Trade Diversion and Production Sharing

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Trade Diversion and Production Sharing

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Sven W. Arndt () (Lowe Institute of Political Economy, Claremont McKenna College)

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Sven Arndt

Abstract

This paper examines the repercussions of cross-border production sharing for the welfare effects of preferential trade liberalization. In a general-equilibrium context, a free trade agreement (FTA), which incorporates production sharing, raises the likelihood of welfare improvement. Thus, two members of a free trade area, who each have comparative disadvantage in the production of a final product relative to a non-member, may nevertheless enjoy net trade creation if they jointly possess comparative advantage in key components of that product. At a minimum, crossborder production sharing reduces the trade-diverting elements of an FTA. It follows, that rules of origin, viewed as constraints on cross-border fragmentation, augment the negative, trade-diverting elements of free trade areas.

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Paper provided by Lowe Institute of Political Economy in its series Working Papers with number 0401.

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Length: 14 pages
Date of creation: 2004
Date of revision:
Publication status: Published in Journal of Economic Asymmetries, v.1 no.1 2004, pages 19-32.
Handle: RePEc:loi:wpaper:0401

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Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-12-20 (All new papers)
NEP-INT-2005-12-20 (International Trade)

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.:

Sven W. Arndt, 1997. "Globalization and the Open Economy," Working Papers 9701, Lowe Institute of Political Economy. [Downloadable!]
Other versions:
- Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79. [Downloadable!] (restricted)
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!]
Other versions:
- Feenstra, Robert C, 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. [Downloadable!] (restricted)
Kohler, Wilhelm, 2001. "A specific-factors view on outsourcing," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 31-53, March. [Downloadable!] (restricted)
David Greenaway & Chris Milner, 2003. "Effective Protection, Policy Appraisal and Trade Policy Reform," The World Economy, Blackwell Publishing, vol. 26(4), pages 441-456, 04. [Downloadable!] (restricted)
Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May. [Downloadable!] (restricted)
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)
Other versions:
- Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
Kym Anderson, 2003. "Measuring Effects of Trade Policy Distortions: How Far Have We Come?," The World Economy, Blackwell Publishing, vol. 26(4), pages 413-440, 04. [Downloadable!] (restricted)
Other versions:
- Anderson, Kym, 2002. "Measuring Effects of Trade Policy Distortions: How Far Have We Come?," CEPR Discussion Papers 3579, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

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