Capital Services in Global Value Chains

This paper constructs the first global dataset on inter-sectoral capital service expenditures. I use this data to disaggregate capital services and intermediate inputs in a dynamic multi-sector trade model. Steady state allocations and responses to shocks are determined by a capital-augmented global input-output matrix. Two properties of the measured network deliver larger long-run consumption gains from globalization than existing estimates, as well as larger gains in more capital-intensive countries. First, more trade-exposed sectors supply capital to more consumption-influential producers. Second, heterogeneity in the network reallocates sectoral expenditures towards producers with larger declines in capital rental prices. These reallocations raise capital incomes and lower consumption price indices.