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The Distributional Effects of International Fragmentation

Economic globalization causes an increasing international fragmentation (disintegration) of value-added-chains, whereby firms outsource components of production to foreign markets. There is a high level of concern about unwelcome distributional effects. This paper provides a theoretical treatment of this issue within a general Heckscher-Ohlin framework, allowing for an arbitrary number of goods, factors, and fragments. It shows how a fragmented production equilibrium is disturbed by lower costs of fragmentation, and it introduces the concept of effective prices of fragments to derive general results that characterize the distributional consequences of an increase in international fragmentation occurring simultaneously in several industries.

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File URL: http://www.econ.jku.at/papers/2002/wp0201.pdf
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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2002_01.

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Date of creation: Apr 2002
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Handle: RePEc:jku:econwp:2002_01
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  1. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
  2. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  3. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  4. 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.
  5. Paul A. Samuelson, 2001. "A Ricardo-Sraffa Paradigm Comparing Gains from Trade in Inputs and Finished Goods," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1204-1214, December.
  6. 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.
  7. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
  8. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
  9. Görg, Holger, 2000. "Fragmentation and trade : US inward processing trade in the EU," Open Access Publications from Kiel Institute for the World Economy 2491, Kiel Institute for the World Economy (IfW).
  10. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  11. 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.
  12. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  13. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, June.
  14. Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 197-209, May.
  15. Deardorff, A.V., 1998. "Fragmentation Across Cones," Working Papers 427, Research Seminar in International Economics, University of Michigan.
  16. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  17. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
  18. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  19. Wilfred J. Ethier, 1977. "The Theory of Effective Protection in General Equilibrium: Effective-Rate Analogues of Nominal Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 233-45, May.
  20. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
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