The Bazaar Effect, Unbundling of Comparative Advantage, and Migration

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The Bazaar Effect, Unbundling of Comparative Advantage, and Migration

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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 GmbH 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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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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