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Expansion of Trade at the Extensive Margin: A General Gains-from-Trade Result and Illustrative Examples

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  • Markusen, James R.

Abstract

The basic gains-from-trade theorem makes a stark comparison between completely free trade and complete autarky. This paper is motivated by recent evidence that trade has greatly expanded on the extensive margin (aka fragmentation, offshoring) by adding newly traded goods and services and that much of this new trade is in intermediates. I provide an extension of existing gains-from-trade results by allowing trade in an added set of final and/or intermediate goods. As seems generally understood, a sufficient condition for all countries to gain from fragmentation is that the relative world prices of initially-trade goods don't change. However, trade costs break the strict link between domestic and world prices in my approach and this results in interesting subtleties as initially-traded goods change their trade status following fragmentation. I illustrate these results by applying them to two recent and quite specific formulations of expansion at the extensive margin: Grossman and Rossi-Hansberg (2008) and Markusen and Venables (2007). Symmetry in two senses results in gains for all countries: countries are relatively symmetric in size and the newly-traded goods are relatively symmetric in their factor intensities with respect to the world endowment ratio.

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  • Markusen, James R., 2010. "Expansion of Trade at the Extensive Margin: A General Gains-from-Trade Result and Illustrative Examples," CEPR Discussion Papers 7802, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7802
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    Cited by:

    1. Hartmut Egger & Udo Kreickemeier & Jens Wrona, 2017. "Offshoring Domestic Jobs," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 2, pages 27-70 World Scientific Publishing Co. Pte. Ltd..
    2. 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.
    3. Türkcan, Kemal, 2014. "Investigating the Role of Extensive Margin, Intensive Margin, Price and Quantity Components on Turkey’s Export Growth during 1998-2011," MPRA Paper 53292, University Library of Munich, Germany.
    4. Cletus C. Coughlin, 2012. "Extensive and intensive trade margins: a state-by-state view," Working Papers 2012-002, Federal Reserve Bank of St. Louis.
    5. Wilhelm Kohler & Jens Wrona, 2010. "Offshoring Tasks, yet Creating Jobs?," CESifo Working Paper Series 3019, CESifo Group Munich.
    6. Kenji Suganuma, 2016. "Upstreamness in the Global Value Chain: Manufacturing and Services," IMES Discussion Paper Series 16-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    7. Coughlin, Cletus C. & Bandyopadhyay, Subhayu, 2014. "Determinants of trade margins: insights using state export data," Working Papers 2014-6, Federal Reserve Bank of St. Louis, revised 18 Nov 2015.
    8. Coughlin, Cletus C. & Bandyopadhyay, Subhayu, 2017. "Truncated Firm Productivity Distributions and Trade Margins," Working Papers 2017-18, Federal Reserve Bank of St. Louis.

    More about this item

    Keywords

    extensive margin; fragmentation; offshoring; trade in tasks; vertical specialization;

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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