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

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  • Tony Venables
  • Richard Baldwin

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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 544.

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Date of creation: 01 Mar 2011
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Handle: RePEc:oxf:wpaper:544

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Keywords: Fragmentation; Off-shoring; Parts and components; Assembly; Vertical linkages; Agglomeration;

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  1. 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.
  2. 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.
  3. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  4. Baldwin, Richard & Robert-Nicoud, Frédéric, 2014. "Trade-in-goods and trade-in-tasks: An integrating framework," Journal of International Economics, Elsevier, vol. 92(1), pages 51-62.
  5. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
  6. 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.
  7. 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.
  8. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
  9. 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.
  10. Arndt, Sven W. & Kierzkowski, Henryk (ed.), 2001. "Fragmentation: New Production Patterns in the World Economy," OUP Catalogue, Oxford University Press, number 9780199243310, September.
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Cited by:
  1. Richard Baldwin, 2010. "Unilateral Tariff Liberalisation," NBER Working Papers 16600, National Bureau of Economic Research, Inc.
  2. Hillberry, Russell & Hummels, David, 2013. "Trade Elasticity Parameters for a Computable General Equilibrium Model," Handbook of Computable General Equilibrium Modeling, Elsevier.
  3. 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.
  4. Timmer, Marcel & Stehrer, Robert & Los, Bart & Vries, Gaaitzen J. de, 2012. "Fragmentation, Incomes and Jobs. An analysis of European competitiveness," GGDC Research Memorandum GD-130, Groningen Growth and Development Centre, University of Groningen.
  5. 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.

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