‘Governed’ trade: global value chains, firms, and the heterogeneity of trade in an era of fragmented production

Abstract

Over the past several decades, firms have de-verticalized and internationalized increasingly complex manufacturing and service functions, a phenomenon studied across the social sciences. However, the disciplines disagree over whether the fragmentation of production is substantively novel, requiring amendments to trade theory, or is simply a secular deepening of the international division of labor. Some economists view it as ‘just trade,’ driven by well-known actor-less determinants, such as factor endowments, technology, and returns to scale, while more recent firm heterogeneity trade theories consider firm behavior. By contrast, other heterodox social science approaches differ by focusing on the strategic actions of firms and sector-specific governance as independent drivers which ‘govern’ trade and determine the division of value between countries. This paper develops novel measurements by utilizing unique transactional trade data – the raw firm-level trade transactions that comprise standard inter-country trade statistics – on 439 of China's largest exporters in 18 subsectors of the electronics and light industries, to examine whether trade is heterogeneously governed in ways theorized by the global value chain (GVC) literature. It finds substantial empirical support for GVC-governed trade, and advances both GVC and firm-centric trade theory along several fronts.

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