Winners and losers in global supply chain trade: Embedding GSC in CGE

A major question in contemporary economic discussions is who wins and who loses from global supply chain (GSC) trade. In seeking an answer to this question, policy makers are not well-served by existing economic models. GSC models lack adequate representation of labour markets and other aspects of the economy outside the GSC sector. Global computable general equilibrium (CGE) models have an economy-wide perspective but lack essential GSC features. We integrate GSC with CGE. Results from the integrated model can differ sharply from standalone results. A stylized application of the integrated model shows that GSC trade can accelerate the transfer of labour in developing countries out of low-marginal-productivity agriculture into higher-marginal-productivity manufacturing. At the same time, GSC trade can leave high-income countries with a difficult structural-adjustment problem and little if any long-run gain. •GSC trade accounts for more than 50% of the world's trade in manufactured products.•GSC trade is not well-handled in CGE modelling—the dominant tool for trade policy.•We present a method for integrating GSC and CGE, with a stylized application.•We find the benefits of GSC trade accrue to developing countries with surplus labour.•Adjustment costs of GSC trade are borne by developed countries.