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Gains from Trade and Fragmentation

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  • Alan Deardorf

    (University of Michigan)

Abstract

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.

Suggested Citation

  • Alan Deardorf, 2005. "Gains from Trade and Fragmentation," Working Papers 543, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:543
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    File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r543.pdf
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    References listed on IDEAS

    as
    1. Deardorff, A.V., 1998. "Fragmentation Across Cones," Working Papers 427, 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. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
    4. Carsten Kowalczyk, 1992. "Paradoxes in integration theory," Open Economies Review, Springer, pages 51-59.
    5. Horn, Henrik & Levinsohn, James, 2001. "Merger Policies and Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 111(470), pages 244-276, April.
    6. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, pages 15-32.
    7. 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.
    8. Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, pages 121-137.
    9. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," Review of Economic Studies, Oxford University Press, vol. 24(1), pages 11-32.
    10. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, pages 135-146.
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    Cited by:

    1. Jae-won Jung & Jean Mercenier, 2008. "A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare," THEMA Working Papers 2008-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Jae-won Jung & Jean Mercenier, 2008. "A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare," THEMA Working Papers 2008-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. Jung, Jaewon & Mercenier, Jean, 2014. "On modeling task, skill and technology upgrading effects of globalization with heterogeneous labor," Economic Modelling, Elsevier, vol. 39(C), pages 49-62.
    4. Dean, Judith M. & Lovely, Mary E. & Mora, Jesse, 2009. "Decomposing China-Japan-U.S. trade: Vertical specialization, ownership, and organizational form," Journal of Asian Economics, Elsevier, pages 596-610.
    5. Alicia Garcia-Herrero, 2015. "Determinants of Trade in Parts and Components: An Empirical Analysis," Working Papers 1524, BBVA Bank, Economic Research Department.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade

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