How do global value chain (GVC) linkages modify countries' incentives to impose import protection? Are these linkages important determinants of trade policy in practice? We develop a new approach to modelling tariff setting with GVCs, in which optimal policy depends on the nationality of value-added content embedded in home and foreign final goods. Theory predicts that discretionary tariffs will be decreasing in the domestic content of foreign-produced final goods and the foreign content of domestically produced final goods. Using data for 14 countries between 1995 and 2015, we show that governments set lower tariffs and curb their use of temporary trade barriers where GVC linkages are strongest, consistent with theory. Turning to quantitative model counterfactuals, we find that severing GVC linkages would lead to the disappearance of tariff preferences. Further, targeted policies to decouple China from GVCs would increase the optimal tariff set by G7 countries on Chinese exports.

During the recovery from the COVID-19 pandemic, international shipping and logistics capacity was strained, limiting the quantity of imports.We investigate the impact of an import constraint on inflation, following an increase in domestic demand.Whether the binding import constraint raises inflation depends on how it affects trade intermediation costs.If the binding constraint raises trade costs, then import price inflation also increases.In this case, however, foreign producer price inflation falls, and import quantities rise more for inputs than final goods.Both these model results appear counterfactual, which suggests that import constraints may not explain observed import price inflation.

This paper surveys macroeconomic and microeconomic perspectives on the role of international trade in structural transformation. We start by describing canonical frameworks that have been used to quantify how trade influences sectoral shares of employment and value added. We then pivot to survey micro-empirical evidence on the impact of changes in trade on the allocation of labor across sectors and productivity at the firm level. In this, we put special emphasis on the role of participation in global value chains and inward foreign direct investment in mediating these effects. Next, we evaluate evidence on the barriers to trade faced by low-income countries, with special attention to recent work that measures these costs taking firm dynamics into account. We conclude by discussing how these micro-perspectives can be integrated into macro models to advance our understanding of structural change.

In Type 1 diabetes patients, even ultra-rapid acting insulins injected subcutaneously reach peak concentrations in 45 minutes or longer. The lag time between dosing and peak concentration, as well as intra- and inter-subject variability, render prandial glucose control and dose consistency difficult. We postulated that insulin absorption from subcutaneously implantable vascularizing microchambers would be significantly faster than conventional subcutaneous injection. Male athymic nude R. norvegicus rendered diabetic with streptozotocin were implanted with vascularizing microchambers (single chamber; 1.5 cm2 surface area per side; nominal volume, 22.5 μl). Plasma insulin was assayed after a single dose (1.5 U/kg) of diluted insulin human (Humulin®R U-100), injected subcutaneously or via microchamber. Microchambers were also implanted in additional animals and retrieved at intervals for histologic assessment of vascularity. Following conventional subcutaneous injection, the mean peak insulin concentration was 22.7 (SD 14.2) minutes. By contrast, when identical doses of insulin were injected via subcutaneous microchamber 28 days after implantation, the mean peak insulin time was shortened to 7.50 (SD 4.52) minutes. Peak insulin concentrations were similar by either route; however, inter-subject variability was reduced when insulin was administered via microchamber. Histologic examination of tissue surrounding microchambers showed mature vascularization on days 21 and 40 post-implantation. Implantable vascularizing microchambers of similar design may prove clinically useful for insulin dosing, either intermittently by needle, or continuously by pump including in “closed loop” systems, such as the artificial pancreas.

Transplants comprised of encapsulated islets have shown promise in treating insulin-dependent diabetes. A question raised in the scientific and clinical communities is whether the insulin released from an implanted encapsulation device damaged in an accident could cause a serious hypoglycemic event. In this commentary, we consider the different types of damage that a device can sustain, including the encapsulation membrane and the islets within, and the amount of insulin released in each case. We conclude that the probability that device damage would cause an adverse hypoglycemic event is indeed very low.

