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A Multi-Country Approach to Factor-Proportions Trade and Trade Costs

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Author Info
Markusen, James R.
Venables, Anthony J.

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Abstract

Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multi-stage production, and country-specific trade costs. We derive patterns of production specialization and trade for a matrix of countries that differ in relative endowments (columns) and trade costs (rows). We demonstrate how the ability to fragment production and/or a proportional change in all countries’ trade costs alters these patterns. Production specialization and the volume of trade are higher with fragmentation for most countries but interestingly, for a large block of countries, these variables fall following fragmentation. Countries with moderate trade costs engage in market-oriented assembly, while those with lower trade costs engage in export-platform production. These two cases correspond to the concepts of horizontal and vertical affiliate production in the literature on multinational enterprises. Increases in specialization and the volume of trade accelerate as trade costs go to zero with and without fragmentation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4872.

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Date of creation: Jan 2005
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Handle: RePEc:cpr:ceprdp:4872

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Related research
Keywords: fragmentation; multi-country; multinationals; trade costs;

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Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
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  2. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99. [Downloadable!]
  3. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," NBER Working Papers 6849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  5. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June. [Downloadable!] (restricted)
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  6. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment," Harvard Institute of Economic Research Working Papers 1850, Harvard - Institute of Economic Research.
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  7. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," Harvard Institute of Economic Research Working Papers 1856, Harvard - Institute of Economic Research.
  9. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May. [Downloadable!] (restricted)
  10. Ng, Francis & Yeats, Alexander, 1999. "Production sharing in East Asia : who does what for whom, and why?," Policy Research Working Paper Series 2197, The World Bank. [Downloadable!]
  11. 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)
  12. Norman, Victor D & Venables, Anthony J, 1995. "International Trade, Factor Mobility and Trade Costs," Economic Journal, Royal Economic Society, vol. 105(433), pages 1488-1504, November. [Downloadable!] (restricted)
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  13. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April. [Downloadable!] (restricted)
  14. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2001. "Factor Price Equality and the Economies of the United States," NBER Working Papers 8068, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Markusen, James R. & Strand, Bridget, 2007. "Trade in Business Services in General Equilibrium," CEPR Discussion Papers 6080, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Kwok Tong Soo, 2006. "What does the eclectic trade model say about the Samuelson conundrum?," Working Papers 004284, Lancaster University Management School, Economics Department.
  3. James Markusen, 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," NBER Working Papers 11827, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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