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Trade liberalization within the framework of Global Value Chains

Publication date: 
Friday 31 October 2014
Author: 
Gabriel Michelena

In recent years, and from the new prevailing paradigm of Global Value Chains (GVCs), the WTO, the OECD and UNCTAD have recommended the countries to reduce the cost of imported inputs, so as to improve competition and stimulate exports. Nevertheless, the recent literature on the subject has systematically ignored the general equilibrium effects when insisting on unilateral tariff reduction as a means to foster exports and economic growth. When the macroeconomic effects on income and global demand are taken into account, the general conclusions set forth by GVC advocates are only supported under very special assumptions and presuppose a quite unlikely macroeconomic configuration. Driven by these considerations, this article develops a stock-flow consistent model that takes into account the existing relationship between trade policy, foreign competition and income level.

Numeration: 
3
Type: 
General topic: