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Fragmentation, Outsourcing and the Service Sector

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  • Ngo Van Long

    ()

  • Ray Riezman
  • Antoine Soubeyran

Abstract

We show that the growth of the service sector facilitates outsourcing, or fragmentation of production. Services link production blocks, and allows the breaking up of integrated production. The cost of aggregate service decreases as the number of specialized services increases. A country with a greater number of specialized services tends to export components that are service-intensive. When international trade in specialized services are permitted, the country with an advanced service sector will outsource most of the manufacturing activities. Thus free trade in specialized services tends to increase fragmentation. On the other hand, if there are high transport costs with a bias against complex specialized services, then free trade in specialized services may work against fragmentation. On montre que la croissance du secteur des services facilite la fragmentation de la production. Les services relient les blocs de production et permettent la dispersion de la production intégrée. Un pays possédant un grand nombre de services spécialisés a tendance à exporter les pièces dont la production utilise intensément les services. Avec la libéralisation de l'échange des services, les pays possédant un secteur de services avancé tendent à impartir la fabrication des pièces. Par conséquent, la libéralisation du commerce augmente la fragmentation. Par contre, si les coûts de transport sont élevés pour les services les plus complexes, le libre échange des services spécialisés peut réduire la fragmentation.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2001s-43.

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Date of creation: 01 Jun 2001
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Handle: RePEc:cir:cirwor:2001s-43

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Related research

Keywords: Fragmentation; outsourcing; service sector; Fragmentation; impartition; secteur des services;

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References

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  1. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
  2. repec:fth:michin:422 is not listed on IDEAS
  3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  4. Horst Raff & Marc von der Ruhr, 2007. "Foreign Direct Investment in Producer Services: Theory and Empirical Evidence," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(3), pages 299-321.
  5. Deardorff, Alan V, 2001. "International Provision of Trade Services, Trade, and Fragmentation," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 233-48, May.
  6. Richard G. Harris, 1993. "Globalization, Trade, and Income," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 755-76, November.
  7. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
  8. Hanson, Gordon H, 1996. "Localization Economies, Vertical Organization, and Trade," American Economic Review, American Economic Association, vol. 86(5), pages 1266-78, December.
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Cited by:
  1. Kong Weng Ho & Hian Teck Hoon, 2003. "Service Links and Wage Inequality," Departmental Working Papers wp0301, National University of Singapore, Department of Economics.
  2. Nicholas Sim, 2004. "International production sharing and economic development: moving up the value-chain for a small-open economy," Applied Economics Letters, Taylor & Francis Journals, vol. 11(14), pages 885-889.

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