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Trade and Protection with Multistage Production

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  • Avinash K. Dixit
  • Gene M. Grossman

Abstract

This paper analyzes trade in manufactured goods that are produced via a vertical production structure with many stages, where some value is added at each to an intermediate product to yield a good-in-process ready for the next stage. We consider the stage at which a good is traded to be an economically endogenous variable, with comparative advantage determining the pattern of production specialization by stages across countries. We study how endowment changes and policy shifts move the margin of comparative advantage, which thus provides a channel for resource allocation adjustment that is additional to the usual ones of factor substitution and changes in the quantity of output.

Suggested Citation

  • Avinash K. Dixit & Gene M. Grossman, 1981. "Trade and Protection with Multistage Production," NBER Working Papers 0794, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0794
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    References listed on IDEAS

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    1. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
    2. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
    3. Bhagwati, Jagdish N. & Srinivasan, T. N., 1973. "The general equilibrium theory of effective protection and resource allocation," Journal of International Economics, Elsevier, vol. 3(3), pages 259-281, August.
    4. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 203-224.
    5. Bela Balassa, 1965. "Tariff Protection in Industrial Countries: An Evaluation," Journal of Political Economy, University of Chicago Press, vol. 73, pages 573-573.
    6. Robert D. Waene, 1971. "Intermediate Goods in International Trade with Variable Proportions and Two Primary Inputs," The Quarterly Journal of Economics, Oxford University Press, vol. 85(2), pages 225-236.
    7. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    8. W. M. Corden, 1966. "The Structure of a Tariff System and the Effective Protective Rate," Journal of Political Economy, University of Chicago Press, vol. 74, pages 221-221.
    9. Pack, Howard, 1976. "The Substitution of Labour for Capital in Kenyan Manufacturing," Economic Journal, Royal Economic Society, vol. 86(341), pages 45-58, March.
    10. Woodland, A D, 1977. "Joint Outputs, Intermediate Inputs and International Trade Theory," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 517-533, October.
    11. Gene M. Grossman, 1981. "The Theory of Domestic Content Protection and Content Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 96(4), pages 583-603.
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