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International Fragmentation of Value-added Chains: How Does it Affect Domestic Factor Prices?

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  • Wilhelm Kohler

Abstract

Economic globalization causes an increasing international fragmentation of value-added chains. A question often raised is whether such outsourcing affects domestic income distribution. The paper provides a theoretical treatment of this issue within a Heckscher-Ohlin framework. It extends beyond previous treatments by allowing for an arbitrary number of goods, factors, and fragments, and by formally specifying a "fragmentation technology". It defines a "margin of international fragmentation" and shows how this margin shifts in response to economic globalization. Factor prices are driven by associated changes in "effective prices" of individual fragments of the value-added chains.

Suggested Citation

  • Wilhelm Kohler, "undated". "International Fragmentation of Value-added Chains: How Does it Affect Domestic Factor Prices?," EPRU Working Paper Series 01-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:01-03
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    References listed on IDEAS

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    Cited by:

    1. Dumont, Michel, 2004. "The Impact of International Trade with Newly Industrialised Countries on the Wages and Employment of Low-Skilled and High-Skilled Workers in the European Union," MPRA Paper 83525, University Library of Munich, Germany.

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