We develop a multisector, open economy, New Keynesian framework to evaluate how potentially binding capacity constraints, and shocks to them, shape inflation.We show that binding constraints for domestic and foreign producers shift domestic and import price Phillips Curves up, similar to reduced-form markup shocks.Further, data on prices and quantities together identify whether constraints bind due to increased demand or reductions in capacity.Applying the model to interpret recent US data, we find that binding constraints explain half of the increase in inflation during 2021-2022.In particular, tight capacity served to amplify the impact of loose monetary policy in 2021, fueling the inflation takeoff.

Did trade integration suppress inflation in the United States? We say no, in contradiction to the conventional wisdom. Our answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, we show trade integration was inflationary. This result continues to hold when we extend the model to account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration in a multisector model. Further, using the multisector model, we demonstrate that neither cross-sector evidence on trade and prices, nor aggregate time series price level decompositions are informative about the impact of trade on inflation.

We build a quantitative model of trade with multistage manufacturing value chains, which features iceberg trade costs and technology differences across both goods and production stages.We estimate technology and trade costs via the simulated method of moments, matching bilateral shipments of final goods and inputs.Applying the model, we investigate how comparative advantage and trade costs shape the structure of global value chains and trade flows.As the level of trade costs falls, we show that the elasticity of bilateral trade to trade costs increases, due to the endogenous reorganization of value chains (increased export platform production).Surprisingly, however, the elasticity of world trade to trade costs is not magnified by multistage production.

Human allogeneic islet transplantation (ITx) is emerging as a promising treatment option for qualified patients with type 1 diabetes. However, widespread clinical application of allogeneic ITx is hindered by two critical barriers: the need for systemic immunosuppression and the limited supply of human islet tissue. Biocompatible, retrievable immunoisolation devices containing glucose-responsive insulin-secreting tissue may address both critical barriers by enabling the more effective and efficient use of allogeneic islets without immunosuppression in the near-term, and ultimately the use of a cell source with a virtually unlimited supply, such as human stem cell-derived β-cells or xenogeneic (porcine) islets with minimal or no immunosuppression. However, even though encapsulation methods have been developed and immunoprotection has been successfully tested in small and large animal models and to a limited extent in proof-of-concept clinical studies, the effective use of encapsulation approaches to convincingly and consistently treat diabetes in humans has yet to be demonstrated. There is increasing consensus that inadequate oxygen supply is a major factor limiting their clinical translation and routine implementation. Poor oxygenation negatively affects cell viability and β-cell function, and the problem is exacerbated with the high-density seeding required for reasonably-sized clinical encapsulation devices. Approaches for enhanced oxygen delivery to encapsulated tissues in implantable devices are therefore being actively developed and tested. This review summarizes fundamental aspects of islet microarchitecture and β-cell physiology as well as encapsulation approaches highlighting the need for adequate oxygenation; it also evaluates existing and emerging approaches for enhanced oxygen delivery to encapsulation devices, particularly with the advent of β-cell sources from stem cells that may enable the large-scale application of this approach.

Recent decades have seen the emergence of global value chains (GVCs), in which production stages for individual goods are broken apart and scattered across countries. Stimulated by these developments, there has been rapid progress in data and methods for measuring GVC linkages. The macro approach to measuring GVCs connects national input–output tables across borders by using bilateral trade data to construct global input–output tables. These tables have been applied to measure trade in value added, the length of and location of producers in GVCs, and price linkages across countries. The micro approach uses firm-level data to document firms’ input sourcing decisions, how import and export participation are linked, and how multinational firms organize their production networks. In this review, I evaluate progress in these two approaches, highlighting points of contact between them and areas that demand further work. I argue that further convergence between these approaches can strengthen both, yielding a more complete empirical portrait of GVCs.

There is currently a significant disparity between the number of patients who need lifesaving transplants and the number of donated human organs. Xenotransplantation is a way to address this disparity and attempts to enable the use of xenogeneic tissues have persisted for centuries. While immunologic incompatibilities have presented a persistent impediment to their use, encapsulation may represent a way forward for the use of cell-based xenogeneic therapeutics without the need for immunosuppression. In conjunction with modern innovations such as the use of bioprinting, incorporation of immune modulating molecules into capsule membranes, and genetic engineering, the application of xenogeneic cells to treat disorders ranging from pain to liver failure is becoming increasingly realistic. The present review discusses encapsulation in the context of xenotransplantation, focusing on the current status of clinical trials, persistent issues such as antigen shedding, oxygen availability, and donor selection, and recent developments that may address these limitations.

