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Expansion of trade at the extensive margin: A general gains-from-trade result and illustrative examples

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  • Markusen, James R.

Abstract

The basic gains-from-trade theorem makes a stark comparison between completely free trade and complete autarky. This paper is motivated by recent evidence that trade has greatly expanded on the extensive margin (aka fragmentation, vertical specialization, offshoring) by adding newly traded goods and services and that much of this new trade is in intermediates. I provide an extension of existing gains-from-trade results by allowing trade in an added set of final and/or intermediate goods. As seems generally understood, a sufficient condition for all countries to gain from liberalization is that the relative world prices of initially-traded goods don't change, but I don't think that this has been generalized to expanding the set of tradeables. Further, trade costs break the strict link between domestic and world prices in my approach and this results in interesting subtleties as initially-traded goods change their trade status following fragmentation. I illustrate these results by applying them to two recent and quite specific formulations of expansion at the extensive margin: Grossman and Rossi-Hansberg (2008) and Markusen and Venables (2007).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 1 ()
Pages: 262-270

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Handle: RePEc:eee:inecon:v:89:y:2013:i:1:p:262-270

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Gains from trade; Offshoring; Fragmentation; Trade in tasks;

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References

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  1. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
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  13. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
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  18. Markusen, James R., 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," CEPR Discussion Papers 5408, C.E.P.R. Discussion Papers.
  19. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
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Citations

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Cited by:
  1. Kohler, Wilhelm & Wrona, Jens, 2011. "Offshoring tasks, yet creating jobs?," University of Tuebingen Working Papers in Economics and Finance 12, University of Tuebingen, Faculty of Economics and Social Sciences.
  2. Türkcan, Kemal, 2014. "Investigating the Role of Extensive Margin, Intensive Margin, Price and Quantity Components on Turkey’s Export Growth during 1998-2011," MPRA Paper 53292, University Library of Munich, Germany.
  3. Baldwin, Richard & Robert-Nicoud, Frédéric, 2010. "Trade-in-goods and trade-in-tasks: An Integrating Framework," CEPR Discussion Papers 7775, C.E.P.R. Discussion Papers.
  4. Cletus C. Coughlin, 2012. "Extensive and intensive trade margins: a state-by-state view," Working Papers 2012-002, Federal Reserve Bank of St. Louis.
  5. Coughlin, Cletus C., 2014. "Determinants of trade margins: insights using state export data," Working Papers 2014-6, Federal Reserve Bank of St. Louis.

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