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Relocating the value chain: Off-shoring and agglomeration in the global economy

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  • Baldwin, Richard
  • Venables, Anthony J.

Abstract

Fragmentation of stages of the production process is determined by international cost differences and by the benefits of co-location of related stages. The interaction between these forces depends on the technological relationships between these stages. This paper looks at both cost minimising and equilibrium fragmentation under different technological configurations. Reductions in trade costs beyond a threshold can result in discontinuous changes in location, with relocation of a wide range of production stages. There can be overshooting (off-shoring that is reversed as costs fall further) and equilibrium may involve less off-shoring than is efficient.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8163.

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Date of creation: Dec 2010
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Handle: RePEc:cpr:ceprdp:8163

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Related research

Keywords: agglomeration; assembly; fragmentation; off-shoring; parts and components; vertical linkages;

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References

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  1. Kimura, Fukunari & Takahashi, Yuya & Hayakawa, Kazunobu, 2007. "Fragmentation and parts and components trade: Comparison between East Asia and Europe," The North American Journal of Economics and Finance, Elsevier, vol. 18(1), pages 23-40, February.
  2. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2003. "Vertical Production Networks in Multinational Firms," NBER Working Papers 9723, National Bureau of Economic Research, Inc.
  3. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
  4. Mitsuyo Ando & Fukinari Kimura, 2003. "The Formation of International Production and Distribution Networks in East Asia," NBER Working Papers 10167, National Bureau of Economic Research, Inc.
  5. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  6. Richard Baldwin & Frédéric Robert-Nicoud, 2010. "Trade-in-goods and trade-in-tasks: An Integrating Framework," NBER Working Papers 15882, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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.
  9. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
  10. Arndt, Sven W. & Kierzkowski, Henryk (ed.), 2001. "Fragmentation: New Production Patterns in the World Economy," OUP Catalogue, Oxford University Press, number 9780199243310, October.
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Citations

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Cited by:
  1. Richard Baldwin, 2011. "Unilateral tariff liberalisation," Global COE Hi-Stat Discussion Paper Series gd10-159, Institute of Economic Research, Hitotsubashi University.
  2. Marcel P. Timmer & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2013. "Fragmentation, incomes and jobs: an analysis of European competitiveness," Economic Policy, CEPR;CES;MSH, vol. 28(76), pages 613-661, October.
  3. Hillberry, Russell & Hummels, David, 2013. "Trade Elasticity Parameters for a Computable General Equilibrium Model," Handbook of Computable General Equilibrium Modeling, Elsevier.
  4. Arvis, Jean-Francois, 2013. "How many dimensions do we trade in ? product space geometry and latent comparative advantage," Policy Research Working Paper Series 6478, The World Bank.
  5. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.

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