We combine data on trade, production, and input use to document changes in the value-added content of trade between 1970 and 2009. The ratio of value-added to gross exports fell by roughly 10 percentage points worldwide. The ratio declined 20 percentage points in manufacturing, but rose in nonmanufacturing sectors. Declines also differ across countries and trade partners: they are larger for fast-growing countries, for nearby trade partners, and among partners that adopt regional trade agreements. Using a multisector structural gravity model with input-output linkages, we show that changes in trade frictions play a dominant role in explaining all these facts.

Appendix A reports on a wide set of examples and measures, the analysis of which can complement the task-based and value-added data assessments. Appendix B provides the Broad Economic Categories (BEC) classification, as defined by the United Nations (UN), which comprises 19 basic categories assigned to the final use of the good—capital, consumption, and intermediate. Appendix C provides an excerpt from the customized intermediates in the apparel and footwear sector, listing the Broad Economic Categories (BEC), the Standard International Trade Classification (SITC), and the SITC description. Appendix D provides an excerpt from the list of manufacturing parts and components at the Harmonized System (HS) of trade classification at the 6-digit level. Appendix E provides a table showing the assignment of selected products to five value chain categories in five main global value chain sectors …

We combine data on trade, production, and input use to document changes in the value added content of trade between 1970 and 2009. The ratio of value-added to gross exports fell by roughly 10 percentage points worldwide. The ratio declined 20 percentage points in manufacturing, but rose in non-manufacturing sectors. Declines also differ across countries and trade partners: they are larger for fast growing countries, for nearby trade partners, and among partners that adopt regional trade agreements. Using a multi-sector structural gravity model with input-output linkages, we show that changes in trade frictions play a dominant role in explaining all these facts. Robert C. Johnson Department of Economics Dartmouth College 6106 Rockefeller Hall Hanover, NH 03755 and NBER robert.c.johnson@dartmouth.edu Guillermo Noguera Department of Economics University of Warwick Coventry, CV4 7AL, United Kingdom g.noguera@warwick.ac.uk Recent decades have seen the emergence of global supply chains. Echoing Feenstra (1998), rising trade integration has coincided with the simultaneous disintegration of production across borders. As inputs pass through these global supply chains, they typically cross borders multiple times. Since the national accounts record gross shipments across the border, not the locations at which value is added at different stages of the production process, conventional trade data obscure how value added – and the primary factors embodied therein – is traded in the global economy. This means that gross trade data alone are not sufficient to isolate the causes or interpret the consequences of the massive changes in the global economy that have occurred in recent decades. We need to pierce the veil of the gross flows to analyze changes in trade in value added directly. This paper computes and analyzes the value added content of trade over the last four decades (1970-2009). In doing so, we make three contributions. First, we provide long horizon measures of value-added trade for a wide cross section of countries. Second, we document five stylized facts about changes in value-added and gross trade at the world, country, and bilateral level over time. We show that the value added content of trade has declined for the world as a whole, that there is substantial heterogeneity in declines across countries, and that regional trade agreements lower value-added relative to gross trade. Third, we use a trade model with input-output linkages across sectors and countries to quantify the role of international trade frictions in explaining the divergence between value-added and gross trade over time. We show that changes in trade frictions, particularly frictions for manufactured inputs, play a key role in explaining all five stylized facts. To track value-added trade over time, we combine time series data on trade, production, and input use to construct an annual sequence of global bilateral input-output tables covering forty-two countries back to 1970. These synthetic tables track shipments of final and intermediate goods both within and between countries. Using this framework, we compute value-added exports: the amount of value added from a given source country that is consumed in each destination (i.e., embodied in final goods absorbed in that destination) [Johnson and Noguera (2012a)]. Value-added exports measure international transactions in a manner consistent with commonly used value-added representations of production and preferences. They differ from gross exports for several distinct reasons: exports are typically produced using imported inputs, some exported inputs return home embodied in imports, and exported inputs often are processed in third countries before being shipped onto their This theme is reflected in work on vertical specialization, offshoring, and global value chains [Feenstra and Hanson (1999), Yi (2003, 2010), Grossman and Rossi-Hansberg (2008), Antràs (2016)]. On the production side, value-added exports are explicitly comparable to GDP. On the demand side, value-added imports equal final expenditure on value added from foreign sources, regardless of whether that value-added is embodied in domestic or imported final goods.

