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Gains from Trade and Fragmentation

  • Alan Deardorf

    (University of Michigan)

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    This paper discusses the welfare effects, on groups, countries, and the world, of fragmentation. Fragmentation here is defined as the introduction of a technology that permits a production process to be split into separate parts, with the fragments able to be done in different locations. Standard results of trade theory and the gains from trade are then examined to see what they suggest about the gains from fragmentation. The main points made are, first, that it is easy to find examples in which fragmentation hurts particular groups and countries, and even in some circumstances the world. But I also argue that fragmentation is likely to increase world income overall, and therefore that it is likely to be beneficial on average. Based on that, together with our general ignorance of what the more specific effects of fragmentation are likely to be, we should resist attempts to use policies to interfere with it.

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    File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r543.pdf
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    Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 543.

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    Length: 24 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:mie:wpaper:543
    Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
    Web page: http://fordschool.umich.edu/rsie/

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    1. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Working Papers 422, Research Seminar in International Economics, University of Michigan.
    2. James Markusen, 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," NBER Working Papers 11827, National Bureau of Economic Research, Inc.
    3. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
    4. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    5. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
    6. Brown, D.K. & Deardorff, A.V. & Stern, R.M., 1993. "Protection and Real Wages: Old and New Trade Theories and Their Empirical Conterparts," Working Papers 331, Research Seminar in International Economics, University of Michigan.
    7. Carsten Kowalczyk, 1992. "Paradoxes in integration theory," Open Economies Review, Springer, vol. 3(1), pages 51-59, February.
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