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Factor Price Frontiers with International Fragmentation of Multistage Production

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Author Info
Wilhelm Kohler () (Department of Economics, Johannes Kepler University Linz, Austria)
Abstract

I develop a generalized factor price frontier which incorporates endogenous adjustment of international fragmentation in multistage production, allowing for a continuum of stages. This allows us to address fragmentation, not only as an exogenous event, but also as an integral part of endogenous adjustment to a variety of changes not directly related to fragmentation. A two-dimensional general equilibrium analysis explores how the margin of fragmentation, as well as factor prices, respond to a change in the final output price, and to an improvement in the "technology of fragmentation". A key distinction arises between the "average" and "marginal" labour intensity, respectively, of domestic production in the multistage industry. The paper identifies conditions under which outsourcing to a low-wage country is a "friend" or an "enemy" to domestic labour, as well as conditions under which the Jonesian magnification e.ects underlying the Stolper-Samuelson theorem are reinforced, or mitigated, by endogenous changes in the margin of fragmentation. Protection may result in a broader or a narrower range of stages produced domestically.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2003-05.

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Date of creation: Apr 2003
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Handle: RePEc:jku:econwp:2003_05

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Find related papers by JEL classification:
D33 - Microeconomics - - Distribution - - - Factor Income Distribution
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F15 - International Economics - - Trade - - - Economic Integration
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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  1. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
    Other versions:
  2. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
    Other versions:
  3. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
    Other versions:
  4. Sven W. Arndt, 1997. "Globalization and the Open Economy," Working Papers 9701, Lowe Institute of Political Economy. [Downloadable!]
    Other versions:
  5. Avinash K. Dixit & Gene M. Grossman, 1982. "Trade and Protection with Multistage Production," NBER Working Papers 0794, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
  7. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics. [Downloadable!]
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  8. Francesca Fabbri & Jonathan E. Haskel & Matthew J. Slaughter, 2003. "Does Nationality Of Ownership Matter For Labor Demands?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 698-707, 04/05. [Downloadable!] (restricted)
  9. Sven W. Arndt, 1999. "Globalization and economic development," Working Papers 9902, Lowe Institute of Political Economy. [Downloadable!] (restricted)
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  10. Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 121-137, July. [Downloadable!] (restricted)
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  11. 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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  12. Irwin, Douglas A, 1996. "The United States in a New Global Economy? A Century's Perspective," American Economic Review, American Economic Association, vol. 86(2), pages 41-46, May. [Downloadable!] (restricted)
  13. Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Blackwell Publishing, vol. 4(1), pages 89-120, February.
  14. 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)
    Other versions:
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