Markup centrality and international incidence in global production networks

Abstract

This paper develops a framework to measure how markups amplify prices through global production networks and to attribute final-demand price wedges to upstream country-industry sources. The approach defines a compound markup as the ratio of observed prices to counterfactual pure-cost prices that would prevail if all markups in the network were one. Using an input-output price model under a Cobb-Douglas benchmark, the method yields an implementable mapping from direct markups to network-propagated wedges and an exact decomposition into upstream contributions. The framework is implemented with the World Input-Output Database 2016 release. The decomposition identifies upstream nodes with high markup centrality and quantifies the international incidence of the aggregate wedge, including destination-specific attributions that separate domestic from foreign contributions and an exact ordered ranking of foreign-incidence exposure across WIOD destinations. Compound markups provide a rigorous accounting of how market power propagates through global value chains, with most of the aggregate wedge explained by a small number of propagation rounds and concentrated upstream contributors.