Who Sits Where in the Chain? A Network-Based Theory of Global Production

This paper develops a general equilibrium model of global supply chains in which production is structured as a direct acyclical graph (DAG). This network-based formulation captures complex input-output linkages while remaining analytically tractable. It departs from standard trade models by embedding supply chain topology directly into price, wage, and specialization outcomes. Equilibrium prices depend on production architecture—not geography—and countries sort endogenously into value chain positions based on revenue-maximizing comparative advantage. The framework explains how upstream shocks propagate through bottlenecks, why productivity and wage patterns may decouple, and how prices form recursively in interdependent economies. These dynamics are especially salient in the wake of global disruptions such as the U.S.—China trade war, the COVID-19 pandemic, and the war in Ukraine. By focusing on production structure rather than trade flows, the model offers a tractable lens to study structural transformation, systemic resilience, and the evolving geometry of global integration.