The Bazaar Effect, Unbundling of Comparative Advantage, and Migration
48 Pages Posted: 7 Mar 2007
Date Written: February 2007
Abstract
Germany exhibits a strong reduction in domestic manufacturing production depth (bazaar effect). I argue that this reflects an unbundling of comparative advantage. Using a model where Ricardian plus Heckscher-Ohlin-type comparative advantage relates to fragments of production, I compare a trading equilibrium where all fragments are located within a country with an equilibrium where input sub-bundles may be traded (offshoring). The model allows for several goods and two fragments, produced with high-skilled and low-skilled labor. I address wage and welfare effects under flexible wages, and under a minimum wage. I also explore trade policy implications and compare offshoring to migration.
Keywords: comparative advantage, offshoring, outsourcing, globalization, migration
JEL Classification: F11, F16, F22
Suggested Citation: Suggested Citation
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