How do global supply chain linkages modify countries' incentives to impose import protection? Are these linkages empirically important determinants of trade policy? To address these questions, this paper introduces supply chain linkages into a workhorse terms-of-trade model of trade policy with political economy. Theory predicts that discretionary final goods tariffs will be decreasing in the domestic content of foreign-produced final goods. Provided foreign political interests are not too strong, final goods tariffs will also be decreasing in the foreign content of domestically-produced final goods. The paper tests these predictions using newly assembled data on bilateral applied tariffs, temporary trade barriers, and value-added contents for 14 major economies over the 1995-2009 period. There is strong support for the empirical predictions of the model. The results imply that global supply chains matter for trade policy, both in principle and in practice.

We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.

Does input trade synchronize business cycles across countries? I incorporate input trade into a dynamic multisector model with many countries, calibrate the model to match bilateral input-output data, and estimate trade-comovement regressions in simulated data. With correlated productivity shocks, the model yields high trade-comovement correlations for goods, but near-zero correlations for services and thus low aggregate correlations. With uncorrelated shocks, input trade generates more comovement in gross output than real value added. Goods comovement is higher when (i) the aggregate trade elasticity is low, (ii) inputs are more substitutable than final goods, and (iii) inputs are substitutable for primary factors. (JEL E23, E32, F11, F14, F43, F44)

This appendix includes supplemental results that are referenced in the main text. The supplemental results include: (1) stylized facts concerning gross output and value added correlations in the data (referenced in Section 4.1), and (2) robustness checks for the main trade-comovement regressions, in which I vary both the data and model simulations used to estimate trade-comovement regression coefficients, and (3) figures underlying the discussion of model mechanics in Section 4.3.3.

By linking domestic and foreign production processes, global supply chains alter how shocks are transmitted across borders. In this paper, we analyze the role of these input linkages in determining how demand for value added responds to changes in international relative prices. We emphasize that elasticities of substitution in production and final demand shift the balance between supply versus demand side transmission channels, and therefore affect both the magnitude and bilateral distribution of demand spillovers. Using global input-output data to parameterize the framework, we quantify these mechanics. When supply chains are inflexible, we find that the magnitude of multilateral spillovers is dampened, and bilateral spillovers are reallocated away from supply chain partners. We discuss how our results inform analysis of expenditure switching and price adjustment in macroeconomic models. ∗We thank seminar participants at the Banque de France, CREI (Pompeu Fabra), Dartmouth, and the Mainz Workshop in Trade and Macroeconomics for helpful comments. The views expressed in this paper are those of the authors and should not be attributed to the International Monetary Fund, its executive board or its management, or Bank of Latvia. †International Monetary Fund, Bank of Latvia and SSE Riga. E-mail: rbems@imf.org. Website: http: //sites.google.com/site/rudolfsbems. ‡Dartmouth College & NBER. E-mail: robert.c.johnson@dartmouth.edu. Website: http://www. dartmouth.edu/~rjohnson.

Due to the rise of global supply chains, gross exports do not accurately measure the amount of value added exchanged between countries. I highlight five facts about differences between gross and value-added exports. These differences are large and growing over time, currently around 25 percent, and manufacturing trade looks more important, relative to services, in gross than value-added terms. These differences are also heterogenous across countries and bilateral partners, and changing unevenly across countries and partners over time. Taking these differences into account enables researchers to obtain better quantitative answers to important macroeconomic and trade questions. I discuss how the facts inform analysis of the transmission of shocks across countries; the mechanics of trade balance adjustments; the impact of frictions on trade; the role of endowments and comparative advantage; and trade policy.