A Multi-Country Approach to Factor Proporations Trade and Trade Costs

James Markusen and Anthony Venables

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multi-stage production, and country-specific trade costs. We derive patterns of production specialization and trade for a matrix of countries that differ in relative endowments (columns) and trade costs (rows). We demonstrate how the ability to fragment production and/or a proportional change in all countries’ trade costs alters these patterns. Production specialization and the volume of trade are higher with fragmentation for most countries but interestingly, for a large block of countries, these variables fall following fragmentation. Countries with moderate trade costs engage in market-oriented assembly, while those with lower trade costs engage in export-platform production. These two cases correspond to the concepts of horizontal and vertical affiliate production in the literature on multinational enterprises. Increases in specialization and the volume of trade accelerate as trade costs go to zero with and without fragmentation. Classification-

Date: 2005-04-20
New Economics Papers: this item is included in nep-int
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Related works:
Working Paper: A Multi-Country Approach to Factor-Proportions Trade and Trade Costs (2005)
Working Paper: A Multi-Country Approach to Factor-Proportions Trade and Trade Costs (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:iis:dispap:iiisdp051

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