Factor Price Frontiers with International Fragmentation of Multistage Production

I develop a generalized factor price frontier which incorporates endogenous adjustment of international fragmentation in multistage production, allowing for a continuum of stages. This allows us to address fragmentation, not only as an exogenous event, but also as an integral part of endogenous adjustment to a variety of changes not directly related to fragmentation. A two-dimensional general equilibrium analysis explores how the margin of fragmentation, as well as factor prices, respond to a change in the final output price, and to an improvement in the "technology of fragmentation". A key distinction arises between the "average" and "marginal" labour intensity, respectively, of domestic production in the multistage industry. The paper identifies conditions under which outsourcing to a low-wage country is a "friend" or an "enemy" to domestic labour, as well as conditions under which the Jonesian magnification e.ects underlying the Stolper-Samuelson theorem are reinforced, or mitigated, by endogenous changes in the margin of fragmentation. Protection may result in a broader or a narrower range of stages produced domestically.

The Distributional Effects of International Fragmentation

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.

A specific-factors view on outsourcing

A distinctive feature of the present wave of economic globalization is that the principle of world-wide arbitrage is increasingly applied to individual components of value added chains, rather than final goods. The result is a phenomenon called outsourcing, or international fragmentation. Economists have investigated this phenomenon with a focus on welfare and factor price effects, mainly using Heckscher-Ohlin-type trade models. Existing studies emphasize a positive welfare effect of international fragmentation, but reveal ambiguous effects on factor prices. This paper first reviews existing literature, identifying the crucial modeling differences that drive the differing results. It then presents an alternative view on international fragmentation based on the specific fators model, instead of the Heckscher-Ohlin model. The analysis explicitly deals with the cost of international fragmentation, emphasizing that there will typically be a fixed cost element, with important consequences for the welfare efect of outsourcing. Moreover, the paper highlights a crucial distinction between outsourcing that takes place in an environment where firms may entertain foreign direct investment, and international fragmentation without capital mobility where firms must rely on arms-length trasactions. The results are as follows. a) With foreign direct investment, outsourcing which is driven by a low foreign wage unambiguously depresses the domestic wage rate. Outsourcing of a single fragment is sufficient to drive the domestic wage rate to the foreign level, adjusted for the cost of fragmentation. This holds irrespective of the factor intensity ranking of fragments. b) If outsourcing takes place without foreign direct investment, then the factor intensity ranking matters. Domestic labor loses if a labor intensive fragments moves "offshore", and vice versa. c) In both cases, international fragmentation may cause awelfare loss if te costs of fragmentation includes a fixed element.

Factor price frontiers with international fragmentation of multistage production

This paper investigates international fragmentation in a modeling framework where the multi-stage nature of industrial production is made explicitly, and where the engineering sequence of stages is juxtaposed with a sequence of increasing economic incentive for international fragmentation. Assuming that there are two tradable goods sectors, a multi-stage sector amenable to international fragmentation and a standard sector where production is always fully integrated in the domestic economy, I first explore the nature and shape of the domestic factor price frontier, endogenously determining the margin of international fragmentation under given world prices for the two goods. I then explore the consequences of an exogenous change in the terms of trade on the margin of international fragmentation, and the implications of a fall in the cost of transport and communication that facilitates an increasing degree of international fragmentation.international fragmentation, multi-stage production, factor price frontiers

Internationale Migration: Anmerkungen aus der Sicht der Aussenwirtschaftstheorie

Ausgangspunkt dieser Arbeit ist die Behauptung, dass der migrationspolitische Diskurs zu wenig auf die internationale Integration von Gütermärkten Bedacht nimmt. Die Debatte wird weitgehend arbeitsmarktökonomisch geführt, wobei der sogenannte "immigration surplus" für das Zuwanderungsland und die damit einhergehende Einkommensumverteilung im Zentrum stehen. Immigration ist ein Arbeitsangebotsschock, ihre Wirkungen hängen also entscheidend vom Verlauf der Arbeitsnachfragefunktion des Zuwanderungslandes ab. In dieser Arbeit wird gezeigt, dass die Arbeitsnachfragefunktion von Ländern, die über internationalen Handel in die Weltmärkte integriert sind, gänzlich anders verläuft, als jene von geschlossenen Ökonomien, wie sie in den Abhandlungen zum "immigration surplus" und den Verteilungswirkungen von Immigration typischerweise unterstellt werden. Sie weist flache Stellen auf, die den "immigration surplus" vereiteln können. Grössenvorteile können den "immigration surplus" erhöhen, bergen aber die Gefahr von negativen Wohlstandseffekten durch eine migrationsbedingte Reallokation der Faktoren. Die Erwartung eines "immigration surplus" bedingt flexible Löhne. Bei Lohnrigiditäten stellt sich die Immigration aus der Sicht der Zuwanderungslandes typischerweise wesentlich problematischer dar als bei perfekten Arbeitsmärkten. Auch hier zeigt sich jedoch, dass die internationale Gütermarktintegration einen entscheidenden Unterschied macht. Sie kann das Unterbeschäftigungsproblem als solches entweder lindern oder verschärfen. Existieren zwei Immigrationsländer mit unterschedlichen ARbeitsmarktinstitutionen (USA-Europa), so hat Immigration und Immigrationspolitik des Landes mit funktionierenden Arbeitsmärkten erhebliche Auswirkungen auf das Land mit rigiden Arbeitsmärkten.

International Fragmentation of Value-added Chains: How Does it Affect Domestic Factor Prices?

Economic globalization causes an increasing international fragmentation of value-added chains. A question often raised is whether such outsourcing affects domestic income distribution. The paper provides a theoretical treatment of this issue within a Heckscher-Ohlin framework. It extends beyond previous treatments by allowing for an arbitrary number of goods, factors, and fragments, and by formally specifying a "fragmentation technology". It defines a "margin of international fragmentation" and shows how this margin shifts in response to economic globalization. Factor prices are driven by associated changes in "effective prices" of individual fragments of the value-added chains.

Offshoring: Why Do Stories Differ?

This paper identifies critical modeling choices, as well as differences in the driving forces behind offshoring, that may explain differences in results. Offshoring of industry-specific tasks has wage and employment effects that are vastly different from those identified in Grossman & Rossi-Hansberg (2006), depending on how the industries differ in their average and marginal skill-intensities, respectively. Structural adjustment may occur at the intensive margin and the extensive margin (offshoring), and it may occur in opposite directions or the same direction at both margins, again depending on how industries differ in terms of their average and marginal skill-intensity.

The Eurosystem in Times of Crises: Greece in the Role of a Reserve Currency Country?

Schulden; Finanzmarktkrise; Euro; Schuldenkrise; Europäische Wirtschafts- und Währungsunion

Issues of US-EU Trade Policy

Comment on "Trade and Investment: An American Perspective" by G. Hufbauer and F. Neumann "Old and New Issues in EC-US Trade Disputes" by Andr� Sapir

Offshoring tasks, yet creating jobs?

The policy debate views offshoring as job destruction. Theoretical models of offshoring mostly assume full employment. We develop a model of task trade that allows for equilibrium unemployment. In this model, there are two margins of adjustment. At the extensive margin, moving tasks offshore destroys jobs. At the intensive margin, due to higher productivity of labor in domestic tasks it creates jobs. Exploring these conditions in detail, we identify the potential of non-monotonic adjustment: Early stages of offshoring always lead to higher unemployment, while later stages may entail net job creation. We highlight this potential through numerical simulations. --Offshoring,Trade in Tasks,Unemployment,Non-monotonicity