling productivity linkages to openness and domestic regulation, with an applied CGE model of Italy. This illustrates cross-sector linkages and the integration of economic data and policy measures to define service sector experiments. Priorities for future research include better modeling of market structure, the linkages between sectors and the complementarities between different modes of supplying services.Publication Clothing and Export Diversification : Still a Route to Growth for Low-Income Countries?(World Bank, Washington, DC, 2007-09)Can the clothing sector be a driver of export diversification and growth for today's low-income countries as it was in the past for countries that have graduated into middle income? This paper assesses this issue taking into account key changes to the market for clothing: the emergence of India and especially China as exporting countries; the rise of global production chains; the removal of quotas from the global trading regime but the continued presence of high tariffs and substantial trade preferences; the increasing importance of large buyers in developed countries and their concerns regarding risk and reputation; and the increasing importance of time in defining sourcing decisions. To assess the importance of the factors shaping the global clothing market, the authors estimate a gravity model to explain jointly the propensity to export clothing and the magnitude of exports from developing countries to the E U and US markets. This analysis identifies the quality of governance as an important determinant of sourcing decisions and that there appears to be a general bias against sourcing apparel from African countries, which is only partially overcome by trade preferences.Publication Facilitating International Production Networks : The Role of Trade Logistics(World Bank, Washington, DC, 2012-10)This paper shows that networked trade in parts and components is more sensitive to the importing country's logistics performance than is trade in final goods. In the baseline specification, the difference between the two trade semi-elasticities is around 45 percent, which suggests that the effect is quantitatively important. In addition, the analysis finds that logistics performance is particularly important for trade in the Asia-Pacific region, which is exactly where the emergence of international production networks has been most pronounced over recent years. The results suggest that policymakers can support the development of international production networks by helping improve trade logistics performance.Publication What Does MFN Trade Mean for India and Pakistan? Can MFN be a Panacea?(World Bank, Washington, DC, 2013-06)India and Pakistan, the two largest economies in South Asia, share a common border, culture and history. Despite the benefits of proximity, the two neighbors have barely traded with each other. In 2011, trade with Pakistan accounted for less than half a percent of India's total trade, whereas Pakistan's trade with India was 5.4 percent of its total trade. However, the recent thaw in India-Pakistan trade relations could signal a change. Pakistan has agreed to grant most favored nation status to India. India has already granted most favored nation status to Pakistan. What will be the gains from trade for the two countries? Will they be inclusive? Is most favored nation status a panacea? Should the granting of most favored nation status be accompanied by improvements in trade facilitation, infrastructure, connectivity, and logistics to reap the true benefits of trade and to promote shared prosperity? This paper attempts to answer these questions. It examines alternative scenarios on the gains from trade and it finds that what makes most favored nation status work is the trade facilitation that surrounds it. The results of the general equilibrium simulation indicate Pakistan's most favored nation status to India would generate larger benefits if it were supported by improved connectivity and trade facilitation measures. In other words, gains from trade would be small in the absence of improved connectivity and trade facilitation. The idea of trade facilitation is simple: implement measures to reduce the cost of trading across borders by improving infrastructure, institutions, services, policies, procedures, and market-oriented regulatory systems. The returns can be huge, even with modest resources and limited capacity. The dividends of trade facilitation can be shared by all.
