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The Bazaar Effect, Unbundling of Comparative Advantage, and Migration

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Author Info
Wilhelm Kohler ()
Abstract

Germany exhibits a strong reduction in domestic manufacturing production depth (bazaar effect). I argue that this reflects an unbundling of comparative advantage. Using a model where Ricardian plus Heckscher-Ohlin-type comparative advantage relates to fragments of production, I compare a trading equilibrium where all fragments are located within a country with an equilibrium where input sub-bundles may be traded (offshoring). The model allows for several goods and two fragments, produced with high-skilled and low-skilled labor. I address wage and welfare effects under flexible wages, and under a minimum wage. I also explore trade policy implications and compare offshoring to migration.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1932.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1932

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Related research
Keywords: comparative advantage; offshoring; outsourcing; globalization; migration;

Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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  2. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
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  3. Richard B. Freeman, 2006. "People Flows in Globalization," NBER Working Papers 12315, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall. [Downloadable!] (restricted)
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  6. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Blackwell Publishing, vol. 12(5), pages 817-832, November. [Downloadable!] (restricted)
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  7. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
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  8. Kohler, Wilhelm, 2001. "A specific-factors view on outsourcing," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 31-53, March. [Downloadable!] (restricted)
  9. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified?," Economic Policy, CEPR, CES, MSH, vol. 20(42), pages 308-347, 04. [Downloadable!] (restricted)
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  10. Hans-Werner Sinn, 2005. "Basar-Ökonomie Deutschland - Exportweltmeister oder Schusslicht?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 58(06), pages 03-42, 09. [Downloadable!]
  11. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03. [Downloadable!] (restricted)
  12. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May. [Downloadable!] (restricted)
  14. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Wilhelm Kohler, 2004. "Aspects of International Fragmentation," Review of International Economics, Blackwell Publishing, vol. 12(5), pages 793-816, November. [Downloadable!] (restricted)
  16. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "The rise of offshoring: it's not wine for cloth anymore," Proceedings, Federal Reserve Bank of Kansas City, pages 59-102. [Downloadable!]
  17. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  18. Hartmut Egger & Udo Kreickemeier, 2005. "International Fragmentation: Boon or Bane for Domestic Employment?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  19. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Choi, E Kwan & Harrigan, James, 2004. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  21. Deardorff, Alan V., 2005. "Ricardian comparative advantage with intermediate inputs," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 11-34, March. [Downloadable!] (restricted)
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  22. Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-48, July. [Downloadable!] (restricted)
  23. Marin, Dalia, 2004. "'A Nation of Poets and Thinkers' - Less So with Eastern Enlargement? Austria and Germany," Discussion Papers in Economics 329, University of Munich, Department of Economics. [Downloadable!]
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  24. Pol Antràs & Elhanan Helpman, 2006. "Contractual Frictions and Global Sourcing," NBER Working Papers 12747, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  25. Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Blackwell Publishing, vol. 4(1), pages 89-120, February.
  26. Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 197-209, May. [Downloadable!] (restricted)
  27. Deardorff, Alan V., 2005. "A trade theorist's take on skilled-labor outsourcing," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 259-271. [Downloadable!] (restricted)
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  28. Gorg, Holger & Hanley, Aoife, 2005. "Labour demand effects of international outsourcing: Evidence from plant-level data," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 365-376. [Downloadable!] (restricted)
  29. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May. [Downloadable!] (restricted)
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