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International Fragmentation: A Policy Perspective



International fragmentation, or outsourcing, is often referred to as a distinctly novel feature in today's global economy. First observed in the US-Mexican context, the phenomenon is increasingly catching policy makers' attention also in Europe. As barriers between east and west are progressively removed, low wage countries in eastern Europe are likely outsourcing targets for western European firms. Against this background this paper provides a policy-oriented discussion of cross-border fragmentation. It starts with a precise definition of the phenomenon, putting it into the broader perspective of economic globalization. It then uses simple graphical tools to address, in a general way, several questions that appear relevant from western European point of view. Specifically, the paper idetifies conditions under which outsourcing is beneficial for a western country as a whole, and it highlights the internal redistributive effects associated with this gain. It then argues that preferential trading arrangements are formidable fragmentation barriers, particularly in Europe where a multiplicity of such arrangements has led to complex rules of origin. The efficiency loss from such barriers should provide a strong additional cause for a multilateral, as opposed to a regional, approach to trade liberalization.

Suggested Citation

  • Wilhelm Kohler, 2000. "International Fragmentation: A Policy Perspective," Economics working papers 2000-19, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2000_19

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    References listed on IDEAS

    1. Homburg, Stefan, 1993. "Eine Theorie des Länderfinanzausgleichs: Finanzausgleich und Produktionseffizienz," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 458-486.
    2. Feld, Lars P. & Kirchgassner, Gebhard, 2001. "Income tax competition at the State and Local Level in Switzerland," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 181-213, April.
    3. Friedrich Schneider, 1999. "Die Entwicklung der Sozialpolitik in repräsentativen und in direkten Demokratien: Königsweg oder Sackgasse? Einige Bemerkungen aus der "Public Choice"-Perspektive," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 135(III), pages 387-406, September.
    4. Homburg, Stefan, 1994. "Anreizwirkungen des deutschen Finanzausgleichs," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 312-330..
    5. Homburg, Stefan, 1996. "Notwendigkeit einer Finanzreform," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1949 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 76(7), pages 336-338.
    6. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June.
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    Cited by:

    1. Egger, Hartmut & Egger, Peter, 2001. "Cross-border sourcing and outward processing in EU manufacturing," The North American Journal of Economics and Finance, Elsevier, vol. 12(3), pages 243-256, November.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F19 - International Economics - - Trade - - - Other


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