Fragmentation in simple trade models

Alan Deardorff

Chapter 16 in Comparative Advantage, Growth, and the Gains from Trade and Globalization:A Festschrift in Honor of Alan V Deardorff, 2011, pp 165-181 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper examines the effects of “fragmentation,” defined as the splitting of a production process into two or more steps that can be undertaken in different locations but that lead to the same final product. Introducing the possibility of fragmentation into simple theoretical models of international trade, the paper finds the effects of fragmentation on national welfare, on patterns of specialization and trade, and on factor prices. Models examined include the Ricardian Model and the Heckscher-Ohlin Model, both for small open economies and for a two-country world. Results are as follows: 1. If fragmentation does not change the prices of goods, then it must increase the value of output of any country where it occurs and that of the world. 2. If fragmentation does change prices, then fragmentation can lower the welfare of a country by turning its terms of trade against it. 3. Even in a country that gains from fragmentation, it is possible (but not necessary) that some factor owners within that country will lose. 4. To the extent that factor prices are not equalized internationally in the absence of fragmentation, fragmentation may be a force toward factor price equalization. © 2001 Elsevier Science Inc. All rights reserved.

Keywords: Comparative Advantage; Trade And Growth; Globalization; Computational Modeling; Trade Policy Analysis (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Fragmentation in simple trade models (2001)
Working Paper: Fragmentation in Simple Trade Models (1998)
Working Paper: Fragmentation in Simple Trade Models (1998)
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