Research

Are African exports that weak ? A trade in value-added approach

African countries are known to export less than any other group of countries in the world. Many studies have advanced that the main reason for this is the high level of transport costs due to the poor quality of transport infrastructures on the African continent. We first show that, depending on the estimator used, African countries as an aggregate do not necessarily trade a lower volume of gross exports than other countries on average, even though they clearly underperform in exports of final goods. This underperformance, reflected by the greater impact of bilateral trade costs such as distance on African exports of final goods compared to other countries, is not observed for African intermediate goods flows. Second, we formulate a model for trade in value-added by adapting the standard gravity equation to take into account the structure of value-added exports. The proposed model points up the importance of the indirect trade costs of third countries via which a country of origin’s value-added transits before reaching its final destination. When we control for these indirect trade costs in the value-added trade estimation, the additional impact of the bilateral trade costs observed for African countries’ final goods exports is six times lower.

Working papers

The welfare gains of inputs trade with country specific inputs and horizontal FDI (Submitted)

This study quantifies the welfare gains from international fragmentation when intermediate inputs are country-specific and in the presence of multinational activity through Horizontal FDI. We demonstrate that a shutdown of trade in intermediate inputs would lead to a substitution between affiliates’ sales and final goods exports, thereby mitigating the negative impact of the shutdown. Within this framework, we find that the welfare gains from international fragmentation are, on average, half of those suggested by standard trade models.

Import substitution revival and the Welfare Gains of International Fragmentation (Submitted)

This study investigates the welfare effects of a trade shock resulting from a complete shutdown of trade in intermediate inputs. We derive novel insights into the implications of this shock on consumption possibilities. The analysis is conducted within the framework of a model that incorporates endogenous quality and substitution between intermediate inputs and final goods (endogenous technology). We first demonstrate that a shutdown of trade in intermediate inputs does not affect countries' revenues or nominal wages conditionally on the constancy of the share of value added in production. Building upon this insight, we quantify the welfare gains from trade following the shutdown, considering special cases where technology and quality are alternatively endogenous and exogenous, and demonstrate how they relate to welfare formulas already derived in the literature. Our main result shows that the loss of access to foreign intermediate inputs by a country's local producers would increase the price of final goods, but this increase would be partially offset by an increase in imports of final goods that utilize previously imported inputs. Thus, our study emphasizes the significance of considering the substitution between intermediate and final goods when evaluating the consequences of a shutdown of international fragmentation. This research contributes to a deeper understanding of the welfare effects of trade shocks and provides valuable insights for policymakers and stakeholders in assessing the potential consequences of disruptions in global supply chains.

Trade in value-added and the welfare gains of international fragmentation (Submitted)

It is notorious in the literature that international fragmentation substantially increases the welfare gains of trade which are, as well known, inversely proportional to the shares of domestic trade in intermediates and final goods. Most calculations, however, implicitly assume that a shutdown of trade in intermediate goods would leave the share of domestic trade in final goods fixed, which overestimates the results. The varieties of goods available in a country would likely change if local firms lost access to intermediate inputs required to produce their final goods. The share of domestic trade in final goods should, therefore, vary following a shutdown of international fragmentation. A simple mechanism describes how this share changes following the shock. The shutdown would create a substitution between intermediate goods and final goods imports. The loss of access to foreign intermediate inputs by a country’s local producers would be compensated by an increase in final goods imports using these inputs, which would attenuate the initial impact of the shutdown. Using this mechanism, we calculate that international fragmentation represents on average approximately 20 % of the total welfare gains of trade, while it would represent at least 50 % without this adjustment.

Work in progress