Users also downloaded
Showing related downloaded files
Publication Rural-Urban Migration in Developing Countries(World Bank, Washington, DC, 2021-05)This paper reviews the recent literature on rural-urban migration in developing countries, focusing on three key questions: What motivates or forces people to migrate? What costs do migrants face? What are the impacts of migration on migrants and the economy? The literature paints a complex picture whereby rural-urban migration is driven by many factors and the returns to migration as well as the costs are very high. The evidence supports the notion that migration barriers hinder labor market adjustment and are likely to be welfare reducing. The review concludes by identifying gaps in current research and data needs.Publication The Impact of Infrastructure on Development Outcomes(Washington, DC: World Bank, 2023-03)Policy makers have long used investing in public infrastructure as a means of reducing geographical disparities and promoting growth. The goal of this paper is to provide insights to development practitioners on designing interventions to maximize the development impact of infrastructure. For this, the paper presents a systematic qualitative overview of the literature, covering more than 300 studies conducted between 1983 and 2022, focusing on specific infrastructure sectors, namely digital, energy, and transport. The study also considers various dimensions of development impact, including output and productivity, poverty and inequality, labor market outcomes, human capital formation, and trade, to develop a nuanced understanding of the mechanisms through which infrastructure contributes to these development outcomes, focusing on low- and middle-income countries. As such, it is the most substantive effort of its kind to date. Overall, despite some mixed results, the overwhelming balance of evidence suggests that infrastructure improvements are critical in supporting the development process. Studies on digital infrastructure show that firm productivity, employment, and welfare increase with the arrival of broadband internet coverage. In addition, the availability of mobile phones improves coordination between producers and traders and hence reduces the price dispersion of agricultural products. Turning to rural electrification, significant literature documents the positive impact of infrastructure on household welfare, structural transformation, and human capital formation through increased labor force participation, more time spent on education, and increased indoor air quality. Investments in the reliability of power supply also contribute to firms’ productivity. However, studies based on randomized controlled trials have not tended to find a substantial short-term impact in the context of dispersed rural populations. Finally, there is rich literature on various transport infrastructure-to-development linkages, particularly for rural roads and for Sub-Saharan Africa. While households’ income and consumption benefit from the existence of rural roads, highways are also found to contribute to firms’ competitiveness. Similarly, public transportation, railways, and ports have positive impacts on the development process.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Firm-Level Technology Adoption in Vietnam(World Bank, Washington, DC, 2021-03)This paper describes the results of a new firm survey to measure technology use and adoption implemented prior to the COVID-19 pandemic in Vietnam. It analyzes the use and adoption of technology among Vietnamese firms and identifies some of the key barriers to adoption and diffusion. The analysis offers new and important stylized facts on firm-level use of technologies. First, although access to the internet is almost universal in Vietnam, firms had low digital readiness to face the COVID-19 pandemic; and the share of establishments with their own website, social media, and cloud computing is still small. Second, the use of Industry 4.0 technologies is incipient. Third, the technology gap with the use of frontier technologies in some general business functions, such as quality control, production planning, sales, and sourcing and procurement, is large. Fourth, the manufacturing sector faces the largest technological gap, larger than services and agricultural firms. The analysis of the main barriers and drivers to technology adoption and use shows the importance of good management quality for technology adoption, and that there is a technology premium associated with exporting activities. Finally, the analysis also shows that firms are largely unaware of the available public policy support for technology upgrading.Publication The Role of Green Financial Sector Initiatives in the Low-Carbon Transition(World Bank, Washington, DC, 2022-09)Green financial sector initiatives, including financial policies, regulations, and instruments, could play an important role in the low-carbon transition by supporting countries in the implementation of economic policies aimed to decarbonize their economy. Thus, it is fundamental to understand the conditions under which and the extent to which green financial sector initiatives could enable the scaling up of green investments and the achievement of national climate mitigation objectives, while, at the same time, avoiding unintended effects on macroeconomic and financial stability. However, this understanding is currently limited, in particular in the context of emerging markets and developing economies. This paper contributes to filling this knowledge gap by analyzing opportunities and challenges associated with the implementation of green financial sector initiatives. It also considers the specificities of green financial sector initiatives in emerging markets and developing economies, which are often characterized by budget constraints, debt sustainability concerns, and limited access to finance. The analysis focuses on green macroprudential policies, green monetary policies, and green public co-funding. For each green financial sector initiative, the paper qualitatively investigates the transmission channels through which it affects the availability and cost of capital for high- and low-carbon goods, but also investments, output, and greenhouse gas emissions, considering the design and implementation of the green financial sector initiative. For each green financial sector initiative, the paper further identifies its entry point in the economy and its direct and indirect impacts. Building on these insights, the paper develops a theory of change about the role of green financial sector initiatives in climate mitigation and in the low-carbon transition, identifying the criteria for applicability and conditions to maximize impact.