The Distributional Effects of International Fragmentation

Kohler Wilhelm
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Kohler Wilhelm: Johannes Kepler University,Linz, Austria

German Economic Review, 2003, vol. 4, issue 1, 89-120

Abstract: Economic globalization causes an increasing international fragmentation (disintegration) of value-added chains, whereby firms outsource components of production to foreign markets. There is a high level of concern about unwelcome distributional effects. This paper provides a theoretical treatment of this issue within a general Heckscher-Ohlin framework, allowing for an arbitrary number of goods, factors, and fragments. It shows how a fragmented production equilibrium is disturbed by lower costs of fragmentation, and it introduces the concept of effective prices of fragments to derive general results that characterize the distributional consequences of an increase in international fragmentation occurring simultaneously in several industries.

Keywords: International trade; income distribution; outsourcing; international fragmentation (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1111/1468-0475.00074

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