A Trade Model of Intermediate Products With Transportation Cost

Kim Chong-Sup

International Economic Journal, 2002, vol. 16, issue 3, 97-113

Abstract: This paper presents a trade model of intermediate products where a country has the same production technology as the outside world, and the source of trade is the unbalance in the factor endowment. The decision as to how much to process the raw material before exporting depends on the capital requirements for the processing, and the change in transportation cost due to the processing. The lower the requirements of capital coupled with a more rapid fall in the transportation cost in the earlier stage of production, the more probable that the country will export the processed intermediate good instead of the raw material.

Date: 2002
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DOI: 10.1080/10168730200000023

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