Aspects of International Fragmentation
The paper uses a specific-factors framework to address efficiency and distributional implications of international fragmentation which is driven by a foreign location advantage due to a low wage rate. Focusing on the cost-savings linkage between fragmentation and labor demand in the remaining domestic activities, I establish a fragmentation surplus which is familiar to the immigration surplus. However, if the capital which is specific to the fragment produced abroad is an indivisible asset, then fragmentation may cause a domestic welfare loss, because outsourcing takes place in discrete steps where it affords firms "quasi-market-power" on the domestic labor market. The regime shift from purely domestic production to fragmentation is modeled as a two-stage game. In the first stage firms locate their indivisible assets at home or abroad, and in the second they choose optimal employment. The share of fragmented firms is endogenously determined. The paper explores the conditions determining whether the process of fragmentation caused by less costly outsourcing is beneficial for the domestic economy.
|Date of creation:||May 2002|
|Date of revision:|
|Note:||Fortcoming in Review of International Economics.|
|Contact details of provider:|| Fax: +43 732-2468-8238|
Web page: http://www.econ.jku.at/
More information through EDIRC
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.:
- Dani Rodrik, 1998. "Symposium on Globalization in Perspective: An Introduction," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 3-8, Fall.
- Robert C. Feenstra & Gordon H. Hanson, 1995.
"Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras,"
NBER Working Papers
5122, National Bureau of Economic Research, Inc.
- 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.
- Arndt, Sven W. & Kierzkowski, Henryk (ed.), 2001. "Fragmentation: New Production Patterns in the World Economy," OUP Catalogue, Oxford University Press, number 9780199243310, March.
- Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April.
- 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.
- Markusen, James R., 2002.
"Multinational Firms and the Theory of International Trade,"
8380, University Library of Munich, Germany.
- James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
- Feenstra, R.C. & Hanson, G.H., 1995.
"Foreign Investment, Outsourcing and Relative Wages,"
Department of Economics
95-14, California Davis - Department of Economics.
- Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
- Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
- Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
- Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001.
"The nature and growth of vertical specialization in world trade,"
Journal of International Economics,
Elsevier, vol. 54(1), pages 75-96, June.
- 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.
- 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.
- Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 89-120, February.
- Deardorff, A.V., 1998.
"Fragmentation Across Cones,"
427, Research Seminar in International Economics, University of Michigan.
- Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
- Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
When requesting a correction, please mention this item's handle: RePEc:jku:econwp:2002_08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ren� B�heim)
If references are entirely missing, you can add them using this form.