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Relocating the value chain: off-shoring and agglomeration in the global economy

Author

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  • Anthony J. Venables
  • Richard Baldwin

Abstract

Fragmentation of stages of the production process is determined by international cost differences and by the benefits of co-location of related stages. The interaction between these forces depends on the technological relationships between these stages. This paper looks at both cost minimising and equilibrium fragmentation under different technological configurations. Reductions in trade costs beyond a threshold can result in discontinuous changes in location, with relocation of a wide range of production stages. There can be overshooting (off-shoring that is reversed as costs fall further) and equilibrium may involve less off-shoring than is efficient.

Suggested Citation

  • Anthony J. Venables & Richard Baldwin, 2011. "Relocating the value chain: off-shoring and agglomeration in the global economy," Economics Series Working Papers 544, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:544
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    File URL: http://www.economics.ox.ac.uk/materials/papers/4956/paper544.pdf
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    Cited by:

    1. Córcoles, David & Díaz-Mora, Carmen & Gandoy, Rosario, 2014. "Product sophistication: A tie that binds partners in international trade," Economic Modelling, Elsevier, vol. 44(S1), pages 33-41.

    More about this item

    Keywords

    Fragmentation; Off-shoring; Parts and components; Assembly; Vertical linkages; Agglomeration;

    JEL classification:

    • F1 - International Economics - - Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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