Global value chains

This paper surveys the recent body of work in economics on the importance of global value chains (GVCs) in shaping international trade flows and production patterns. On the empirical front, we begin by reviewing the "macro approach" to measuring the relevance of global production sharing in the world economy, while also offering a critical evaluation of the datasets (namely, World Input-Output Tables) that have been used to date to perform this value added accounting. We next discuss a "micro approach" that has instead employed firm-level datasets to document the ways in which firms have sliced up their value chains across countries. On the theoretical front, we propose an analogous dissection of the literature. First, we review a vast body of work developing country- and industry-level quantitative frameworks that are easily calibrated with World Input-Output Tables, and that shed light on the aggregate consequences of GVCs. Second, we overview micro-level frameworks that have treated firms rather than countries or industries as the relevant unit of analysis, and that have unveiled a number of mechanisms that are distinct from traditional models by which GVCs shape international trade flows. We close this survey with a discussion of a still infant literature on the desirability and effects of trade policy in a world of GVCs.